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For the first time since 4Q20, PepsiCo (PEP) fell short of EPS expectations in 1Q25, underscoring how challenging conditions have become for the beverage and snack food giant. For the third consecutive quarter, PepsiCo Foods North America (PFNA), which houses the Frito-Lay brand, posted both organic revenue and volume declines. Ongoing softness in consumer demand and value-conscious shopping behavior -- especially in the savory snack category -- continues to weigh on Frito-Lay. Compounding the issue, PEP is anticipating an increase in supply chain costs due to tariffs and global trade developments, causing it to lower its FY25 core constant currency EPS growth forecast to flat from its prior outlook of mid-single-digit growth.

• Organic revenue and volume both dipped lower by 1% for PepsiCo Foods North America, driven by subdued demand across the Frito-Lay portfolio. A variety of headwinds are pressuring demand here, including persistently high inflation that's squeezing consumer budgets, leading shoppers to cut back on discretionary purchases like salty snacks or switch to less expensive private-label brands. Also, declining foot traffic in convenience stores -- a channel that represents about 21% of Frito-Lay's net sales -- has been a strong headwind, while a growing focus on health and nutrition among consumers is also a factor.
• There are some pockets of strength. For instance, Quaker Foods delivered solid double-digit organic revenue growth, rebounding sharply from the prior year's recall impact. Additionally, select convenient food brands like Chester's, Miss Vickie's, and Gamesa delivered net revenue growth in Q1.
• Turning to PepsiCo Beverages North America (PBNA), organic revenue edged higher by 1% despite a 3% drop in volume, thanks to PEP's strategic pricing initiatives. Non-carbonated drinks were a laggard with volume down by 6%, but strength in the Pepsi brand, which gained share in the carbonated soft drinks category, helped to offset the weakness. The successful national rollout of Mountain Dew Baja Blast also provided a boost. 
• Although PBNA is facing pressures from higher supply chain and input costs, its pricing and productivity initiatives are helping it to overcome those obstacles. Specifically, PEP has implemented a multi-year program that leverages automation, standardization, and data analytics to drive savings. As a result, PBNA's operating profit grew by 24% on a core constant currency basis.
• From a revenue growth standpoint, the International Beverages Franchise stood out again as a 5% increase in volume drove net revenue higher by 3%, despite a significant 5 percentage point FX headwind. Brand expansion with an emphasis on global growth for PEP's core brands (Lay's, Cheetos, Doritos, Pepsi, Gatorade) is a key component of PEP's international growth strategy.

PEP delivered subdued Q1 results that featured a 4% drop in core constant currency EPS and modest organic revenue growth of 1.2%. Soft consumer demand, especially in the Frito-Lay snack business, new tariffs, and rising supply chain costs are combining to create a challenging business climate, prompting PEP to lower its FY25 EPS outlook to flat growth. The International segment remains a bright spot, delivering healthy organic revenue growth of 11%.