PepsiCo Inc tempered its full-year outlook Thursday due to economic uncertainty, sending its shares down more than 5 percent.
The maker of Pepsi-Cola, Frito-Lay snacks and Quaker oatmeal said performance in its North American beverage business was worse than it expected, due to weakened consumer demand and intensifying competition, which has made it difficult to raise prices to offset soaring commodity costs.
"Of the three factors impacting North America beverages — inflation, consumer demand and pricing — the consumer demand picture is the most concerning to us at this point," Chief Executive Indra Nooyi told analysts on a conference call.
"In fact, the modest pickup in total consumer spending almost all U.S. businesses saw earlier in the year has reversed in the past several months."
The pain was more acute in the beverage business than the food business, Nooyi said, because consumers have a host of cheaper things to drink, including tap water. That pullback in demand, along with a lack of large price increases from rival Coca-Cola Co, led Pepsi to delay its own price increases, since that would further hurt demand.
The company raised prices on July 11, and said the benefit would be felt more in the fourth quarter than the current third quarter.
Morningstar analyst Philip Gorham said he was not surprised that Pepsi adjusted its outlook.
"This isn't going to be unusual. People are going to recognize that the third and fourth quarters are going to be more challenging than the first half of the year," Gorham said.
The company now expects 2011 earnings to grow at a high single-digit rate, from the $4.13 per share it earned in 2010. The new forecast includes a 2 percentage-point boost from foreign exchange rates. Its prior target, for growth of 7 to 8 percent, did not include that boost.
The company said the new goal reflects greater uncertainty regarding macroeconomic and consumer trends for 2011, high global commodity cost inflation and ongoing investments in emerging markets and brand building.
PepsiCo shares fell $3.47, or about 5 percent, to $65.01 in late morning trading on the New York Stock Exchange.
Net income in the second quarter that ended June 11, rose to $1.89 billion, or $1.17 per share, from $1.60 billion, or 98 cents per share a year earlier.
Excluding one-time items, earnings were $1.21 per share, matching analysts' average estimate, according to Thomson Reuters I/B/E/S.
Net revenue jumped about 14 percent to $16.83 billion. Analysts were expecting $16.4 billion.
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