PepsiCo warns higher fuel prices will drive inflation

USA – PepsiCo has warned that higher fuel prices are expected to increase inflationary pressures during the second half of its financial year, as slowing consumer spending weighed on its North American business despite strong growth across international markets. 

The food and beverage giant said it expects “higher input cost inflation” during the remainder of the year compared with the first six months. However, the company added that productivity initiatives and tariff refund claims are expected to offset “a good portion” of the increased costs. 

The company’s second-quarter results highlighted a widening gap between its mature North American operations and its faster-growing international markets. In North America, sales volumes in PepsiCo’s snacks business remained flat during the three months ended June 13. Price reductions introduced to stimulate demand contributed to a 2 percent decline in organic revenue for the division. 

Chief Executive Officer Ramon Laguarta said consumer spending remained under pressure during the quarter. 

“Results were tempered in the quarter as US food and beverage category performance moderated with consumer budgets tightening due to rising inflationary pressures,” Laguarta said. 

During a conference call with analysts, Laguarta added that fuel prices remain a key factor influencing consumer spending. 

“The near-term outlook for the US all depends on the price of gas, so that’s clearly something that is beyond our control,” he said. 

Despite softer conditions in the United States, Laguarta said PepsiCo’s international markets continued to perform strongly. 

“Our international markets have remained very resilient,” he said, highlighting stronger-than-expected performance across the Middle East, Vietnam, Thailand, China and Europe despite higher fuel prices linked to the conflict involving Iran. 

Reported revenues from PepsiCo’s businesses outside North America increased by at least 10 percent across all international divisions during the quarter, while sales volumes remained stable or improved. 

Overall, PepsiCo reported a 6.4 percent increase in second-quarter revenue to US$24.2 billion, exceeding Wall Street expectations. Net income rose to nearly US$3 billion, broadly matching analysts’ forecasts. 

The company noted that demand in its US snacks business had improved during the first quarter after reducing prices by up to 15 percent ahead of February’s Super Bowl.  

PepsiCo also acknowledged broader industry challenges, including changing consumer preferences away from processed foods and the growing adoption of GLP-1 weight-loss medications, which have affected demand for packaged food products. 

Despite these headwinds, the company reaffirmed its full-year outlook, forecasting organic revenue growth of between 2 percent and 4 percent and earnings per share growth of between 4 percent and 6 percent. 

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