PepsiCo (PEP) is starting to feel the pinch.
Last quarter U.S. consumers balked at its high prices and its Quaker division was a disaster, plagued by recalls and plant shutdowns.

This quarter investors will be watching for improvement in its flailing oatmeal and Gatorade division -- it blamed weakness on weather for its sports drink last quarter. Investors will also be tuned in to signs of purchasing power from PEP's domestic consumer base.

Performance

Last quarter PepsiCo exceeded earnings expectations with an EPS of $1.61 and revenue of $18.25 billion. However, U.S. demand weakened due to consumer pushback against higher prices and Quaker Oats recalls, leading to a 2% drop in share value. Higher prices resulted in a 5% drop in beverage volume and a 2% decline in Frito-Lay North America's volume.

The stock is down -11% YoY, a stark change in trajectory from 3 consecutive years of post-covid gains and reflective of the state of the consumer amid rampant inflation. This perhaps is the best canary in the coalmine for consumer health -- can the average person afford to keep buying bags of Doritos?

On its last call, management noted the obvious strain among low income consumers:

"The lower income consumer in the U.S. is stretched, is making a lot of — he is strategizing a lot to make their budgets get to the end of the month. And that’s a consumer that is choosing what to buy, where to buy and making a lot of choices."
PepsiCo is trying to overcome this weakened demand with advertising. But without a value meal, like the one McDonald's just introduced, will it really make headway?

This section is restricted to LikeFolio Pro Members only.