PepsiCo Rating Downgraded by TD Cowen

Analysts at TD Cowen have downgraded PepsiCo's rating to "Hold" and reduced their price target for the company.

In their note to clients, the analysts indicated that Pepsi's shift towards aggressive pricing for salty snacks, carbonated beverages, and sports drinks has diminished its appeal as a low-cost option. Prices in these segments have surged by 41% since 2021, compared to the grocery store average of 25%.

The analysts predict that this pricing imbalance will pose various challenges:
– In salty snacks, negative pricing is expected.
– In carbonated beverages, volume pressure from price elasticity is anticipated.

These trends are expected to weaken Pepsi's pricing power in the near term, prompting a reduction in their organic growth forecasts to 1.9% for the current fiscal year and 3% for 2025.

Additionally, the expected promotional efforts within Pepsi's Frito-Lay division, which includes brands like Tostitos and Ruffles, are deemed insufficient to enhance overall volume trends significantly.

The analysts noted that Pepsi’s competitive stance in North America’s beverage market has diminished, forecasting market share losses and volume declines for the next year.

This analysis follows Pepsi's announcement of a cut in its annual sales forecast, indicating a shift where cost-conscious consumers are choosing less expensive private-label brands.

Pepsi now anticipates organic sales growth in the low single-digit range for 2024, a drop from an earlier projection of 4% growth.

CEO Ramon Laguarta highlighted that the combined effects of inflationary pressures and increased borrowing costs have been detrimental to consumer budgets and spending trends. Moreover, Pepsi reported an unexpected decline in third-quarter revenue, primarily due to reduced demand in its Quaker Foods segment, which faced issues related to product recalls earlier this year.

Reporting contributed by Reuters.