PepsiCo says economic concerns weighed on customers in North American during recent quarter

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NEW YORK (AP) — PepsiCo reported stronger-than-expected revenue in the second quarter despite weaker demand in North America, where it said consumers tightened their budgets as the Iran war caused gas prices to spike.

“I think the consumer is worse than what we had anticipated, and it’s driven mainly by gas prices,” PepsiCo CEO Ramon Laguarta said Thursday during a conference call with investors.

PepsiCo's shares fell 4% in morning trading Thursday.

The food and beverage giant said its net revenue rose 6.4% to $24.2 billion for the April-June period. That was better than the $23.9 billion Wall Street expected, according to analysts polled by FactSet.

PepsiCo began cutting prices on value brands like Santitas last year as U.S. customers grew increasingly exasperated after years of price hikes. In February, ahead of the Super Bowl, PepsiCo slashed U.S. prices on Lay’s, Doritos, Cheetos and Tostitos chips by up to 15%, which boosted snack demand in the first quarter.

But in the second quarter, as gas prices rose, PepsiCo’s snack sales volumes were flat in North America, while its beverage volumes fell 4%. Laguarta said impulse purchases at gas stations and convenience stores were particularly hard hit.

Laguarta said the company is working with those stores to entice customers with more affordable pack sizes and meal bundles.

“Will it change in the coming months? It all depends on the price of gas. So clearly that’s something that is beyond our control,” Laguarta said.

Americans’ attitudes toward the economy have improved slightly as gas prices declined, but their outlook remains mostly negative. And hostilities in Iran have begun to escalate again, driving gasoline prices higher over the past two days.

Sales were stronger overseas, and its overall snack volumes rose 3% while beverage volumes rose 2%. World Cup -themed products, including limited-edition Lay's flavors like Portuguese Chorizo and Onion, boosted sales, particularly in Europe, the company said.

PepsiCo, based in Purchase, New York, said it will continue to invest in making its products more affordable. The company is also trying to meet consumer demand for healthier products. In March it introduced Doritos Protein and Gatorade Lower Sugar, which has no artificial flavors or colors.

The company said it's working with retailers to add shelf space for its products, which should help boost sales in the second half of this year.

Net income more than doubled in the second quarter to $2.98 billion. Adjusted for one-time items, the company earned $2.20 per share, ahead of analysts' forecast of $2.19.