On Tuesday, Pepsi Co Inc (NASDAQ:PEP) showed it managed to navigate weaker U.S. demand that was the result of Quaker Oats recalls and backlash to higher prices for its drinks and snacks. But despite delivering better than expected earnings and revenue for its first quarter, Pepsi shares dipped about 2% upon the report as Wall Street watched at other things, such as a struggling domestic market.

First quarter highlights

For the quarter ended on March 23rd, Pepsi reported that revenue grew 2.3% to $18.25 billion, surpassing LSEG’s estimate of $18.07 billion. When acquisitions, divestitures and foreign exchange are put aside, organic revenue rose 2.7%.

Pepsi earned a net income attributable to the company of $2.04 billion while adjusted earnings per share of $1.61 also surpassed LSEG’s estimate of $1.52.

Volume is still under pressure.

Stripping out pricing and currency changes to truly reflect demand, the beverage segment reported flat volume while food division saw its volume decrease 0.5%. Besides higher prices pressuring volume, recalls of Quaker Foods cereals and bars only worsened the problem by denting the organic volume by about 1%. The recall due to potential salmonella contamination was first issued in December, and then it got further widened in January. The production at the plant tied to recalls has already ceased but Pepsi will close it in June. As a result, the North American Quaker Food division’s volume plummeted 22%. 

The domestic market is struggling the most. 

North American divisions reported declines across unit. The beverage unit contracted 5%, followed by Frito-Lay’s 2% decline. But, the situation seems brighter outside the U.S. Asia-Pacific, Australia, New Zealand and China region reported snacks volume grew 12%, while Europe reported beverage volumes increased 7%, followed by a 2% rise in snack volumes. 

Pepsi reiterated its full year outlook.

For 2024, Pepsi guided for organic revenue growth of at least 4% along with a rise of at least 8% of core constant currency earnings per share.

Pepsi continues to fight for market share, along with its rivals like The Coca Cola Company (NYSE:KO). On Tuesday, Coca Cola unveiled it entered into five-year strategic partnership with no other than Microsoft Corporation (NASDAQ:MSFT). Together, Coca Cola and Microsoft will work to accelerate cloud and generative AI development. Under the agreement, Coca Cola committed $1.1 billion. Coca Cola will take advantage of the Copilot that Microsoft 365 developed to boost workplace productivity. More importantly, Coca Cola gained the opportunity to use AI solutions that Microsoft is heavily betting on in order to boost innovation across all of its business areas, so Pepsi should watch its back as the famous taste battle is about to expand to new fronts and across new dimensions.

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