PepsiCo (PEP, Financial) is experiencing ongoing stock price challenges after reporting declining volumes in North America for Q4. Despite a 1% increase in consolidated volumes across its food and beverage lines, stagnation in North American trends overshadowed this positive outcome.

In PepsiCo Beverages North America, volumes dropped by 3% for the third consecutive quarter, with no positive growth since 3Q22. Similarly, Frito-Lay North America saw a 3% decline in Q4, worsening from a 1.5% decrease in the previous quarter. Frito-Lay has not reported positive volume growth since 2Q23.

Shares of PEP have been in a prolonged correction, declining by 13% since the last quarter, as investors anticipated a more favorable report. Consequently, PEP is nearing four-year lows reached last month.

• Challenges Facing PEP: Frito-Lay's performance is a significant concern. Although PEP made investments to enhance consumer value and availability, improving volume trends sequentially, it couldn't sustain this momentum in Q4, surprising the market.
• CEO Ramon Laguarta noted some positive trends due to these investments, such as gradual growth in the snack food category and a focus on the away-from-home market. PEP is also exploring new price partitions like sub-$1 and sub-$2 markets and ensuring a diverse product range to cater to different income households.
• Despite optimism about Frito-Lay, management remains cautious due to volatile global markets. While unemployment is low and inflation is easing, geopolitical tensions pose risks. PEP's guidance projects low-single-digit organic revenue growth and mid-single-digit core constant currency EPS growth for FY25.

After a slowdown in Frito-Lay in 2024, PEP aims to stabilize the category in 2025. In North American beverages, the focus is on margin expansion and top-line growth through innovations like "zero sugar" options and new Gatorade offerings. PEP's international presence and brand loyalty provide a strong foundation for these initiatives. Additionally, PEP increased its dividend, offering a 4.0% annual yield, enhancing its appeal as a potential turnaround opportunity.