PURCHASE, NY. — PepsiCo, Inc. eked out net revenue growth for its fiscal 2024 second quarter despite sales and operating profit declines at its Frito-Lay and Quaker Foods North American business units, with the latter reflecting an ongoing impact from product recalls late last year.

Net income in the second quarter ended June 15 totaled $3.08 billion, equal to $2.23 per share on the common stock, up 12.2% from $2.75 billion, or $1.99 per share, in the same period a year ago.

Net revenue edged up 0.8% to $22.5 billion from $22.32 billion a year earlier. Foreign exchange rates had a 1% negative impact on total revenue, the company said. Organic revenue growth was 1.9% atop a year-ago gain of 13%.

Overall operating income for the quarter came in at $4.05 billion, up 11% from $3.66 billion a year ago. A sharp increase in operating profit at Pepsi Beverages North America offset decreases at Frito-Lay North America and Quaker Foods North America.

“In the second quarter of 2024, we grew organic revenue and delivered strong core gross margin and core operating margin expansion and double-digit core constant currency EPS growth, despite facing difficult comparisons versus the prior year and subdued category demand within our North America convenient foods businesses,” chairman and chief executive officer Ramon Laguarta and chief financial officer Jamie Caulfield said in remarks for a July 11 conference call with analysts.

Operating income at Frito-Lay North America totaled $1.59 billion in the second quarter, down 3.4% from $1.65 billion in the same period a year ago. Net revenue dipped 0.5% to $5.87 billion in the second quarter, with flat results on an organic basis. Volume was down 4%. Retail sales for brands such as PopCorners, Smartfood, SunChips, Bare and Off the Eaten Path outperformed the rest of Frito-Lay’s snacks portfolio, PepsiCo noted.

“Following significant investments in our brands, capacity, supply chain and go-to-market systems, we have gained more than 200 basis points of value share within savory snacks and grown our annual net revenue by nearly $7 billion between 2020 and 2023,” Laguarta and Caulfield stated.

In the conference call, Laguarta said year-to-date performance across many food categories, including snacks, has been subdued as consumers remain value-conscious and have adjusted spending patterns and preferences across brands, packages and channels.

“Now in the US, there is clearly a consumer that is more challenged,” Laguarta told analysts. “It’s a consumer that is telling us that, in particular parts of our portfolio, they want more value to stay with our brands. That is not for all the consumers; it’s some consumers. That is not for all the portfolio; it’s some parts of the portfolio. And we have been working different tactics to give the consumer what they want, and we see that it’s working. That’s why we feel comfortable — given the oxygen that we have in the P&L — that we’ll be able to deploy in a very targeted way, thinking long term about the category, making sure that it has good ROI, that we’ll be able to turn around to positive volume and, with that, a higher level of net revenue. So that’s how we’re thinking about the second half.”

At Quaker Foods North America, operating income fell 34% to $85 million from $129 million a year ago. Net revenue in the quarter dropped 18% to $561 million, with organic revenue falling by the same percentage. Volume decreased 4% year over year. PepsiCo said the business unit continues to feel the impact of product recalls but is making progress in resuming the production of affected items and expects the sales impact to moderate over the course of the year.

Last December, the company initiated a voluntary recall at Quaker for select granola bars and cereals in the United States, Puerto Rico, Guam and Spain because of possible Salmonella contamination. Then in April, Quaker said it will permanently close a facility in Danville, Ill., that was linked to the recall.

“Quaker, you’re all familiar with the situation,” Laguarta said. “We’re recovering the supply chain. By Q4, we’ll be in almost 100% supply. And, obviously, the business at that point will be growing materially because we’re just refilling the shelves on the pipeline. So that should be out of the picture, and it will be a positive impact for us.”

Operating income at Pepsi Beverages North America was $987 million in the second quarter, up 37% from $723 million in the same period a year ago. Second-quarter net revenue also was higher, climbing 1% to $6.81 billion from $6.76 billion, with organic revenue also up 1%. Volume tailed off by 3%. PepsiCo cited sequential revenue gains for Pepsi and Mountain Dew, with zero-sugar variants and certain flavor extensions performing well, plus market share growth for Gatorade and double-digit and mid-single-digit revenue increases, respectively, for Bubly and Propel. The company also saw beverage revenue growth in the mid-single-digits for the foodservice channel and in double-digits for e-commerce.

“The North America beverage business is also to be highlighted,” Laguarta noted to analysts. “It’s a business that we said, over time, we want to stay with, deliver profitable growth and make sure we compete well in the category, but at the same time, improve our margins. We think we’re executing the playbook well.”

For the six months ended June 15, overall net income at PepsiCo was $5.13 billion, or $3.71 per share, up 9.5% from $4.68 billion, or $3.38 per share, in the same period a fiscal 2023. Net revenue rose 1.5% to $40.75 billion. Operating profit climbed 8% to nearly $6.77 billion in the first half of fiscal 2024.

“We’ve been accelerating the profitable growth delivery of the business, and that should continue in the second half,” Laguarta said. “We’re investing in advertising and marketing even more in the platforms that are growing. You put it all together, we feel good about the second half of the year and the momentum that will start ‘25 with that.”

Looking ahead, PepsiCo fine-tuned its prior guidance for the full 2024 fiscal year. Organic revenue is projected to grow about 4%, compared with at least 4% previously. The company reaffirmed its 2024 outlook for core EPS, expected to be at least $8.15, which would mark a 7% uptick from $7.62 in 2023.

“PepsiCo reported a sales miss on weak Frito-Lay North America (results),” Robert Moskow, an analyst with TD Cowen, wrote in a July 11 research note on PepsiCo’s second-quarter performance. “Management intends to address weak Frito-Lay North America trends with ‘surgical’ investments to provide optimal value where it is needed. While this implies incrementally more promotional activity, we view it as a rational approach to stabilize volume.”

Moskow had noted a slowdown in the Frito-Lay salty snacks division in a report last week, leading TD Cowen to lower its sales forecast for PepsiCo going into next year.