PepsiCo CEO Indra Nooyi warned of a challenging macroeconomic environment due to slow growth across most developed markets outside the U.S., as the soda maker reported another quarterly decline in revenue to kick off 2016.
“Most of the developed world outside the United States is grappling with slow growth,” Nooyi told investors and Wall Street analysts during a conference call. She added that there were also woes in key energy-producing nations, where low commodity prices has led to high levels of inflation, eroding the ability for consumers in those markets to spend.
And because of the stubbornly high U.S. dollar, PepsiCo’s (PEP) revenue continues to decline. It dropped 3% in the latest quarter to $11.86 billion, worse than Wall Street analysts had anticipated. Pepsi tried to strike a bullish tone by saying “organic” revenue grew 3.5%.
When asked about Pepsi’s sizable businesses in Brazil and Russia, Nooyi struck a more worrisome tone about Brazil, calling it one of the toughest economic situations because of a slowdown in China resulting in weaker demand for Brazil’s commodities.
“We are cautious in our approach to Brazil, focused more on value products,” Nooyi said.
While a strong dollar has dragged on Pepsi’s revenue, the company has said it is performing well despite a tough operating environment. Nooyi called out a successful performance for a handful of key brands in markets outside of North America, including volume growth for Gatorade, Mountain Dew, and Cheetos, each up 9%.
In North America, results were fairly stagnant in the latest quarter. Pepsi’s Frito-Lay and beverages businesses in that region posted volume growth of just 1%, while Quaker Foods was up 2%. Slumping demand for sodas, in particular diet sodas sold by Pepsi and rival Coca Cola (KO), have led to 11 straight years of falling demand for carbonated soft drinks in the U.S.
But Nooyi said the soda maker had made some progress on that front as well. The introduction of new packs have led to higher prices. Over the past five years, Pepsi has shifted about 6% of North America volume from traditional 2-liter packs to 12-ounce packages which command higher margins. The smaller format is a way Pepsi can aim to resonate with consumers that want to try to curtail their consumption of sodas.