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A number of recalls of PepsiCo brand products has caused a dent in its balance sheet in the second quarter.
Pepsi reported 1.9% organic revenue growth in the three months ended June 15, a substantial drop from 13% organic revenue growth in the same period last year. The company also tempered its revenue outlook for the rest of the year, forecasting revenue growth of roughly 4% instead of its more ambitious projection of at least 4%.
Shares of the snack and beverage giant were down more than 2% in pre-market trading on Thursday.
PepsiCo issued recalls in December and January of Quaker cereals, bars, and snacks because of the potential presence of Salmonella at one of its factories. (The plant was shuttered in April but continues to be part of ongoing contamination concerns).
The performance of PepsiCo’s Quaker Foods North America business, which was heavily impacted by the recalls, detracted approximately 60 basis points from the company’s total organic revenue growth rate in the second quarter, PepsiCo’s senior management said in prepared remarks.
Earlier this year, PepsiCo voluntarily recalled Schweppes Zero Sugar Ginger Ale Caffeine Free because they were found to contain full sugar. And in April, the company recalled 2,801 cases of full sugar Mug Root Beer that were labeled as Mug Zero Sugar Root Beer.
But Pepsi management said its North American business performance was led by its beverages division, which has seen quarter-over-quarter improvement as it tries to keep up with competitors. Pepsi is the second-most popular soft drink in the U.S., a position it has held since 1985. Although it’s now tied with Dr. Pepper.
Overall, however, Pepsi so moderate increases in its profits and revenues. Its net revenue rose to $22.5 billion, up from $22.3 billion during the same quarter last year. The company had a net income of $3.08 billion, or $2.23 per share, compared with $2.75 billion, or $1.99 per share, a year earlier.