With food and beverage stocks getting slammed as of late, are weight-loss drugs to blame for suppressed consumer appetites or just selective shoppers navigating a shaky economy? PepsiCo executives say it's the latter.
Recent earnings from the snack giant are showing weakness in processed foods not from the rise of weight-loss drugs like Ozempic and Wegovy, but from a more frugal and cost-conscious consumer, according to the company.
"So far, the impact (of weight-loss drugs) is negligible in our business," PepsiCo CEO Ramon LaGuarta said, answering an analyst question about the impact of diabetes drugs during the company's Q3 earnings call on Tuesday. LaGuarta says trends in urbanization, the global rise of middle class consumers and a lifestyle shift to snacking are bigger consumer drivers.
In its Q3 earnings report, PepsiCo attributes a weakness in volume to a pullback in consumer spending. "We see the consumer right now as being more selective, and you see that in a variety of ways," said PepsiCo Vice Chairman and CFO Hugh Johnston in the company's earnings call. "You see that in the orientation toward value."
Pepsi, one of the first major food and beverage companies to report earnings, has seen its stock fall alongside snack and beverage stocks like Oreo maker Mondelez, Coca-Cola and Kraft Heinz since July of this year. The downturn began after highs reached in May and accelerated from September into October. Kraft Heinz saw its share price fall more than 20% year to date, while Pepsi fell more than 8% year to date. Mondelez is down more than 4% so far this year.
Coinciding with the weakness is the rise in interest over weight-loss drugs like those from Novo Nordisk and Eli Lilly.
Wegovy and Ozempic, both made by Denmark-based pharmaceutical giant Novo Nordisk, and Mounjaro, made by Eli Lilly, were all originally developed to help treat diabetes, with the side effect of suppressing appetites. That side effect has recently found traction with doctors — and especially consumers — as a weight-loss aid. While the drugs are often prescribed for "off-label" use to lose weight, Wegovy is currently the only drug approved by the FDA to treat obesity.
Adding fuel to the weight-loss fire, a Bloomberg News report earlier this month said Walmart sees a possible link between shoppers taking weight-loss drugs like Ozempic and reduced spending on food. "We definitely do see a slight change compared to the total population, we do see a slight pullback in overall basket," Walmart U.S. CEO John Furner told Bloomberg.
But as food and beverage earnings roll out, PepsiCo says weight-loss drugs aren't the focus as much as consumer spending. "We expect the consumer to be cautious, and to the degree they are worse than that, we have cost plans in place to mitigate whatever challenges we face," said PepsiCo's Johnston.
"We think our revenue outlook accommodates an increasingly cautious consumer next year," said Johnston.
