WSJ What’s News - What’s News in Earnings: Consumer Shakiness Worries Food and Drink Companies

Episode Date: May 5, 2025

Bonus Episode for May 5. Consumers are in belt-tightening mode. Many are buying less, reconsidering their purchases and feeling rattled by volatile markets and the Trump administration’s shape-shifting tariff policies. For soda makers like Pepsi and restaurant chains like McDonald’s, those are worrisome developments. So how are they responding? WSJ reporter Laura Cooper discusses w hat companies are saying in earnings reports and analyst calls. Chip Cutter hosts this special bonus episode of What's News in Earnings looking at what’s going on under the hood of the American economy. Sign up for the WSJ's free Markets A.M. newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, listeners, it's Monday, May 5th. I'm Chip Cutter for The Wall Street Journal, and this is What's News in Earnings, our look at the broad themes that stood out in the latest earnings season. Today, we're taking a look at what's happening to some of the country's food and beverage companies. One of the big takeaways so far, consumers are hitting pause on spending in all sorts of noticeable ways. Something is happening in the economy right now.

Consumers feel shaky. Many are in belt tightening mode and they're buying less. For big soda makers, for big food companies, that's a worrisome development. Wall Street Journal reporter Laura Cooper covers the world of beverage and tobacco makers and she's here to explain all that these companies and others are facing. Laura, great to see you. Great to see you, Chip. So big picture, what are the earnings reports show us about how consumers are feeling right

now? So consumers are feeling really cautious. Many of the chief executives that were speaking on the earnings calls I listened to over the last couple of weeks said that they're seeing consumer softness, that they're being more judicious about how they spend their money. That being said, some consumer groups are getting hit harder than others, but the general consumer sentiment is just largely not good. And does this sentiment cut across industries? What are we hearing from big food and restaurant companies, for example?

Well McDonald's reported it's worth sales since the pandemic for established restaurants and apparently middle and low income consumers are cutting their spending. So that's not great. Their chief executive said people are just being more judicious. That has echoed what I've heard in every single one of my beverage and tobacco calls. Hershey, who doesn't love chocolate, is saying it expects a 30% drop in profits if tariffs stay where they are. I also hear this around coffee, things that people love that maybe would be

something they could skip when they go to the store. The CEO of Kraft Heinz said that consumer sentiment had reached one of its lowest points. The implications is just there's tariffs, there's inflation. When people go to the supermarket, this is now on their mind. You write a lot about beverage makers and I wonder, given all of these factors that we're talking about, what companies are faring better right now and why? So beverage makers aren't immune to the general softening consumer sentiment. Coke had solid earnings. However, they saw a 3% volume drop in North America, and that's an extremely important market for Coca-Cola. This had to do with a combination of things, among them consumer sentiment, but also a boycott from the Hispanic community. This stems from a video circulating online

about the company potentially calling ICE to remove undocumented workers. Though Coke has denied that this has happened, this did impact their North America sales and sales in Latin America, another huge market for them. Curi and Dr. Pepper reported a solid quarter. for them. Keurig, Dr. Pepper reported a solid quarter. That's always fun because they have Dr. Pepper, which is the darling soda of Gen Z. They also saw some good results from Ghost and some of their energy drinks. However, KDP owned Keurig, which is obviously a coffee company, and there's pressure there. People have been looking for deals in coffee for some time, but also now they could be impacted by tariffs. However, KDP had a strong quarter and their beverage

growth was really what stood out to everybody, especially the analysts that I spoke to. You've also been focusing a lot on Pepsi lately, and as you reported, Pepsi has been struggling. It's been losing market share in the US. What are their turnaround efforts look like at this point? PepsiCo is a little unique because they have both food and beverage. They in this quarter said that they expect to face serious tariff costs and plummeting consumer sentiment that hurt their food business. They don't expect earnings to rise this year anymore. I've reported on PepsiCo relying on soda concentrate from

Ireland that's subject to tariffs, but it's not only that tariff. All soda companies and beer companies too will expect to be dinged by the 25% aluminum tariff because a lot of these cans come from different countries too, mainly Canada. PepsiCo said that they were seeing softness in their food business, which was lays and Doritos, and for a couple quarters, they have said that they are looking to change and have single serving and cheaper options for consumers. But in terms of the beverage business,

they've been working really hard to turn it around. The company's put a lot of effort into marketing to drink, also as being better with food and repositioning it within the company. Actually a bright spot in PepsiCo's earnings this quarter was that the company said in its latest earnings call that they were making progress. They said that the Pepsi brand was gaining market share

after years of decline, driven by sales of Pepsi Zero Sugar, and also timely and fun, the company was doing the Pepsi challenge, but this year with Pepsi Zero Sugar versus Coke Zero Sugar. So if you're selling soda or beer right now, you are affected by those aluminum tariffs, cans are getting more expensive. What can companies do, if anything, to mitigate this? For Coke, they're looking to diversify into more plastic packaging.

For others in beer specifically, I'm hearing that they're eating the cost of the tariffs right now in an attempt not to pass costs onto consumers during this really important summer period. Because if beer gets more expensive, you might not see as many beers at summer barbecues and that would hurt the industry, which is already going through a tough time. If consumers are trading down on what they eat, what beverages they buy, do the earnings reports of tobacco makers show us that people are spending differently on cigarettes and tobacco products right now. Cigarette sales generally have been in decline for many years, but we're seeing people using

nicotine products like Zyn and they're, Filtmorse International had a good quarter on the back of Zyn sales. When I was reporting on a convenience store story earlier this year, we found that cigarette smokers who would usually buy a whole carton are now grabbing single packs of cigarettes Some companies are trying to introduce lower price cigarettes on its most recent earnings call Altria Which makes Marlboro cigarettes in the United States? Said that smokers remain under economic pressure because of inflation being greater than wage growth and this is especially among low-end consumers So they are saying that the people who are looking for their cigarettes are looking for

price relief, either with the brand that they love or they're looking for discounted products and they are trading down because they still want to smoke, but they can't afford the prices that are happening. Well, we often speak about consumers. It sometimes seems like we refer to them as a monolith, that they're one big broad group of spenders. And of course we know that's not true. So are there segments of consumers right now

that are facing particular challenges that companies are having to focus on? I've reported a lot on the Hispanic consumer, and this is an important segment for all US companies. I started hearing about a pullback with Hispanic consumers around Constellation earnings, Constellation makes Corona, Modelo, those are all made in Mexico.

And half the Modelo consumers are Hispanic. Their CEO at the time, a couple of weeks ago, told me that Latino shoppers are changing their shopping habits, like moving from retail chains and shifting away from convenience stores and bodegas. And for many, that's because of a concern around immigration issues. Constellation also found that Hispanic consumers

are under pressure from higher prices and job losses and industries that skew to have higher number of Hispanic workers. Boston Beer, which makes Sam Adams, also mentioned softness with Hispanic consumers and Coca-Cola, as I mentioned, was recently subject to that boycott by Hispanic consumers. I actually saw some research from Coke that I found really interesting. And they said that Hispanic consumers are nearly one in five people living in the U.S. and that the U.S. Hispanic populations of consumers is equal to the entire population and GDP of Italy. So that's an important group.

And if they're under pressure, all consumer companies are going to feel that. So finally, just looking forward, what should we expect from these companies? Are they going to make more pricing changes? Will they change the mix of products that they offer? What are you watching for in the weeks ahead? I'll be watching to see if people start to lower prices. I don't expect that's going to happen. Companies are trying really hard to try and eat the cost of tariffs and other things as long as they possibly can. The question is, how long will that be? That was Laura Cooper, a reporter for The Wall Street Journal. Thanks, Laura. Thanks, Chip.

And that was What's News and Earnings. Today's show is produced by Charlie Duffield and Anthony Bansi with supervising producer Michael Kazimides. Later today, we'll have the PM edition of What's News out for you as usual. And we'll be back later this earnings season diving into another industry. Until then, I'm Chip Cutter. Have a great day.