WSJ What’s News
What’s News in Earnings: Consumer Shakiness Worries Food and Drink Companies
Mon, 05 May 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 what 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
Chapter 1: What are the current consumer spending trends?
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 do 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.
Chapter 2: How are food and beverage companies responding to consumer caution?
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 its worst 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, which 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.
Chapter 3: What challenges are companies like McDonald's facing?
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. And 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. Keurig Dr. Pepper reported a solid quarter.
Chapter 4: Which beverage companies are performing better amid the downturn?
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 owns 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 U.S. What do 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 coughs 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 is Lay's 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 the 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 and 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.
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Chapter 5: What impact do tariffs have on companies like PepsiCo?
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 Zin and Philip Morris International had a good quarter on the back of Zin. 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.
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.
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