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

Summary

WSJ What’s News: Episode Summary

Episode Title: What’s News in Earnings: Consumer Shakiness Worries Food and Drink Companies
Release Date: May 5, 2025
Host: Chip Cutter
Guest: Laura Cooper, Wall Street Journal Reporter

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Introduction

In this episode of WSJ What’s News, host Chip Cutter delves into the latest earnings season, focusing specifically on the challenges faced by food and beverage companies amid shifting consumer behaviors. The discussion highlights how consumer hesitancy and economic pressures are impacting spending patterns, leading to notable repercussions across the industry.

Consumer Sentiment and Spending Caution

Laura Cooper provides an insightful analysis of current consumer sentiments:

"[Consumers are feeling] really cautious... they're being more judicious about how they spend their money." (01:21)

This widespread prudence is evident across various consumer groups, with many exhibiting reluctance to expend on non-essential items. The cautious outlook is a significant red flag for companies heavily reliant on consumer spending.

Impact Across Food and Restaurant Industries

The episode underscores the pervasive impact of consumer softness on major players:

• McDonald's reported its worst sales figures since the pandemic, attributing the decline to reduced spending among middle and low-income consumers. The company's CEO noted that "people are just being more judicious" (01:45).

• Hershey anticipates a 30% drop in profits if existing tariffs remain, highlighting the vulnerability of even beloved brands like chocolate manufacturers to economic headwinds.

• Kraft Heinz echoed these concerns, with their CEO stating that "consumer sentiment had reached one of its lowest points," exacerbated by inflation and persistent tariffs affecting supermarket purchases (02:28).

Beverage Industry Insights

While the overall trend is bleak, certain beverage companies exhibit mixed results:

• Coca-Cola achieved solid earnings despite a 3% volume drop in North America, attributed to both cautious consumer spending and a boycott from the Hispanic community over allegations related to ICE, which the company denies (02:37).

• Keurig Dr. Pepper (KDP) reported a strong quarter, buoyed by popular brands like Dr. Pepper and Ghost energy drinks. Despite challenges in the coffee segment and potential tariff impacts, KDP's beverage growth remains robust, impressing analysts (03:44).

• PepsiCo faces unique struggles with both its food and beverage divisions. The company does not anticipate earnings growth for the year due to serious tariff burdens and declining consumer sentiment affecting its food brands like Lays and Doritos. However, PepsiCo is witnessing a resurgence in its flagship Pepsi brand, partly driven by the success of Pepsi Zero Sugar, which is reclaiming market share from competitors like Coca-Cola (04:00).

Packaging Tariffs and Strategic Responses

The imposition of 25% aluminum tariffs has significantly impacted soda and beer companies, increasing costs for cans sourced internationally:

• Coca-Cola is mitigating these costs by diversifying into more plastic packaging alternatives to reduce dependency on aluminum.

• Beer Manufacturers are currently absorbing the additional costs to avoid passing them onto consumers, especially during the critical summer season when demand for beer is traditionally high (05:21).

Tobacco Industry Shifts

The tobacco sector is experiencing a transformation as consumer preferences shift:

• Traditional cigarette sales continue to decline, while nicotine products like Zyn are gaining traction. Philip Morris International reported a strong quarter, crediting the rise in Zyn sales (05:55).

• Companies are also observing a trend where cigarette smokers opt for single packs over bulk purchases, seeking more affordable options. Altria, the producer of Marlboro cigarettes, noted that "smokers remain under economic pressure," leading to increased demand for discounted products (06:47).

Focus on Hispanic Consumers

A significant segment under pressure is the Hispanic consumer base, which is crucial for U.S. companies:

• Constellation Brands, maker of Corona and Modelo, observed a shift in Hispanic shopping habits amidst immigration concerns and economic strains. Their CEO highlighted that "Latino shoppers are changing their shopping habits... concerned around immigration issues" (07:00).

• Boston Beer and Coca-Cola also report softness within this demographic, which represents a substantial portion of the market and contributes significantly to overall GDP (07:00).

Future Outlook and Company Strategies

Looking ahead, companies are grappling with sustaining profitability amidst rising costs:

• Pricing Strategies: While the immediate expectation is that companies will continue to absorb tariff-related costs, the long-term sustainability of this approach remains uncertain. Laura Cooper anticipates that "companies are trying really hard to eat the cost of tariffs and other things as long as they possibly can," but questions how long this will be viable (08:21).

• Product Mix Adjustments: Firms are likely to continue adjusting their product offerings to cater to budget-conscious consumers, emphasizing single-serving and lower-priced options to maintain sales volumes without burdening consumers further.

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Conclusion

This episode of WSJ What’s News provides a comprehensive overview of the current challenges facing the food and beverage industry, driven by cautious consumer spending and economic pressures. Through detailed discussions and expert insights from Laura Cooper, listeners gain a nuanced understanding of how major companies are navigating these turbulent times, adapting their strategies to sustain growth amidst a shifting market landscape.

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Notable Quotes with Timestamps

• Chip Cutter (00:33): "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."

• Laura Cooper (01:21): "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 see consumer softness."

• Laura Cooper (01:45): "Their chief executive said people are just being more judicious."

• Laura Cooper (02:28): "The implications is just there's tariffs, there's inflation when people go to the supermarket, this is now on their mind."

• Laura Cooper (03:53): "PepsiCo is a little unique because they have both food and beverage..."

• Laura Cooper (05:21): "Mitigate this for Coke, they're looking to diversify into more plastic packaging for others."

• Laura Cooper (06:47): "Smokers remain under economic pressure because of inflation being greater than wage growth."

• Laura Cooper (07:00): "Latino shoppers are changing their shopping habits like moving from retail chains and shifting away from convenience stores and bodegas."

• Laura Cooper (08:21): "Companies are trying really hard to try and eat the cost of tariffs and other things as long as they possibly can."

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Note: All timestamps refer to the positions within the podcast transcript provided.

Transcript

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[Laura Cooper]

Hey.

[Chip Cutter]

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.

[Laura Cooper]

Great to see you, Chip.

[Chip Cutter]

So big picture, what do the earnings report show us about how consumers are feeling right now?

[Laura Cooper]

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 see 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.

[Chip Cutter]

And does this sentiment cut across industries? What are we hearing from big food and restaurant companies, for example?

[Laura Cooper]

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 when people go to the supermarket, this is now on their mind.

[Chip Cutter]

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.

[Laura Cooper]

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. 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.

[Chip Cutter]

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 are their turnaround efforts look like at this point?

[Laura Cooper]

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 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 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.

[Chip Cutter]

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.

[Laura Cooper]

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. 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.

[Chip Cutter]

If consumers are trading down on what they eat, what, 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.

[Laura Cooper]

Cigarette sales generally have been in decline for many years, but we're seeing people using nicotine products like Zyn and their Philip Morris 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 cigarette. Some companies are trying to introduce lower priced 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.

[Chip Cutter]

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?

[Laura Cooper]

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 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 mention 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 1 in 5 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.

[Chip Cutter]

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?

[Laura Cooper]

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?

[Chip Cutter]

That was Laura Cooper, a reporter for the Wall Street Journal. Thanks, Laura.

[Laura Cooper]

Thanks, Chip.

[Chip Cutter]

And that was what's News and Earnings. Today's show was produced by Charlie Duffield and Anthony Banci with supervising producer Michael Kosmides. 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.