PepsiCo markets euro bonds after cutting profit outlook

PepsiCo Inc. marketed €1 billion in euro bonds on Friday after lowering its profit outlook, pairing new borrowing with operating weakness.

The proposed financing, equivalent to $1.12 billion, comprises two equally sized maturities rather than a single repayment date. The transaction follows the company’s Thursday earnings warning, although no link between the borrowing’s intended use and the operating pressures was disclosed.

PepsiCo splits borrowing across maturities

The three-year and nine-year portions each total €500 million, according to a person familiar with the transaction who requested anonymity. Together, they give the company a combination of shorter- and longer-dated funding rather than concentrating the entire issue at one maturity.

Initial guidance indicated a spread of about 60 basis points over mid-swaps for the shorter maturity, versus roughly 105 basis points for the longer one, the person said. Those indications describe premiums relative to the benchmark, not final coupons or confirmed borrowing costs.

Deutsche Bank AG and HSBC Holdings Plc are managing the offering. Pricing was expected later on Friday, according to the transaction account; final terms and confirmation that the sale had completed were not available.

North American weakness precedes financing

PepsiCo reduced its forecast for earnings growth on Thursday, citing weaker performance across its North American drinks and snacks operations. The downgrade also came against a backdrop of rising costs in the region, leaving the company confronting pressure on both expenses and business performance.

North American beverage volumes were down 3% for the year to date, according to the company’s update. Zero-sugar drinks and flavored varieties performed better than full-sugar products, indicating that the weakness was not uniform across its beverage portfolio.

Chief Executive Officer Ramon Laguarta told analysts that PepsiCo did not “feel good about the beverage business.” He added that the company was “putting all of the urgency of the business and the focus in improving our performance in soft drinks.”

That assessment puts the operating challenge alongside, but separate from, the financing exercise. If the bonds are placed, PepsiCo will have secured additional funding; that outcome alone would not establish that beverage demand or snack performance had improved.

Europe attracts returning US borrowers

The offering marks PepsiCo’s second visit to Europe’s public debt market this year, while it has not issued in its domestic market during that period, according to compiled issuance data. The pattern makes this a return to European investors rather than a first attempt to borrow there.

Other US companies issuing euro debt include Alphabet Inc., Danaher Corp. and Baker Hughes Co. Such transactions are known as reverse Yankee issuance, placing PepsiCo within a broader group of US borrowers seeking funding from Europe’s bond market.

Final spreads are the immediate unresolved financing detail: if they exceed the initial indications, the benchmark-relative premium will be higher; if they narrow, it will be lower. Beyond the transaction, subsequent company updates will be needed to establish whether the North American volume decline persists and whether the effort to improve soft-drink performance produces measurable results.