PepsiCo, Inc. (PEP.US) Soda sales are sluggish, and Poppi's $300 million earnout is at risk.

PepsiCo, Inc. (PEP.US) said its prebiotic soda brand Poppi has failed to meet the growth targets required to trigger an additional earnout payment. According to a securities filing, as of Sept. 5, PepsiCo, Inc. estimated the performance-linked payment for its acquisition of Poppi at about $12 million. That marks a sharp decline from the $117 million recorded in June and is far below the $278 million projected in December. PepsiCo, Inc. acquired Poppi for nearly $2 billion last year, with an agreement to pay an additional $300 million if the brand hit undisclosed growth milestones by the third quarter of 2027. Poppi gained prominence for its highly shareable, social-media-friendly marketing and its low-sugar flavors such as Shirley Temple and sour Apple Inc. Earlier this year, PepsiCo, Inc. devoted one of its four Super Bowl ads to the brand. More recently, the soda brand struck promotional partnerships with the Dallas Cowboys and the reality show "Love Island (US)." PepsiCo, Inc. declined to comment on the declining valuation of the future Poppi payment. A PepsiCo, Inc. spokesperson said Monday that Poppi's third-quarter volume grew by double digits and that it gained share in the carbonated soft drink market. PepsiCo, Inc. has been struggling with its North American soda business. The beverage division posted overall third-quarter sales of $7.7 billion, but organic volume growth slipped slightly and fell short of Wall Street expectations. CEO Ramon Laguarta said on last week's earnings call that the company is "not satisfied" with the performance of its soft drink business and that it needs to improve overall execution. He added that the company will increase investment in Poppi as well as PepsiCo, Inc. cola and Mountain Dew. The payment valuation, or contingent consideration liability measured at fair value, represents a company's best estimate of future amounts payable. The filing shows the valuation is based on simulated projections of future operating conditions, including forecasts of Poppi's net revenue and profit margins. PepsiCo, Inc. has not yet disclosed extensive sales details for the brand. Beverage industry analyst Kenneth Shea said: "At the current trajectory, unless Poppi's performance rebounds significantly in the coming year, they may not pay any of that $300 million." If the payment is made, it would go to Poppi's shareholders and founders Allison and Stephen Ellsworth. Laguarta told analysts in July that transitioning Poppi from its previous distributor to the PepsiCo, Inc. system had "some impact" on the soda's performance in the first half of this year. He said at the time that the issue had been resolved and the brand was still growing. Over the past several years, PepsiCo, Inc. has been increasing its bets on healthier snacks and beverages. Seeking further growth, PepsiCo, Inc. is pushing Poppi beyond the traditional soda category. Last week, Poppi announced two new additions to its beverage lineup: Poppi Lift, an energy drink containing 70 milligrams of caffeine; and Poppi Chill, which adds magnesium and theanine and is positioned for relaxation.