PepsiCo is struggling to improve growth and profits in North America. The company said on Thursday that its recovery in the region is taking longer than expected, as demand for its snacks and drinks remains weak.
Because of inflation and growing competition from GLP-1 weight-loss drugs, the company is dealing with high costs for inputs, weaker consumer demand. Because the recovery is taking longer than planned, cFO Steve Schmitt said the company expects North America’s core operating margin performance to remain under pressure in the fourth quarter. The company is pursuing record productivity savings as part of a turnaround plan that began after activist investor Elliott Investment Management took a roughly $4 billion stake in PepsiCo about a year ago. Its core operating margin dropped 35 basis points in the third quarter compared with the same period last year. The margin was down 25 basis points so far this year, standing at 16.5% of revenue. In December, after talks with Elliott, PepsiCo said it was targeting a 100-basis-point improvement in its core operating margin over three years.
PepsiCo CFO Steve Schmitt said the company is still focused on improving growth and its core operating margin in North America, but the recovery is taking more time than planned. PepsiCo is facing several pressures at the same time. These drugs can reduce appetite and could affect demand for some snacks and other food products. PepsiCo has already been trying to cut costs heavily. PepsiCo expects North American profits to remain under pressure in the fourth quarter. PepsiCo’s operating margin has already fallen.
The company had earlier set a bigger profit improvement target.
In February, the company cut prices by as much as 15% on products including Lay’s and Doritos.
PepsiCo may need a major change in its beverage business, according to the analyst. Modi said PepsiCo may have to fully refranchise its beverage business if it wants to stop losing market share. Last month, the company said it would increase prices on some chips to keep up with rising input costs. The company said retailers and buying groups are changing the way they offer products to customers. PepsiCo said retailers are removing some of its products or giving them less shelf space while focusing more on developing and selling private-label brands.
Refranchising means giving more control of parts of the business back to independent franchise operators. PepsiCo has already tried lowering prices to attract customers. But PepsiCo is now raising some prices again. This creates a difficult situation for PepsiCo. Lower prices can help bring customers back, but higher costs make it harder for the company to protect its profits. Raising prices can help cover those costs but may make consumers less willing to buy the products. PepsiCo is also facing strong competition for supermarket shelf space. Private-label products are becoming a bigger threat.
PepsiCo said it will take additional steps to reduce costs in the coming months. CEO Ramon Laguarta said the new cost-cutting measures will help pay for investments aimed at increasing sales growth and reducing the impact of higher input costs. The company plans more cost cuts to deal with the problem. This means PepsiCo is fighting on several fronts in North America. It has weak food and beverage demand, higher input costs, pressure on profit margins, competition from major beverage companies and growing private-label competition in stores.
PepsiCo cuts 2026 earnings outlook
It also changed its 2026 forecast for organic revenue growth to about 3%, compared with its earlier forecast of 2% to 4% growth. PepsiCo has also lowered its 2026 earnings outlook. The company now expects core earnings per share, adjusted for currency movements, to increase by only 1% to 2% in 2026. Earlier, it had expected earnings growth at the lower end of a 4% to 6% range. North American beverage volumes fell 2% from a year earlier in the third quarter.
Nik Modi, an analyst at RBC Capital Markets, said PepsiCo’s beverage business continues to disappoint. The company reported revenue that beat market expectations. CEO Ramon Laguarta said additional structural cost-reduction measures are being identified and will be introduced in the coming months.
PepsiCo’s overall third-quarter revenue was better than expected. But North America remains a major problem. Even though the overall business performed better than expected, PepsiCo warned that its North American business is still facing slow growth and pressure on profitability. The weakness is not limited to PepsiCo. Other packaged-food companies are also struggling as consumers look for better value while companies face higher costs. Companies such as General Mills, McCormick and Conagra Brands are also trying to bring customers back. These food companies are spending more on promotions and affordability measures while dealing with higher input costs. PepsiCo is now promising even more cost savings. The company wants to use these savings to invest in sales growth and deal with inflation in input costs. PepsiCo’s international business is doing better. The company’s problems are mainly concentrated in North America, making the region a key weak spot for the company. Food sales volumes in North America were flat. Its beverage business performed even worse. Analysts see the beverage business as one of PepsiCo’s biggest problems. He expects the company to continue losing market share to rivals Coca-Cola and Keurig Dr Pepper. The main issue is that PepsiCo’s North American turnaround is taking longer than expected. The company is cutting costs and changing prices, but food volumes remain flat, beverage volumes are falling and profit margins are under pressure. For now, PepsiCo’s international business is helping offset some of the weakness. However, the continued problems in North America remain a major challenge for the company as it tries to restore growth and improve profitability.
In the third quarter, PepsiCo’s North American food volumes showed no growth compared with a year earlier.
