For the majority of the last year, PepsiCo has been attempting to persuade Americans to put more Lay’s, Doritos, and Pepsi products back into their shopping carts.
As a result of the effort, the company has made some progress, but it’s not happening fast enough.
PepsiCo (PEP) cut its 2026 profit outlook on October 8 and warned that improving growth and margins in North America is taking longer than management expected, according to Reuters. As it deals with cautious customers, rising expenses, and shifting eating habits, the company is now planning another round of structural cost reductions.
PepsiCo is frustrated by the fact that a large portion of the rest of the company is doing well.
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According to a PepsiCo statement, third-quarter net revenue rose 5.6% to $25.27 billion, while organic revenue rose 3.1%. North America remained the weakest region, despite an 8% increase in international organic revenue.
PepsiCo shares nevertheless rose 3.7% Oct. 8 after the results and cost-cutting announcement.
The question of whether PepsiCo has strong brands is becoming less important to investors. It obviously does. The question is how much money the company needs to spend or cut before its largest brands begin to grow more robustly domestically.
PepsiCo’s North America recovery is taking longer
In 2026, PepsiCo assured investors that things would get better in North America.
It’s getting more difficult to fulfill that promise.
Despite increasing snack volumes, PepsiCo Foods North America reported somewhat lower organic revenue in the third quarter. While organic revenue decreased slightly and beverage volume decreased by 2%, the beverage business reported a 5% increase in revenue, driven primarily by acquisitions.
Profitability is the more significant issue.
In the third quarter, PepsiCo’s overall core operating margin decreased by 35 basis points. The core operating margin of PepsiCo Foods North America decreased by 280 basis points as marketing expenditures, affordability investments, and other expenses outweighed increased volume and productivity. Beverage margins in North America decreased by 15 basis points.
The challenging outcome is significant for a company that informed investors in December about its plan to generate at least 100 basis points of cumulative core operating-margin expansion over three years.
The improvement in North America is taking longer than anticipated, according to PepsiCo CFO Steve Schmitt, and the company’s margins will continue to be under pressure in the fourth quarter.
As a result, the company lowered its core constant-currency earnings-per-share growth forecast for fiscal 2026 to 1% to 2%. Previously, PepsiCo had projected growth at the lower end of the 4% to 6% range. It now projects an annual increase in organic revenue of about 3%.
Those figures explain why management is returning to costs.
PepsiCo said it is identifying additional structural reductions aimed at eliminating redundancies, lowering corporate expenses, and cutting discretionary spending that is not directly tied to growth. Those actions should start taking effect in the coming months.
The difficulty lies in doing so without depriving the brands of the marketing and innovation expenditures necessary to regain consumers.
PepsiCo is changing what it sells while cutting what it spends
The issue facing PepsiCo goes beyond the fact that Americans no longer consume soda or snacks. The issue facing PepsiCo goes beyond the fact that Americans no longer consume soda or snacks.
Customers are growing pickier about which goods are worth the cost.
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Earlier this year, PepsiCo attempted to restore affordability by lowering prices on products like Lay’s and Doritos by as much as 15%, according to Reuters. More recently, the company has hinted that as input costs rise, some snack prices will have to go up once more.
This situation makes the balancing act uncomfortable.
When prices are cut too drastically, margins suffer. If you raise them too quickly, budget-conscious consumers may choose to purchase fewer snacks or switch to store brands.
The company’s performance already reflects this tension. PepsiCo reported that while U.S. sales of savory and salty snacks increased during the quarter, its food margins suffered significantly due in part to investments in affordability.
At the same time, PepsiCo is trying to change what sits on the shelf.
The company is growing its product line to include simpler ingredients, fiber, protein, and alternative oils. According to PepsiCo, its current pipeline consists of reformulated products such as SunChips Fiber, PopCorners Protein, Quaker Protein Rice Crisps, and Doritos Protein.
Those products fit a broader shift in consumer eating habits that packaged-food companies can no longer ignore.
The growing use of GLP-1 weight-loss drugs is pressuring companies that relied on sugary drinks and salty snacks, according to Reuters. PepsiCo, General Mills (GIS), McCormick (MKC), and Conagra Brands (CAG) are also spending more on promotions and affordability to combat lower demand and higher costs.
That means PepsiCo’s turnaround requires more than trimming expenses.
It also has to make its portfolio fit what consumers increasingly want to eat.
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PepsiCo is no longer operating without a clock, which has made the North America issue more crucial.
Elliott Investment Management, an activist investor, acquired almost $4 billion in PepsiCo last year and advocated for improvements to the company’s performance and value. Thereafter, PepsiCo announced measures to streamline operations, increase affordability, streamline its supply chain in North America, and increase profits.
Since then, the business has taken noticeable action.
PepsiCo has been experimenting with new products and dining occasions, decreasing expenses, and reorganizing its production and distribution network. As part of modifications to its operational network, TheStreet said in September that the firm was discontinuing production and storage activities at its long-standing bottling plant in Cheverly, Maryland.
In the end, however, shareholders and activist investors are concerned about how such changes affect earnings.
The decreased prognosis is important because of the uncertainty.
PepsiCo’s narrative is much different when it comes to other countries. The third quarter had an 8% rise in organic sales outside of North America, which is at least mid-single-digit growth for the 22nd consecutive quarter. The international core operating margin increased by 105 basis points.
Because of this disparity, it is more difficult to write off North America’s deficit as just a challenging global environment.
David Wagner, portfolio manager at Aptus Capital Advisors, a company that holds PepsiCo shares, told Reuters that Ramon Laguarta, the company’s CEO, is under more pressure.
“Next couple of quarters need to show real North American inflection.”
RBC Capital Markets analyst Nik Modi was equally scathing of the beverage industry, stating that PepsiCo is still losing ground to Coca-Cola (KO) and Keurig Dr. Pepper (KDP).
This makes the next quarters very significant for stockholders.
PepsiCo has previously attempted to reduce the cost of snacks. It is investing more on innovation and advertising. It is introducing fiber and protein items, changing its supply chain, and seeking more cost savings.
The next thing investors need is proof that such efforts are simultaneously generating sustained volume growth and higher profitability.
There were some positive indicators in the third quarter, namely rising snack volumes in the United States and robust growth elsewhere.
However, management’s own directives show that the most difficult aspect of the turnaround remains unresolved.
The largest obstacle facing PepsiCo, a firm whose goods fill American supermarkets, convenience shops, and kitchens, is unexpectedly local.
Related: PepsiCo is raising prices on the snacks customers love most
