PepsiCo cuts annual profit forecast as North American weakness persists

Forecast cut and cost plans

PepsiCo cut its annual core profit forecast on Thursday, 8 October, and said it would pursue additional cost cuts. The company now expects fiscal 2026 core earnings per share, adjusted for currency fluctuations, to rise 1% to 2%, compared with a prior forecast whose low end was a rise of 4% to 6%. Organic revenue is now expected to grow about 3%, up from the earlier range of 2% to 4%. The Independent gives different revised figures for the same update, with adjusted per-share growth of 2.5% to 3.5% against a previous expectation of 5% to 7%, and full-year revenue growth of 6%. In a statement, CEO Ramon Laguarta tied the revision to rising costs.

Additional structural cost reduction actions are being identified and will be implemented in the coming months to help fund investments that aim to accelerate organic revenue growth and mitigate the impacts of rising input cost inflation.

Shares rose about 1% in premarket trading. By midday, the stock was up 1.4% at $125.44, but it has fallen 12% over the past year and trades at six-year lows, according to The New York Times.

A weak North American business

Foods segment volumes were flat in the third quarter ended 5 September, and beverage volumes dipped 2% from a year earlier. Frito-Lay snack volumes were also flat, as sales growth in U.S. salty snacks was offset by declines in Canada. PepsiCo cut prices by up to 15% on products such as Lay's and Doritos in February, then said last month it would raise prices on some U.S. products to offset rising costs. Activist investor Elliott Investment Management disclosed a stake of roughly $4 billion last year, and in December PepsiCo said it would review its North American supply chain.

On the earnings call, Laguarta told analysts the company is not satisfied with its U.S. performance.

We're not satisfied with the performance in the U.S.

Chief Financial Officer Steve Schmitt acknowledged the slower progress in prepared remarks.

In North America, we remain committed to improving growth and core operating margin. However, it is taking more time than we planned.

Strong quarter abroad

Net revenue rose 5.6% to $25.27 billion for the July to September period, above the $24.95 billion projected by analysts polled by FactSet.

International markets generate 41% of revenue. Global snack food volumes rose 4%, the fastest rate since 2021, and Asia Pacific snack volumes climbed 11%. Lay's saw strong demand linked to the World Cup, helping PepsiCo gain market share in China and Brazil. Net income rose 17% to $3.07 billion, and adjusted earnings of $2.34 per share beat the $2.29 analysts expected.

Structural options under discussion

Some analysts and investors want a bigger change in the company's structure. Options include splitting the business by geography, between North America and international, or by business lines, between foods and beverages. Others want PepsiCo to re-franchise some or all of its bottling operations, a model Coca-Cola largely uses. Laguarta has been reluctant to change the structure, but he told analysts the company is open to change.

We're open to revisiting every option.

The Wall Street Journal reported that Laguarta said PepsiCo is not competing well in soft drinks, including its flagship Pepsi. Packaged food rivals General Mills, McCormick and Conagra are also spending more on promotions and affordability initiatives.