Dive Brief:
- PepsiCo is targeting strategic cost reductions and continued momentum in its international business as growth in its North American business stagnates, executives said in a Thursday earnings call.
- The Purchase, NY-based beverage and snack giant saw improvements in its North American business, noting its beverage segment in the market saw 5% net revenue growth, according to earnings results for its third quarter of fiscal 2026. Still, the business is “not satisfied” with its performance in the U.S., CEO and Chairman Ramon Laguarta said Thursday.
- “We certainly want North America to grow faster and more efficiently,” PepsiCo CFO Stephen Schmitt said in response to an analyst question, according to a transcript. “We're going to continue to fuel the international business and maintain momentum there. And we're going to be very disciplined with costs and capital allocation.”
Dive Insight:
PepsiCo is “identifying structural cost reduction areas” moving forward as it focuses on improving its financial performance in North America, Schmitt said Thursday. That includes actions which can help to “curtail discretionary expenditures,” it said in its earnings report, pointing to reducing corporate costs and “other initiatives not directly tied to growth” as examples.
Net revenue for PepsiCo Beverages North America, which includes the company’s beverage businesses in both the U.S. and Canada, reached $7.7 billion for the 12 weeks ended Sept. 5, but the company reported a dip in both beverage volume and margin for the segment.
Core operating margin for PBNA declined by 15 basis points in the quarter, reflecting both volume and channel mix pressures and higher advertising and marking investments, Schmitt said in his prepared remarks.
The company also plans to tap revenue management tools in the coming months to help “partially mitigate” margin pressures it sees upcoming in its fourth quarter, Schmitt said. PepsiCo expects those benefits will be visible “as we turn the calendar year,” he said.
PepsiCo also provided an update to its guidance for its full fiscal 2026 taking into account costs and continued pressure on North American margins. It now expects earnings per share growth between 2.5% and 3.5%, compared to previous guidance of between 5% to 7% for its fiscal 2026, according to its earnings report.
The beverage and snack maker, which also owns the Frito-Lay chip brand, has seen its U.S. performance stutter in recent years, impacted by higher costs, more competition in key areas such as soft drinks — where it “trailed category performance” for Q3, Laguarta said — and ongoing changes in Americans’ snacking and eating habits.
Some reports have correlated the rising use of GLP-1 drugs such as Ozempic to a shift in snacking, The Wall Street Journal reported last year. However, rising food prices and changing consumer preferences, such as those for sugar-free snack and drink options are also playing a role, the Atlantic reported in March.
Food prices overall rose 2.7% YoY in August, according to a Sept. 11 report by the Bureau of Labor Statistics, with the price index for non-alcoholic beverages jumping by 3.7% for the 12-month period.
Rising costs are changing the way many Americans consider their snacking purchases. About 40% of consumers now consider themselves “value seekers,” making “cost-driven, deal-seeking and convenience-sacrificing choices in their pursuit of value,” Big Four firm Deloitte’s recent Consumer Signals survey found.
PepsiCo is looking to careful cost management and productivity gains tied to its ongoing 2019 “Productivity Plan” to help offset rising prices, executives said Thursday.
The company is largely “pleased” with pricing investments in North America, which have helped to improve volume in the snack segment for the U.S, Laguarta said. That provides flexibility to help absorb “this new wave of inflation that is coming to every country, not only the U.S.” given energy and agricultural prices, he said.
The company is “going to see a mix of net revenue management tactics that will impact some pricing,” he said Thursday.
