By Anuja Bharat Mistry and Alexander Marrow
Oct 8 (Reuters) - PepsiCo warned on Thursday that growth and margin recovery in its key North American market was taking longer than planned and said it would pursue additional cost cuts to offset sluggish demand for its snacks and beverages.
Faced with high input costs, inflation hit to demand and the growing threat of GLP-1 weight-loss drugs, the company is pursuing record productivity savings in its turnaround efforts launched after activist investor Elliott
Investment Management took a roughly $4 billion stake a year ago.
PepsiCo's third-quarter revenue exceeded market expectations and the company adjusted its 2026 organic revenue forecast to about 3% from a prior view of 2% to 4%, but flagged slow progress and profitability struggles in North America.
"In North America, we remain committed to improving growth and core operating margin," said CFO Steve Schmitt in prepared remarks. "However, it is taking more time than we planned. Therefore, we expect North America’s core operating margin performance to remain under pressure in the fourth quarter."
PepsiCo's core operating margin dropped 35 basis points in the third quarter from a year ago and was down 25 basis points year to date at 16.5% of revenue. In December, after discussions with Elliott, PepsiCo said it was targeting a 100-basis-point uptick over three years.
The company also cut its fiscal 2026 forecast for core earnings per share after adjusting for currency fluctuations to an increase of 1% to 2%, compared with previous expectations for the low end of the 4% to 6% range.
The challenge is industry-wide. Packaged food makers such as General Mills, McCormick and Conagra Brands are spending more on promotions and affordability initiatives to revive demand while contending with higher input costs.
PepsiCo, whose shares were up about 2% in premarket trading, has responded with record productivity savings and is now promising more.
"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," CEO Ramon Laguarta said in a statement.
PepsiCo's international business continues to perform well, but North America weakness, where third-quarter volumes in food were flat and dipped 2% in beverages from a year ago, is a persistent pain point.
"The beverage business continues to disappoint, and we expect PepsiCo will continue to be a source of share to both Coca-Cola and Keurig Dr Pepper." said Nik Modi, analyst at RBC Capital Markets. "PepsiCo will have to fully refranchise its beverage business or it will continue to lose share."
The company cut prices by up to 15% on products such as Lay's and Doritos in February, but last month said it would raise some chip prices to keep pace with input cost inflation.
Competition to maintain shelf-space also has been high, a threat that PepsiCo has been referring to in its risk assessment for several quarters.
"Retailers and buying groups are shifting traditional value propositions, removing our products or otherwise reducing shelf space allocated to our products and focusing on introducing and developing private-label brands," the company said.
(Reporting by Alexander Marrow in London and Anuja Bharat Mistry in Bengaluru; Editing by Arun Koyyur)
