PepsiCo is facing increasing pressure to demonstrate progress on the growth and profitability goals it established following activist investor Elliott Investment Management’s roughly $4 billion investment in the company last year. At the same time, the growing use of GLP-1 weight-loss drugs is creating another challenge for a business heavily dependent on snacks and sugary beverages.
Investors will closely watch PepsiCo’s quarterly results, particularly the performance of its North American operations. The business has experienced weaker volumes as persistent inflation affects consumer spending and higher input costs continue to weigh on the company.
PepsiCo has attempted to counter those pressures through productivity initiatives and pricing measures. The company reduced prices by as much as 15% on products including Lay’s and Doritos in February, while also pursuing significant cost savings. However, its core operating margin declined to 16.3% of revenue during the first half, down 15 basis points from the same period a year earlier.
The decline leaves PepsiCo facing a difficult task in meeting a target announced in December following discussions with Elliott. The company had outlined plans to increase its operating margin by 100 basis points over three years.
The growing popularity of GLP-1 medications has added another layer of uncertainty. The drugs, increasingly associated with reduced appetite and changing eating habits, have encouraged food manufacturers to develop products positioned as healthier alternatives.
PepsiCo has responded with launches such as Doritos Protein, SunChips Fiber and Good Warrior beef sticks as it seeks to broaden its portfolio. Other major food companies, including Kraft Heinz and Conagra Brands, have also introduced reformulated and health-focused products.
Meanwhile, investor valuations reflect broader concerns surrounding traditional packaged-food companies. PepsiCo’s enterprise value relative to EBITDA has fallen to around 10 times, compared with about 18 times in mid-2022. Coca-Cola has performed better during the same period.
The immediate question for investors is whether PepsiCo can reverse declining volumes and demonstrate that its latest pricing, productivity and product initiatives are beginning to translate into sustainable growth.
