PepsiCo is facing growing challenges in North America as rising production costs, cautious consumer spending and declining beverage sales put pressure on its profitability, forcing the company to plan further cost-cutting measures.
The company’s efforts to revive growth in the region are taking longer than expected, despite better-than-anticipated overall revenue in the third quarter. PepsiCo Chief Financial Officer Steve Schmitt said the company continues to focus on improving sales growth and its core operating margin in North America.
However, the recovery has been slower than anticipated, and the company expects profitability in the region to remain under pressure during the fourth quarter. Chief Executive Officer Ramon Laguarta said PepsiCo would introduce additional cost-reduction measures in the coming months.
The savings are expected to support investments aimed at boosting sales and offsetting the impact of rising input costs. The company is dealing with multiple challenges, including inflation, higher production expenses and changing consumer preferences.
Shoppers are increasingly cautious about spending, while competition from rival brands and growing interest in healthier lifestyles are creating additional pressure on traditional snack and beverage sales.
The increasing use of GLP-1 weight-loss drugs, which can suppress appetite, is also emerging as a potential challenge for demand for snacks and other food products. PepsiCo’s overall third-quarter revenue exceeded market expectations, but its North American operations continued to weigh on performance.
The company revised its 2026 organic revenue growth forecast to approximately 3%, compared with its earlier projection of growth between 2% and 4%. The company has also reduced its earnings expectations for the year.
PepsiCo now expects adjusted core earnings per share, excluding the impact of currency movements, to increase by just 1% to 2% in 2026. Its earlier forecast had projected growth at the lower end of a range of 4% to 6%. Profit margins have also come under pressure. PepsiCo’s core operating margin declined by 35 basis points in the third quarter compared with the same period last year.
For the year so far, the margin has fallen by 25 basis points to 16.5% of revenue. The company had previously outlined a target of improving its core operating margin by 100 basis points over three years following discussions with activist investor Elliott. Weak demand in North America is particularly evident in the company’s beverage business.
Food volumes remained unchanged in the third quarter compared with a year earlier, while beverage volumes declined by 2%. The performance has raised concerns about PepsiCo’s ability to regain market share against competitors such as Coca-Cola and Keurig Dr Pepper.
RBC Capital Markets analyst Nik Modi said PepsiCo’s beverage business continued to disappoint. He suggested that the company might need to consider a more significant restructuring of its beverage operations, including transferring greater control to independent franchise operators, to address its competitive challenges.
PepsiCo has already taken steps to attract customers through price reductions. In February, it lowered prices on selected products, including Lay’s and Doritos, by as much as 15%. However, the company announced in September that it would increase prices on certain chips to compensate for higher input costs.
The pricing strategy highlights the difficult balance facing the company. Lower prices could encourage consumers to return to its products, but they can also limit profit margins when production expenses are rising.
Conversely, price increases may help recover costs but risk discouraging price-sensitive customers. Competition from supermarket-owned private-label brands is adding to the pressure. Retailers are increasingly focusing on their own products, with some reducing shelf space allocated to established brands.
This has made it harder for PepsiCo to maintain its presence in stores and compete for consumers’ attention. PepsiCo is not alone in facing these difficulties. Other packaged-food companies, including General Mills, McCormick and Conagra Brands, are also dealing with higher costs and consumers seeking better value.
Several companies have increased promotional offers and affordability initiatives to retain customers. While PepsiCo’s international operations have performed relatively better, the continued weakness in North America remains a significant concern.
The company is relying on cost savings, pricing changes and renewed investment in sales to improve its performance. However, with food volumes stagnant, beverage sales declining and margins under pressure, restoring sustainable growth in its largest market remains a challenge.
