PepsiCo has set out its strategy designed to appease activist investor Elliott Investment Management, with a requisite to “accelerate” organic growth.
The plan “incorporates constructive engagement”, PepsiCo said in a statement, noting it has the support of shareholder Elliott, which in September put pressure on the US-headquartered food and drinks giant to improve its financial performance.
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There were, however, no drastic developments to address the observation put forward by Elliott in September that PepsiCo was “a dramatic under-performer”, as the investor suggested at the time the company should become “a more focused, streamlined” business.
PepsiCo repeated a pledge to cut SKUs, quantified yesterday (8 December) as “nearly” 20% in the US early in the new year. Discussing third-quarter results in October, chairman and CEO Ramon Laguarta presented a reduction of around 15% in its North America food and drinks business as a means to “reduce supply chain complexity”.
While forecasts for fiscal 2026 were outlined, the guidance for organic growth in the current year was left unchanged at a low-single-digit pace. That would be similar to the 2-4% range proffered yesterday for the upcoming year.
PepsiCo said it should achieve the higher end of that organic range in the back half of next year, with a net contribution of one percentage point to reported revenue growth when acquisitions and divestitures conducted in 2025 are accounted for.
Net reported growth is envisaged as 4-6% in 2026, including a one-percentage- point benefit from exchange rates.
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By GlobalData“Accelerating organic revenue growth and improving core operating margin expansion are critical to enhancing long-term shareholder value,” PepsiCo said yesterday.
“To achieve these objectives, we are acting with a high sense of urgency to improve the marketplace competitiveness and financial performance of PepsiCo Foods North America.”
One of those objectives is “aggressively reducing operating costs and improving operational excellence with savings generated to support meaningful investments in advertising and marketing and consumer value”, including the SKU cuts and the previously announced closures of three US manufacturing plants.
PepsiCo also plans to pursue a “targeted approach on affordable price tiers by brand and channel aimed at stimulating growth and improving the purchase frequency of our mainstream brands”.
And the business will also continue to remove artificial colours and flavourings, and instead focus on “simpler ingredients”, including protein, fibre and whole grains.
“We are announcing our plans and initiatives that aim to accelerate organic revenue growth, deliver record productivity savings and improve core operating margin –starting in 2026,” Laguarta said.
“PepsiCo Foods North America will play a critical role towards achieving these targets and we feel encouraged about the actions and initiatives we are implementing with urgency to improve both marketplace and financial performance.”
Laguarta had implied at the second-quarter results stage in July that an integration of PepsiCo’s North America businesses in food and drinks – Frito-Lay North America and PepsiCo Beverages North America (PBNA) – could be on the cards.
PepsiCo said yesterday, with no direct inference to that prospect: “With respect to our North America supply chain and go-to-market optimisation initiatives, we are carefully evaluating an integrated model and intend to take a nuanced approach factoring in key components such as return on investment, scale and market share at a US state level.” An update will be provided “late” in 2026.
A “refreshment” of PepsiCo’s board is also planned, “with a focus on global leaders who can help us meet our meaningful growth and profitability objectives”, an initiative supported by Elliott.
Marc Steinberg, a partner at Elliott, said. “We appreciate our collaborative engagement with PepsiCo’s management team and the urgency they have demonstrated.
“We believe the plan announced today to invest in affordability, accelerate innovation and aggressively reduce costs will drive greater revenue and profit growth. We are confident that PepsiCo will create substantial value for shareholders as it executes on this plan, and we look forward to continued engagement with the company.”
PepsiCo did not directly address the affordability aspect mentioned by Steinberg in yesterday’s statement beyond cost cuts and the affordable price tiers.
“In addition to the aggressive cost-reduction actions being taken at PepsiCo Foods North America, we also intend to advance and accelerate our global productivity initiatives through more automation, digitalisation and simplification initiatives,” the statement read.
“We aim to deliver a record year of productivity savings in 2026, benefiting in part from the actions taken in the second half of 2025.”
The anticipated savings are expected to deliver an additional 100 basis points to PepsiCo’s core operating margin over the next three fiscal years. In 2026, core EPS is forecast to increase by around five to seven percentage points.
In terms of 2025, core, constant-currency EPS is still expected to be “approximately even” with 2024.
According to the most recent figures, EPS dropped 2% in the third quarter and was down 3.5% year to date. It was up 9% in the previous 12 months.
