PepsiCo warned on Thursday that its North American recovery is taking longer than planned, forcing the company to lower its 2026 earnings outlook and pursue deeper cost cuts. While international growth pushed quarterly revenue to $25.27 billion, the snack and beverage giant continues to struggle with weak domestic demand.
Third-Quarter Financial Performance and Market Reaction
PepsiCo reported fiscal third-quarter net income of $3.07 billion, or $2.34 per share on an adjusted basis, topping the $2.29 expected by analysts. Net revenue rose 5.6% to $25.27 billion, largely bolstered by the company’s international business, which now accounts for 41% of its total revenue. Despite the revenue beat, investors reacted to the company’s lowered fiscal outlook, with shares rising about 2% in morning trading on Thursday.
The company adjusted its 2026 organic revenue growth forecast to about 3%, down from its previous expectation of 2% to 4%. More significantly, PepsiCo cut its guidance for core earnings per share growth to a range of 1% to 2% after currency fluctuations, a stark reduction from the previous forecast of 4% to 6%.
North American Operating Margins Remain Under Pressure
The primary source of the company’s recent friction remains its domestic market, where a turnaround plan initiated a year ago following a roughly $4 billion stake taken by activist investor Elliott Investment Management has yet to yield expected results. CFO Steve Schmitt noted that North America’s core operating margin performance is expected to remain under pressure in the fourth quarter
as recovery efforts encounter headwinds.
The company’s core operating margin dropped 35 basis points in the third quarter compared to a year ago and is down 25 basis points year-to-date at 16.5% of revenue. This performance lags behind the 100-basis-point improvement target the company set in December following discussions with Elliott. In the most recent quarter, North American food volumes remained flat, while beverage volumes fell 2%.
Laguarta Identifies Structural Cost-Reduction Measures
To offset sluggish demand and rising input costs, CEO Ramon Laguarta announced that the company is identifying additional structural cost-reduction measures. 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,
Laguarta stated.
Industry Pressures and Competitive Landscape
PepsiCo is operating in a market where consumers are increasingly sensitive to price and competitors are aggressively vying for shelf space. The company’s risk assessments have pointed to retailers and buying groups shifting toward private-label brands. Simultaneously, the rise of GLP-1 weight-loss drugs continues to cast a shadow over the packaged-food industry.
“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.”
David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, noted that the company’s window to demonstrate a domestic turnaround is closing. Next couple of quarters need to show real North American inflection, or the pressure moves from ‘deliver the turnaround’ to ‘explain why you’re still the right person to lead it’,
Wagner said.
