PepsiCo's fizz fades as GLP-1 drugs and activist investor Elliott's targets test its snack business

PepsiCo faces mounting pressure to deliver the growth and margin targets it set after activist investor Elliott Investment Management took a stake of about $4 billion in the company. The threat from GLP-1 weight-loss drugs to its salty snacks and sugary drinks is growing. The company reports its third-quarter results on Thursday, October 8.

All eyes on Thursday will be on PepsiCo's North America business, where volumes have fallen, according to a Reuters report. CEO Ramon Laguarta is dealing with higher input costs linked to the Iran war, and sticky inflation is hurting consumer demand. Elliott built its stake in September 2025 and pushed the company to improve its performance in North America.

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Margin moves in the opposite direction

In December 2025, after talks with Elliott, PepsiCo announced it would cut nearly 20% of its US product range by early 2026 and aimed to expand its core operating margin by at least 100 basis points over three fiscal years. The company also promised a supply chain review and a refresh of its board.

In February, it cut prices of products such as Lay's and Doritos by up to 15%. It has also pushed for record productivity savings. Even so, its core operating margin was 15 basis points lower in the first half of the year than a year earlier, at 16.3% of revenue. This is the opposite of the direction set in the December target.

The second quarter was also mixed. PepsiCo's net revenue rose 6.4% and organic revenue grew 2.4%, helped by international markets. But revenue at PepsiCo Foods North America, which includes Frito-Lay and Quaker, fell 2%. Laguarta said North America was softer than the company expected, and that it now sees a more gradual improvement in the rest of the year.

"They have not identified a focused path to recovery in the face of the 'changes' that they've made. They were simply too late, and now they have the threat of GLP-1s," said Stephanie Link, chief investment strategist at Hightower Advisors, a PepsiCo investor.

Healthier products and a valuation gap

Weight-loss drugs have pushed food makers from Kraft Heinz to Conagra Brands to offer healthier, reformulated products. PepsiCo has launched Doritos Protein, SunChips Fiber and Good Warrior beef sticks.

The worry is still visible in valuations. PepsiCo's enterprise value, which includes debt, has fallen to 10 times its EBITDA, from 18 times in mid-2022. Its more focused rival Coca-Cola has moved ahead. PepsiCo's shares are down nearly 12% so far this year and about 16% since Elliott invested.

David Wagner, head of equity and portfolio manager at Aptus Capital Advisors, said investors want beverage pricing power that keeps pace with Coca-Cola. They also want signs that volumes and margins in North American snacks have stopped sliding.

What analysts expect

Robert Moskow, an analyst at TD Cowen, said the effort PepsiCo has put into its US Frito-Lay business has fallen far short of expectations. This includes price changes, new products, wider distribution and more marketing. "Sales remain flattish, and they're losing market share," he said.

Analysts expect third-quarter revenue to rise 4.3% to $24.96 billion, according to data compiled by LSEG. Adjusted earnings per share are expected to rise 0.21% to about $2.29.

UBS analyst Peter Grom said the improvement in North America is likely to be gradual. He said last month's move to raise some US chip prices in line with inflation makes some sense. "If you are not going to get the volume uplift from lowering price, then I think it makes sense to kind of have more of a normal cadence of pricing," he said.

Elliott and PepsiCo did not respond to Reuters' requests for comment.

(With inputs from Reuters)