Seven months after activist hedge fund Elliott disclosed a roughly $4 billion stake in PepsiCo, the company faces growing investor scrutiny to show that a program of price cuts, brand relaunches and aggressive cost reductions will translate into the volume growth shareholders expect. PepsiCo has been reporting falling annual volumes since 2021, and its shares have underperformed rival Coca-Cola over the last five years as consumers, squeezed by inflation, trade down to smaller pack sizes and shift toward healthier snack options.
CEO Ramon Laguarta set the tone in December by announcing a review of the North America supply chain and pledging steep cost cuts to revive growth. That announcement came after several weeks of discussions with Elliott, which has publicly urged PepsiCo to refranchise or spin off its bottling businesses and to consider sales of non-core food assets.
Investors are looking for tangible proof that the company’s remedial measures are lifting volumes and organic sales in its largest market. In February, PepsiCo cut prices on key snack brands including Lay’s and Doritos by up to 15% in response to consumer pushback against earlier increases. Laguarta said the Frito-Lay snacks unit achieved double-digit increases in shelf space during March and April.
Those moves set a near-term test: can price reductions, promotional activity and cost savings reverse recent volume declines and produce organic growth across North America? Some investors say modest gains would be enough to restore confidence. “If PepsiCo can deliver organic growth of 0% to 2%, investors will be happy,” said Stephanie Ling, chief investment officer at Hightower Advisors, which holds PepsiCo shares. Ling also pointed to the appointment of former Walmart executive Steve Schmitt as chief financial officer in November and described the firm working with Elliott as a positive signal. “These are all catalysts for them to kind of get their act together,” she added. “And I think they will.”
Elliott declined to comment for this story. PepsiCo did not respond to requests for comment.
Costs and external pressures
However, the broader cost environment poses a significant complication for PepsiCo’s turnaround plans. The article notes that the Iran war has driven energy prices higher, contributing to the fastest rise in U.S. consumer prices in nearly four years and prompting an International Monetary Fund warning that higher inflation and slower growth are unavoidable. For consumer packaged goods companies, that dynamic often translates into elevated packaging costs as raw materials and logistics expenses rise, squeezing margins.
Investor concerns extend to specific supply-chain pressures. Consumer prices have also risen in India, and PepsiCo India warned of constrained liquefied petroleum gas inventories at some food processing plants, possible packaging shortages, and increased costs after a government order to prioritise domestic LPG supplies, according to a letter seen by Reuters that was sent to India’s Ministry of Food Processing Industries.
Analysts and market commentators say packaging inputs are running above PepsiCo’s guidance. Mark Pacitti, founder and managing director of research platform Woozle, said pet resin and aluminium prices are notably higher than current company guidance implies. He added that several distributors told his team that PepsiCo field representatives had been unusually non-committal on forward pricing or customer guidance, which Pacitti interprets as a signal of limited cost visibility and potential near-term pricing pivots.
RBC Capital Markets analyst Nik Modi noted that, like Coca-Cola, PepsiCo typically hedges packaging-related raw materials about nine to 12 months ahead, which could blunt some near-term cost shocks. Even so, he and others observe that consumer pressure from inflation could be the decisive swing factor for volumes and margins this year.
What investors will watch
PepsiCo reports first-quarter earnings on April 16. Investors will be assessing whether the combination of price cuts, increased shelf presence for Frito-Lay and the company’s cost-savings program are producing measurable improvements in unit volumes and organic growth in North America. The market currently values PepsiCo at a discount to its historical earnings multiple, and some investors appear willing to accept modest organic growth as a sign of improvement.
Yet the company still confronts a set of uncertainties that could blunt progress: elevated packaging and logistics costs, geopolitical-driven energy price risks, and supply constraints in important markets such as India. As one of a number of large consumer goods firms navigating this environment, PepsiCo’s ability to translate strategy into durable volume recovery remains to be proven at the upcoming earnings release.