PepsiCo is running out of time to deliver the growth and profitability targets it set after activist investor Elliott Investment Management acquired a roughly $4 billion stake in the company last year, as the growing use of GLP-1 weight-loss drugs adds pressure on demand for snacks and sugary drinks.
Investors will be watching closely when PepsiCo reports its third-quarter results on Thursday, particularly for signs of improvement in its North American business. Volumes have contracted as the company deals with higher input costs and persistent inflation that has weakened consumer demand.
PepsiCo has cut prices on products including Lay’s and Doritos by as much as 15% and pursued record productivity savings. Despite those efforts, its core operating margin fell 15 basis points in the first half of the year to 16.3% of revenue.
That leaves the company moving away from a target announced after discussions with Elliott to increase core operating margins by 100 basis points over three years. PepsiCo shares have fallen nearly 12% this year and about 16% since Elliott disclosed its investment.
The growing use of GLP-1 weight-loss medicines presents another challenge because the drugs can reduce appetite and alter eating habits. PepsiCo has responded with products focused on protein, fibre, hydration and smaller portions, but investors are still looking for evidence that sales volumes and margins can recover.
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