PepsiCo to cut costs as weak N.America business hurts core profit forecast

PepsiCo Announces Cost Cuts Amid Struggles in North American Business

PepsiCo's Financial Performance and Strategic Initiatives

Profit Forecast and Cost Reduction Measures

Oct 8 (Reuters) - PepsiCo cut its annual core profit forecast on Thursday and said it would pursue additional cost cuts, warning that efforts to revive growth and profitability in its crucial North American business were taking longer than expected.

Industry-Wide Challenges

This highlights a broader challenge in the packaged food industry, where companies such as General Mills, McCormick and Conagra Brands are spending more on promotions and affordability initiatives to revive demand while contending with higher input costs.

CEO Statement on Cost Reductions

"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," PepsiCo CEO Ramon Laguarta said in a statement.

North American Business Performance

PepsiCo has been battling weakness in its North America business. Foods segment volumes were flat in the third quarter ended September 5, while in beverages, it dipped 2% from a year ago.

The region has been a pain point for the company despite its efforts to cut prices by up to 15% on products such as Lay's and Doritos in February.

Pricing Strategies and Profitability

Last month, PepsiCo said it would raise prices on some U.S. products to offset rising costs and improve profitability in North America, where margins have been hit by affordability initiatives, higher marketing spending and weak demand.

Investor Pressure and Strategic Reviews

The company has been under pressure to reinvigorate its soda business, boost its share price and explore selling non-core food assets since activist investor Elliott Investment Management disclosed a roughly $4 billion stake last year.

After discussions with Elliott, PepsiCo said in December it would review its North American supply chain and pursue aggressive cost-cutting measures.

Management Commentary

"In North America, we remain committed to improving growth and core operating margin. However, it is taking more time than we planned," said PepsiCo CFO Steve Schmitt in prepared remarks.

Market Reaction and Financial Outlook

Shares of the company were up about 1% in premarket trading.

The company expects fiscal 2026 core earnings per share after adjusting for currency fluctuations to rise 1% to 2%, compared with its prior forecast of low-end of 4% to 6% rise.

It also expects annual organic revenue to be up about 3%, compared with the prior forecast of between 2% and 4%.

Quarterly Results

However, its quarterly revenue rose 5.6% to $25.27 billion, compared with analysts' estimate of $24.96 billion, according to data compiled by LSEG. Its quarterly core earnings per share of $2.34 exceeded estimates of $2.29.

(Reporting by Anuja Bharat Mistry in Bengaluru and Alexander Marrow in London; Editing by Arun Koyyur)