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PepsiCo plans to identify cost cuts across its operations in the coming months, targeting redundancies and discretionary spending as it works to improve North American performance. The company also plans to raise prices on some chips amid higher energy and agricultural costs, while lowering its full-year organic revenue growth outlook to about 3%.
PepsiCo plans to cut costs across its operations and raise prices on some chips as it tries to improve North American performance, which the company says remains below expectations. Chief Executive Ramon Laguarta said the company will target redundancies and discretionary spending, while PepsiCo also lowered its organic revenue growth outlook to about 3%.
The planned cuts are expected to be implemented over the coming months. On the company’s third-quarter earnings call, Laguarta said PepsiCo would examine spending across its operations, with a focus on costs not tied to growth. He described North America as a meaningful opportunity for improvement, even as some volume trends have strengthened.
PepsiCo also told analysts it would raise prices on select chips to address higher energy and agricultural costs. That marks a reversal from February, when the company said it was lowering prices by as much as 15% to encourage purchases and respond to consumers who had pulled back amid inflation. The report does not specify which products will be affected or when the increases will take effect.
North America generated about 56% of PepsiCo’s $25.27 billion in third-quarter net revenue, according to the report. Regional volumes were flat overall, while North American beverage volume fell 2% during the quarter. The company said U.S. salty-snack volumes had grown for four consecutive quarters and outperformed the wider U.S. food and beverage category; it also reported U.S. market-share gains in several snack categories.
Costs and Prices Shape the Turnaround
The plans put cost discipline and selective price increases at the center of PepsiCo’s effort to revive growth in a region that accounts for more than half of its reported quarterly revenue. If the cuts free up money for investment, they could support product development in areas the company sees as growth opportunities. The company has not given a savings target, so the scale of any financial benefit is not yet known.
Price increases also come as PepsiCo tries to win back consumers who have reduced spending and previously responded to lower prices. That creates a tension for the business: higher prices may help offset input costs, but the company’s February reductions show it has also been using price to encourage demand. The effects of the new increases on purchases have not been reported.
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A Shift After February Price Cuts
PepsiCo’s North American turnaround effort includes changes to products as well as spending. The company said it wants more offerings with simpler ingredients, alternative oils and functional features such as protein and fiber. It cited recent launches including NKD, Doritos Protein, Lay’s baked with olive oil, and a lower-sugar Gatorade without artificial colors, flavors or sweeteners as products whose performance encouraged it.
The report also describes improving organic volume trends in U.S. savory and salty categories, along with better beverage volume trends in energy drinks, functional hydration, and zero-sugar and flavored soft drinks. Those gains have not resolved the broader regional challenge: North American beverage volume was down 2%, and PepsiCo said the region performed below its expectations.
PepsiCo revised its organic revenue outlook to about 3% growth, down from its prior range of 2% to 4%. The report gives the updated forecast but does not provide a detailed breakdown of how much the North American business contributed to the change.
“We’re going to look at every cost with aggressive lenses and with the lenses that everything that is not related to growth will not be part of the company.”
— PepsiCo CEO Ramon Laguarta, on the earnings call
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Savings and Price Details Pending
PepsiCo has not disclosed how much it expects to save, which operations may be affected, or whether the measures will involve job reductions. It also has not named the chips subject to price increases or provided their size and start dates. The company’s stated plans are to identify cuts and implement initiatives in the coming months; the report does not give a detailed schedule.
It is also unclear how consumers will respond to higher snack prices or whether improving trends in parts of the business will offset flat overall North American volume. The company’s market-share gains and product-launch assessments are its own reported results; longer-term effects have not yet been established.
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Cost Measures Roll Out in Coming Months
PepsiCo says it plans to identify and implement cost initiatives over the coming months. Investors and consumers will be watching for details on the scope of the cuts, the products receiving price increases and whether the company reports savings or changes in demand.
The next measure of progress will be the company’s subsequent business updates against its revised forecast of about 3% organic revenue growth. Further reporting may clarify whether North American volumes improve and whether the product launches cited by PepsiCo contribute to sustained gains.
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Key Questions
What cost cuts is PepsiCo planning?
PepsiCo says it will look for redundancies and discretionary spending across its operations. It has not disclosed specific departments, a savings target or whether jobs will be affected.
Will PepsiCo raise prices on all its chips?
No. The report says the company plans to raise prices on select chips to address higher energy and agricultural costs. PepsiCo has not named the products or announced the size or timing of the increases.
How did PepsiCo perform in North America?
PepsiCo said the region performed below expectations. North American volumes were flat overall, and beverage volume fell 2% during the third quarter. The company also reported improving trends in some U.S. snack categories and gains in share for several products.
What is PepsiCo’s latest revenue outlook?
PepsiCo lowered its organic revenue growth outlook to about 3%, from a previous forecast range of 2% to 4%.
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