PepsiCo faces pressure to meet targets amid GLP-1 drug threat
PepsiCo is under pressure to meet growth and margin targets set after Elliott Investment Management took a stake, as GLP-1 weight-loss drugs pose a threat to its snack and drink business. The company's North America business is facing volume contractions due to higher input costs and inflation, with core operating margins declining.
Activist investor Elliott pushing for change at PepsiCo PepsiCo grappling with cost pressures, GLP-1 threat Valuation multiples of PepsiCo and Coca-Cola have diverged PepsiCo reports Q3 earnings on Thursday By Alexander Marrow and Anuja Bharat Mistry Oct 6 (Reuters) — PepsiCo is running out of time to deliver on the growth and margin targets it set out after activist investor Elliott Investment Management took a roughly $4 billion stake a year ago, as the threat of GLP-1 weight-loss drugs to salty snacks and sugary drinks intensifies.
Focus when PepsiCo releases quarterly earnings on Thursday will be on the group's major North America business, where volumes have contracted as CEO Ramon Laguarta battles higher input costs stemming from the Iran war and sticky inflation curbing consumer demand. 3% of revenue. That is moving in the opposite direction to a December target for a 100-basis-point uptick over three years announced after discussions with Elliott. "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 PepsiCo investor Hightower Advisors. Elliott and PepsiCo did not respond to requests for comment on this story. Food Producers Pushed To Launch Healthier Products Weight-loss drugs have forced food producers from Kraft Heinz to Conagra Brands to offer healthier, reformulated products. PepsiCo has also embraced the trend, with launches including Doritos Protein, SunChips Fiber and Good Warrior beef sticks.
But the threat posed by GLP-1-induced healthier eating habits is still reflected in narrowing valuations for food companies. PepsiCo, with its sprawling portfolio of processed snacks and sodas, has seen its enterprise value, which includes debt, slide to 10 times its EBITDA compared with 18 times in mid 2022, while its more focused rival Coca-Cola has sped ahead. The question for PepsiCo is whether volumes are finally coming back, said David Wagner, head of equity and portfolio manager at PepsiCo investor Aptus Capital Advisors. PepsiCo's shares have lost nearly 12% of their value so far this year, and are down about 16% since Elliott's investment.
"Investors want two things: beverage pricing power that keeps pace with Coke, and signs that unit volumes and margins in North American snacks have stopped sliding," Wagner said. Third-quarter Revenue Expected To Rise 4% The biggest issue, said TD Cowen analyst Robert Moskow, is that the enormous effort PepsiCo has put into its US Frito-Lay business, including price adjustments, new products, distribution expansion and more marketing, has fallen far short of their expectations. "Sales remain flattish, and they're losing market share," Moskow said. 29, according to the data compiled.
The North America improvement is likely to be gradual, said UBS analyst Peter Grom, and the pricing pivot — a move last month to raise some US chip prices with inflation — probably does make some sense. com;)