PepsiCo running out of time to meet Elliott-inspired targets as GLP-1 threat intensifies

PepsiCo is struggling to meet the growth and margin targets set after activist investor Elliott Investment Management acquired a significant stake in the company a year ago. The looming threat of GLP-1 weight-loss drugs, which are expected to impact PepsiCo's salty snacks and sugary drinks, adds to the pressure. When PepsiCo releases its quarterly earnings on Thursday, market focus will be on the performance of its North American operations, which have seen a contraction in volumes.

The company's CEO, Ramon Laguarta, is dealing with higher input costs due to the Iran war and inflation that is dampening consumer demand. Despite making efforts to save productivity and cut prices by up to 15%, PepsiCo's core operating margin has decreased by 15 basis points to 16.3% of revenue, falling short of the target set in December for a 100-basis-point increase in three years.

With no clear path to recovery, Stephanie Link, a chief investment strategist at Hightower Advisors, believes that PepsiCo's initiatives were too late. The threat posed by GLP-1 drugs has resulted in narrowing valuations for food companies like PepsiCo, whose enterprise value is now at 10 times its EBITDA, compared to 18 times in mid-2022.

Analysts are closely watching PepsiCo's third-quarter revenue and adjusted earnings per share, expecting modest growth, but are concerned that the company's extensive efforts to boost its US Frito-Lay business have not yielded the expected results.