PepsiCo Inc. reached an agreement with activist investor Elliott Investment Management to reduce its US product lineup by 20% and lower prices, while the company also pares its workforce.
The moves represent an early agreement with Elliott as the maker of Mountain Dew and Doritos seeks to recapture growth and win back investors. Elliott built up a roughly $4 billion stake earlier this year and clamored for changes, citing an overly complex portfolio of brands and a declining share of the beverage business.
The company also offered an updated outlook for next year, projecting organic revenue growth of 2% to 4% in fiscal 2026, versus an average analyst estimate of nearly 2.7%. Organic growth, a key measure for investors, excludes items such as acquisitions and currency volatility.
“The message you should take from this is it’s not business as usual here,” Steve Schmitt, PepsiCo’s chief financial officer, said on a call with analysts Tuesday.
PepsiCo shares were little changed on Tuesday at 11:32 a.m. in New York. The stock had dropped 4.2% so far this year through Monday’s close, compared with a gain of 16% for the S&P 500 Index.
Key Brands
PepsiCo Chief Executive Officer Ramon Laguarta said that PepsiCo planned to use its savings from increased productivity to lower prices in its key brands, which he expects will lead to higher sales volumes.
“We have the opportunity to reinvest in value in a more substantial way,” Laguarta told analysts, noting that PepsiCo has already been testing the lower prices. “That gives us quite a lot of confidence that the volume will come.”
Laguarta reiterated the company’s plans to launch new products with more fiber and protein, as well as those that have stripped out artificial ingredients and reduced sugar levels.
Analysts said that some key planks of PepsiCo’s strategy were in place before Elliott’s involvement in the company.
“Our sense is that Elliott’s engagement created a greater sense of urgency for the company to execute its strategy, but the strategy did not change to a revolutionary degree,” TD Cowen analyst Robert Moskow wrote in a note.
Marc Steinberg, a partner at Elliott, said the plan “will drive greater revenue and profit growth,” according to PepsiCo’s statement. Elliott will continue to engage with PepsiCo, he added.
‘Structural Changes’
Separately, PepsiCo instructed employees in a number of North American offices, including its headquarters in Purchase, New York, as well as Chicago and Plano, Texas, to work remotely this week. Companies in recent years have frequently requested staff to work from home ahead of layoff announcements.
“We will be making structural changes to our business that will affect some roles in the company,” Jennifer Wells, chief people officer in North America, said in a message to workers on Sunday that was viewed by Bloomberg News.
Laguarta has said the company is taking actions to reduce costs, improve productivity and update its manufacturing so that it can invest in other aspects of the business. PepsiCo executives had already talked about “right-sizing the workforce” — a frequent corporate euphemism for layoffs — prior to Elliott’s engagement with the company.
In November, PepsiCo said it would shut down Frito-Lay facilities in Orlando, Florida, laying off more than 450 people. At the time, the company said the layoffs were “driven by business needs.”
PepsiCo didn’t specify which products it will stop selling.
Laguarta said the company has been seeing “sequential improvement in Frito-Lay North America during the year.”
Laguarta told analysts PepsiCo is not considering a “full refranchising” of its North American beverage operation, “as we do not believe it will improve marketplace performance, nor maximize shareholder value.” He said the company was piloting a model where it integrates its food and beverage lines more in Texas and would take a “nuanced approach” as it looks across the country.
Elliott had urged PepsiCo to reexamine its current system, in which it utilizes a network of independent bottlers, but also operates many company-owned bottling businesses.
In the months since Elliott’s stake was announced, Laguarta has said the company was moving quickly to update its portfolio and cut costs. It overhauled Lay’s potato chips, including reformulating its barbecue flavors to swap out artificial dyes for natural ones. The company also unveiled a new line of Doritos and Cheetos that strip out all synthetic dyes and said it would be expanding its options with more protein and fiber.
The agreement didn’t give Elliott a seat on PepsiCo’s board, but Steinberg said Elliott welcomed PepsiCo’s “commitment to board refreshment.” In November, Schmitt, a former Walmart Inc. executive, joined PepsiCo as chief financial officer, replacing the retiring Jamie Caulfield.
