PepsiCo Unveils Major Strategic Overhaul Amid Investor Pressure

PepsiCo has announced a sweeping strategic reset, a decisive move that follows sustained pressure from activist investor Elliott Investment Management. The beverage and snack conglomerate is embarking on a significant transformation aimed at boosting profitability, which includes eliminating a substantial portion of its U.S. product lineup and shuttering manufacturing facilities. This comes after a challenging period for the company's shares, with investors now keenly focused on the details of a multi-billion dollar cost-saving initiative designed to reinvigorate performance.

Central to the overhaul are specific financial objectives set for the 2026 fiscal year. The company is targeting organic revenue growth of 2 to 4 percent. Alongside this, it aims for a 5 to 7 percent increase in its adjusted earnings per share (EPS). A key cash flow metric, the free-cash-flow conversion rate, is projected to reach 80 percent.

This restructuring is coupled with a strategic shift in product development. Under a "Clean Label" initiative, PepsiCo plans to launch more items free from artificial additives by 2026, including new offerings such as "Doritos Protein."

Portfolio Rationalization and Cost Cuts

In a direct response to demands from Elliott, which holds a $4 billion stake in the company, management is taking aggressive action to streamline operations. The plan calls for the complete removal of approximately 20 percent of its U.S. product stock-keeping units (SKUs) by early 2026. The primary goal is to drastically reduce supply chain complexity.

Should investors sell immediately? Or is it worth buying Pepsi?

These portfolio changes will be accompanied by deep structural cuts. PepsiCo confirmed it will close three production plants and idle several manufacturing lines. The snack division, Frito-Lay, will be particularly affected, with around 7 percent of its positions set to be eliminated. In total, the corporation expects these restructuring efforts to yield annual savings exceeding $1 billion.

Market Reaction and Cautious Optimism

Wall Street has responded swiftly to the announced "Big Reset." The analysis firm Jefferies modestly raised its price target to $164, while Bank of America adjusted its valuation upward to $155. Market experts view the aggressive cost-cutting as a necessary measure for stabilizing profit margins.

However, a degree of skepticism remains. Executing simultaneous price reductions and product eliminations presents a significant operational challenge. For PepsiCo shares, which have declined roughly 14 percent since the start of the year and currently trade near €125, these plans could establish a much-needed foundation for recovery.

The success of this realignment will be measured by its precise execution over the coming quarters. While recent expansion of positions by institutional investors suggests a vote of confidence, management must now prove that the savings will not come at the expense of market share.