PepsiCo shares PEP fell on Tuesday after JPMorgan became the second major bank this week to downgrade the food and beverage giant, citing a stalled turnaround in its North American business, rising costs and growing uncertainty over the company’s strategy.
The stock slipped about 0.47% even as broader US market indices remained flat.
S&P 500 gained about 0.04%.
JPMorgan downgraded PepsiCo to Neutral from Overweight and cut its price target to $138 from $170, following a similar move by Deutsche Bank on Monday.
PepsiCo shares closed at $128.50 on Monday and are down about 10% this year.
The latest downgrade adds to pressure on PepsiCo as investors assess whether its efforts to revive its struggling North American snacks business can deliver a sustainable recovery without relying heavily on price increases and cost reductions.
North American recovery loses momentum
JPMorgan analyst Andrea Teixeira said PepsiCo’s upcoming quarter could still benefit from strong international sales, favourable weather and the FIFA World Cup.
But she argued that these factors could obscure continued weakness in the company’s core North American operations.
“The upcoming quarter may still show a decent top- and bottom-line, especially with International likely performing well on favorable weather tailwinds and a strong FIFA World Cup. However, excluding these non-recurring tailwinds, judging from the tracked channel and recent price increase announcements, we believe trends in North America have likely continued to underperform management expectations,” Teixeria said.
“Despite the several interventions including ingredient reformulation and packaging, increased spend and lower prices, FLNA salty snacks performance has been lackluster, in our view, and the recovery appears to have stalled following 1Q26,” Teixeira wrote.
The comments point to a difficult backdrop for Frito-Lay North America, PepsiCo’s flagship snacks business, which has struggled to regain momentum after years of aggressive price increases.
In its latest earnings report, PepsiCo said sales in its North American food business fell 2% in the second quarter.
The company also warned of higher commodity costs in the second half of the year, although it maintained its full-year outlook.
PepsiCo said in July that elevated gas prices had hurt consumer demand more than it had anticipated, adding another challenge as shoppers remain sensitive to prices.
Analysts see greater reliance on cost cuts
JPMorgan also lowered its earnings expectations for PepsiCo.
The bank cut its 2027 earnings-per-share estimate to $8.86 from $9.05 and its 2028 estimate to $9.33 from $9.57.
Both estimates are now below consensus expectations of $8.95 for 2027 and $9.47 for 2028.
Teixeira said PepsiCo may have to depend more heavily on cost savings in the fourth quarter to reach the lower end of its target for 5% to 7% earnings growth.
Higher transportation costs are expected to add further pressure.
“As estimates will likely move down from here, we expect investors to wait for expectations to be more realistic given the most recent pressures before becoming more constructive again,” Teixeira said.
Deutsche Bank also downgrades stock
The downgrade follows Deutsche Bank’s decision on Monday to cut PepsiCo to Hold from Buy and lower its price target to $138 from $155.
Deutsche Bank analyst Steve Powers said he had “less certainty in PEP’s strategic direction in North America.”
He also argued that several of PepsiCo’s turnaround initiatives had delivered mixed or short-lived benefits.
Powers said some price increases were understandable given higher fuel, ingredient, packaging and shipping costs.
But the timing of the increases was concerning because they followed price cuts that had failed to generate the desired improvement in sales.
“Successive interventions and refinements suggest the underlying problems are more difficult to solve than management (or we) initially understood,” Powers said.
PepsiCo returns to price increases
The latest concerns come as PepsiCo prepares to raise prices on some of its US snack products after cutting prices earlier this year.
Reuters reported last week that PepsiCo planned low- to mid-single-digit percentage price increases on some chip brands, broadly in line with inflation, as the Lay’s maker attempts to revive sales.
The company said the new prices would remain below levels seen before the earlier price cuts and that it would try to maintain lower prices where possible.
PepsiCo had reduced prices on products including Doritos and Cheetos by as much as 15% following complaints from shoppers that its snacks had become too expensive.
Bloomberg, citing people familiar with the matter, reported that the new increases would likely affect grocery-store-sized bags of brands such as Doritos and Ruffles.
The company is facing increasing competition from smaller snack brands and private-label products sold by retailers.
Both have benefited as consumers have become more price-conscious.
Changes in consumer eating habits are adding another challenge.
The growing use of GLP-1 medications has affected appetite and consumption patterns, including demand for snacks.
PepsiCo has responded with new products, including protein-enhanced Doritos and Pepsi products containing fiber, in an effort to maintain consumer interest.
Investors seek a new strategy for Frito-Lay
Powers said PepsiCo’s current difficulties partly reflected aggressive price increases in North American snacks during and after the pandemic.
The company also expanded staffing and infrastructure at a time when it expected stronger growth.
“Today, therefore, [Pepsi] appears caught between a cost structure built for higher growth and a consumer environment that remains structurally softer than expected,” he said.
TD Cowen also reduces price target
TD Cowen has also reduced its profit estimates for PepsiCo for this year and next and lowered its price target to $133 from $145.
TD Cowen analyst Moskow said the latest price increases had reduced his confidence in PepsiCo’s shares.
He pointed to GLP-1 medications and the possibility of restrictions on Supplemental Nutrition Assistance Program, or SNAP, subsidies as additional risks to salty-snack sales.
“Bigger picture, management will need to demonstrate on the next earnings call that they have diagnosed the reasons why their Frito-Lay strategy did not work out as they expected and how they will pivot their approach in 2027 besides just raising price,” he said.
The scrutiny could also increase pressure from activist investor Elliott Investment Management, which owns 2% of PepsiCo.
Investors have questioned whether Elliott could push for more significant changes at the company, although TD Cowen’s Moskow said the outcome remained uncertain.
“We do not know the answer, but we have seen them take this approach in other situations when agitating for change,” Moskow said.
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