PepsiCo's Productivity Plan: A Cure for Cost Headwinds?

PepsiCo, Inc.’s PEP productivity mechanism remains a cornerstone of its key strategic actions to enhance efficiency, fund innovation and boost margin expansion. The company is advancing its multi-year productivity initiatives to drive cost savings across the entire value chain. These efforts include expanding automation in manufacturing, warehousing and distribution to enhance operational efficiency and minimize manual dependencies.

Similar to the other global consumer goods companies, PEP is not fully immune to cost headwinds arising from inflation, supply-chain disruptions and commodity price fluctuations. As such, the company witnesses a challenging cost landscape in 2025, mainly owing to rising supply chain expenses and increased exposure to tariffs on global inputs.

To address the mounting cost pressures, PepsiCo has doubled down on its productivity and transformation initiatives, with a sustained focus on driving long-term margin expansion and operational agility. The company is upgrading its manufacturing footprint through increased automation and targeted consolidation of operations, alongside utilizing data-driven insights to optimize logistics and enhance warehouse efficiency.

PepsiCo’s productivity initiatives are poised to help fund disciplined commercial investments and aid profitability. Its productivity initiatives extend beyond cost-containment efforts and revenue-management tactics, focusing on operational excellence, innovation and sustainable value creation. The company embodies an efficient operating model and a holistic approach to serving customers.

PEP’s Competition in the Productivity Enhancements

The Coca-Cola Company KO and Monster Beverage Corporation MNST are the key beverage companies competing with PepsiCo in the productivity power.

Coca-Cola, a leading beverage company, is PepsiCo’s key competitor, driving productivity gains. The company has delivered strong productivity growth by leveraging technology for data analytics, streamlining supply-chain operations, and improving employee engagement. This has led to increased efficiency, reduced costs and enhanced customer satisfaction. This has been aiding KO’s margins for a while now. As such, Coca-Cola is evolving into a total beverage company with a resilient, all-weather strategy that integrates marketing, innovation and revenue growth management.

Monster Beverage places a strong emphasis on driving productivity. It focuses on productivity through strategic investments in research and development, operational excellence and cost management. MNST continues to innovate with new flavors and health-oriented products while optimizing its supply chain and implementing strategic pricing actions to enhance gross profit margins. In first-quarter 2025, gross margin expanded 240 bps, reflecting improved cost efficiencies. MNST’s productivity efforts, bolstered by product innovations and launches, offer a competitive edge and boost growth in the energy drinks market.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 11.1% year to date against the industry’s growth of 5.3%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 16.72X, below the industry’s average of 17.98X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 3.6%, whereas its 2026 earnings estimate suggests a year-over-year uptick of 5.3%. The estimates for 2025 and 2026 have been stable in the past 30 days.

PEP stock currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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