PepsiCo's 2025 Playbook: Can Cost Cuts Fund an Innovation-Led Rebound?

PepsiCo, Inc.’s PEP 2025 strategy hinges on a simple equation: aggressive cost reduction and an accelerated innovation agenda. After a period of margin pressure caused by inflation, higher global input costs and ongoing supply-chain volatility, management is sharpening execution to rebuild profitability. The company has been clear that right-sizing its entire cost base, through automation, SKU rationalization, labor restructuring and network simplification, will be the financial engine that fuels a faster, innovation-led growth trajectory. With International continuing to deliver resilient mid-single-digit organic growth and North America showing early signs of stabilization, PepsiCo is positioning 2025 as a reset year built on disciplined operational tightening.

A major part of PepsiCo’s plan is boosting productivity. The company has cut more than 35% of SKUs, reduced 7% of Frito-Lay’s workforce and is shutting some plants, consolidating distribution and using AI to simplify operations. These steps are lowering costs and improving efficiency, helping PepsiCo offset higher ingredient and tariff expenses that recently caused a three-point margin drag. With more cuts ahead, including another 15% SKU reduction in the fourth quarter, the company sees a clearer path to strengthening margins across its beverage and snack businesses.

At the same time, PepsiCo is leaning heavily on a stronger pipeline of new products, from functional drinks to clean-label snacks, to drive higher-value growth. The momentum of Pepsi Zero Sugar, the fast rise of poppi and launches like Pepsi Prebiotic and Gatorade Lower Sugar show the company’s shift toward more permissible, health-focused categories. PepsiCo believes that pairing strict cost savings with this innovation push can reignite growth, especially in North America, where PBNA is aiming for a mid-teens operating margin. Whether these efforts can fully restore margins will determine the strength of its 2025 rebound.

Are KO & KDP Turning Cost Cuts Into Fuel for Innovation?

Both The Coca-Cola Company KO and Keurig Dr Pepper Inc. KDP are using cost-cutting efforts to create financial flexibility, allowing them to reinvest in innovation and strengthen their growth pipelines.

For Coca-Cola, disciplined cost control is helping fuel a more innovation-driven portfolio refresh. KO has already delivered strong margin expansion, and its savings from supply-chain efficiencies, smarter marketing allocation and productivity programs are giving it room to invest in new categories and premium offerings. Coca-Cola is channeling these funds into zero-sugar growth, expanded flavor innovation and functional beverages, while continuing to modernize legacy brands. With operating margin rising sharply in the latest quarter, KO is proving that cost discipline can directly support innovation and drive both profitability and long-term growth.

Keurig is also relying on cost savings to support innovation-led growth, especially as margins remain pressured by lingering inflation. The company is benefiting from productivity initiatives that helped expand gross profit, even as input costs weighed on margins. These savings allow KDP to invest in new product platforms across beverages and coffee, strengthen its brewing ecosystem and enhance brand marketing. By redirecting efficiencies into innovation rather than just defending margins, KDP aims to sustain growth in key categories such as cold beverages, coffee pods and functional drinks, positioning the company for a more balanced rebound ahead.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost 2.5% in the past three months compared with the industry’s decline of 0.2%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.49X, slightly below the industry’s average of 18.01X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 0.7%, whereas its 2026 earnings estimate indicates year-over-year growth of 5.9%. The company’s EPS estimates for 2025 have reduced by a penny, whereas 2026 estimates have increased in the past seven days.

PEP stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research