Is PepsiCo's North America Unit Losing Steam Amid Softening Demand?

PepsiCo, Inc.’s PEP North America unit, particularly its Foods division, is facing notable pressure amid softening consumer demand and persistent macroeconomic challenges. In first-quarter 2025, the company reported organic revenue growth of just 1.2% or 2% when adjusting for calendar differences, dragged down by weak results from PepsiCo Foods North America (PFNA) and a decline in Asia Pacific Foods. Value-conscious consumer behavior, fueled by inflationary pressures, has impacted purchasing patterns, especially in the snacks category, wherein discretionary spending has tightened.

PepsiCo is addressing these headwinds through a comprehensive playbook centered around value offerings, portfolio transformation and operational excellence. PFNA’s 2% revenue decline and 7% drop in core operating profit were mainly attributed to fixed cost deleverage and muted Frito-Lay performance. While Quaker Foods recovered following last year’s recall, it was not enough to counterbalance Frito-Lay’s volume softness. In response, management is emphasizing smaller pack sizes, expanded price points and innovations around healthier snacking options to sustain consumer engagement. PepsiCo is also working to optimize pricing and promotional strategies using advanced analytics, while its SAP system implementation is expected to enhance execution and service levels across North America in the coming months.

PepsiCo remains confident in the long-term potential of its North America business, despite near-term challenges. Management expects the region to eventually return to stronger growth levels as consumer conditions stabilize, supported by a more integrated and agile operating model. While international markets continue to drive a larger share of overall growth, North America is still viewed as a critical growth and funding engine. Management asserts that with smarter price-pack strategies, portfolio transformation and renewed operational rigor, North America is well-positioned to recover and contribute meaningfully to PepsiCo’s performance in the coming quarters.

PEP’s Competition in the Domestic Market

The Coca-Cola Company KO and Keurig Dr Pepper KDP are the key beverage companies competing with PepsiCo in the domestic market.

Coca-Cola’s North America segment delivered revenue and profit growth, although volume performance lagged expectations due to several factors, including weakened consumer sentiment, particularly among Hispanic consumers, severe weather and calendar shifts. Despite the soft volumes, Coca-Cola gained value share and saw a strong performance from Coca-Cola Zero Sugar, fairlife and Topo Chico Sabores.

Keurig Dr Pepper’s North America segment remains steady despite soft consumer demand. Strong brands like Dr Pepper, Snapple and Keurig coffee help sustain market share, while new, healthier options and smart pricing support sales. The company’s focus on supply chain improvements and digital tools also boosts efficiency, positioning Keurig Dr Pepper for continued growth amid current challenges.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost 13.9% year to date against the industry’s growth of 7.2%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 16.22X, significantly below the industry’s average of 18.59X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 3.6%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.4%. The estimates for 2025 and 2026 have been southbound in the past 30 days.

PEP 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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