Will the Weak Snack Demand Bite Into PepsiCo's Future Momentum?

Will the Weak Snack Demand Bite Into PepsiCo’s Future Momentum?

PepsiCo, Inc. PEP, a global leader in the food and beverage industry, is facing a crucial inflection point as its iconic Frito-Lay North America (FLNA) business grapples with subdued demand. Once a stronghold of growth and profitability, the snack division has been experiencing volume softness, prompting investors to question whether this headwind could erode the company’s broader momentum. While international expansion and beverage business strength remain intact, pressure on FLNA, PepsiCo’s largest and most profitable segment, could cast a long shadow on its growth narrative.

In its first-quarter 2025 earnings call, PepsiCo acknowledged ongoing challenges in its snack segment, pointing to macroeconomic uncertainty, softening consumer confidence and heightened price sensitivity as key headwinds. The company reported modest 1% year-over-year organic revenue growth in the FLNA business, contributing to the downward revision of 2025 earnings guidance. In response, PepsiCo is deploying a multi-pronged recovery strategy focused on granular value investments, such as dual-size pricing tiers alongside a push for portfolio transformation into more permissible and functional snack offerings. Operational improvements are also underway, following the recent SAP implementation, aimed at improving service levels and execution.

Looking ahead, the success of PepsiCo’s recovery strategy will be critical in determining whether it can reinvigorate its flagship snack division and sustain long-term growth. While early signs from targeted value investments and innovation in product offerings are promising, the competitive landscape and fragile consumer environment remain significant hurdles. As international markets and the beverage portfolio continue to provide support, a durable rebound in FLNA will be essential to restoring investor confidence and preserving PepsiCo’s leadership in the global snacking industry.

PepsiCo’s Snack Struggles: A Win for MDLZ & CPB?

Mondelez International MDLZ and The Campbell’s Company CPB are emerging as PEP’s key competitors in the evolving snack landscape, each leveraging distinct strengths to navigate shifting consumer behaviors.

As one of PepsiCo’s primary global competitors in the snacking space, Mondelez is capitalizing on evolving consumer preferences with its well-diversified portfolio that includes brands like Oreo, Ritz and belVita. Mondelez has continued to post resilient performance, driven by its strong presence in both developed and emerging markets. Its focus on expanding into high-growth segments such as permissible indulgence and well-being snacks positions it favorably against macroeconomic pressures.

Campbell’s Snacks division, home to brands like Snyder’s of Hanover and Kettle Chips, has steadily gained market share in the U.S. snack category, particularly in the premium and better-for-you segments. While not as large as PepsiCo’s Frito-Lay, Campbell’s has been nimble in addressing consumer shifts toward affordability and health-conscious options. The company’s focused marketing efforts and streamlined supply chain have enabled it to respond quickly to changing demand patterns.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 13.8% year to date against the industry’s growth of 5.9%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 16.25X, significantly below the industry’s average of 18.32X.

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 5.2%. The estimates for 2025 and 2026 have seen a downward trend in the past seven 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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