PepsiCo will raise prices on chips, dips and sodas in the months ahead, reversing course after earlier cuts failed to improve sales. Deutsche Bank downgraded the stock and TD Cowen cut its profit estimates, both trimming their price targets.
PepsiCo plans to raise prices on some of its chips, dips and sodas in the months ahead, and the reversal is creating confusion and concern among analysts. Deutsche Bank analysts downgraded the stock to a hold rating and cut their price target on Monday, while TD Cowen analysts cut their profit estimates for this year and next.
The concern centers on a company that already tried the opposite approach. PepsiCo had cut prices on snacks like Doritos and Cheetos by as much as 15% after shoppers complained the products were too expensive, but the new increases are arriving after those price cuts failed to improve sales.
Analysts cut price targets
Deutsche Bank's Steve Powers lowered his price target to $138 from $155, while TD Cowen's Robert Moskow cut his target to $133 from $145. Shares of PepsiCo fell 0.4% on Monday, trading around $128 and down roughly 11% so far this year.
Powers said some price increases were understandable given higher costs for fuel, ingredients, packaging and shipping. But he said planned increases arriving after price cuts failed to improve sales point to deeper trouble, since the company's cost structure was built for higher growth than the current consumer environment can support.
Company confirms modest increases
Bloomberg first reported the planned increases last week, and PepsiCo confirmed that reporting without further comment. A company representative told Bloomberg that prices for some chips would rise by a low-to-mid single digit percentage, in line with inflation, and that the new prices would still sit below what the company charged before this year's cuts. Bloomberg reported the increases would likely hit grocery-store-sized bags of chips like Doritos and Ruffles.
PepsiCo's North America snack volumes were flat in its July quarterly results, and CEO Ramon Laguarta attributed the weak performance to "consumer budgets tightening due to rising inflationary pressures." The company also faces competition from cheaper store brands, while GLP-1 medications have reshaped consumer appetites for snacks.
Wall Street wants answers in 2027
Moskow said the price increases lowered his confidence in PepsiCo's stock, and he noted potential restrictions on SNAP subsidies could add further pressure on salty-snack sales alongside GLP-1 drugs. He said management will need to show on the next earnings call that it has diagnosed why its Frito-Lay strategy fell short and how it plans to pivot in 2027 beyond raising prices.
Moskow also said investors have asked whether activist investor Elliott Investment Management, which owns 2% of PepsiCo shares, might push for a more aggressive approach, noting Elliott has taken that stance in other situations.
Source: MarketWatch
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