Frito-Lay’s 2026 Push: Retailer Resets and Affordability Fuel Gains

Date of Call: Feb 3, 2026

Guidance:

• Expect Frito-Lay to grow volume, net revenue, and operating margin in 2026.
• Sales growth expected to strengthen in the second half; EPS growth expected to be balanced between first and second half.
• International business expected to grow mid-single digits, similar to prior year performance.
• North America beverage business expected to continue accelerating.
• Acquired brands (poppi, Siete, Alani) will transition to organic growth, contributing to overall acceleration.

Business Commentary:

Increased Affordability Initiatives in PFNA:

• PepsiCo is accelerating its affordability initiatives for its North America Food business, focusing on specific brands, formats, and channels to reduce price points.
• The company expects these initiatives, funded by productivity gains, to drive volume and sales growth, with a target to achieve both early in the year.

Growth in Frito-Lay:

• Frito-Lay is anticipated to grow in volume, net revenue, and operating margin in 2026, with significant space gains expected from retailer resets.
• This growth is attributed to strategic investments in affordability, innovation, and partnerships with retailers to increase shelf space.

Innovation and Brand Restaging:

• PepsiCo is restaging major brands like Gatorade and Quaker, and launching new innovations such as Gatorade low sugar and fiber-rich products.
• These efforts aim to attract new consumers to the category and increase brand frequency, supported by insights from successful innovations like Naked and Pepsi Prebiotic.

Advertising and Marketing Investments:

• The company plans to increase advertising investments in 2026, focusing on value and innovation messaging.
• This decision follows efficiency gains in 2025 and aims to support growth through enhanced consumer engagement and brand promotion.

Macro Economic Considerations:

• PepsiCo's guidance for 2026 is based on continuing trends observed in Q4 2025, with a focus on the stretched low- and middle-income consumer in the U.S.
• Internationally, the company is optimistic about markets like Mexico and China, while noting some weakness in Western Europe.

Sentiment Analysis:

Overall Tone: Positive

• Management expressed optimism about growth initiatives, stating 'we feel very good about how these different interventions will continue to drive accelerated growth' and 'we're very keen on some of the fiber innovation' and 'we feel good about the plans and we feel good about the space.' They also highlighted strong positioning in emerging trends like hydration and GLP-1 adoption.

Q&A:

• Question from Bonnie Herzog (Goldman Sachs Group, Inc., Research Division): Hoping for more color on the affordability initiatives (PFNA) strategy, price impacts, and balancing growth and profitability.
  Response: The strategy is offensive, focused on specific consumers, brands, and channels with high ROI; funded by productivity savings, balancing investment and profit expansion.

• Question from Andrea Teixeira (JPMorgan Chase & Co, Research Division): Concerns about pricing reinvestment magnitude (e.g., 15% in some items) and cadence of guidance.
  Response: Expect Frito-Lay volume and net revenue growth early in the year; pricing investments are surgical, combined with double-digit space gains; sales acceleration expected in second half, EPS balanced.

• Question from Dara Mohsenian (Morgan Stanley, Research Division): Request for more detail on affordability focus and payback from prior retailer actions.
  Response: Initiatives are well-tested with good ROI and volume return; surgical and focused, with positive leverage from rightsized Frito-Lay.

• Question from Lauren Lieberman (Barclays Bank PLC, Research Division): Noted advertising spend was down double digits in 2025; asked about drivers and 2026 expectations.
  Response: Advertising efficiency drove the 2025 decline; 2026 will be growth-minded with investment in value and innovation messaging.

• Question from Filippo Falorni (Citigroup Inc., Research Division): Asked about drivers of the expected acceleration in organic sales guidance in the second half.
  Response: Acceleration driven by North America beverage improvement, Frito-Lay growth, and acquisitions (poppi, Siete, Alani) turning organic; International steady at mid-single digits.

• Question from Peter Grom (UBS Investment Bank, Research Division): Asked about early learnings from innovation (Naked, Pepsi Prebiotic) and path forward in North America.
  Response: Innovation focuses on core brand restages (Lay's, Tostitos, Gatorade, Quaker) and category expansion (e.g., Gatorade low sugar, fiber, protein, portion control).

• Question from Kevin Grundy (BNP Paribas, Research Division): Addressed concerns about GLP-1 adoption impact, specifically on test markets and outlook.
  Response: Assuming broader GLP-1 adoption; reacting with multiple levers (portion control, hydration, fiber, protein) to turn it into an opportunity.

• Question from Kaumil Gajrawala (Jefferies LLC, Research Division): Asked for details on the source of double-digit shelf space gains for Frito-Lay.
  Response: Gains come from both main shelf and perimeter in partnership with customers, driven by increased unit volume and capacity needs.

• Question from Michael Lavery (Piper Sandler & Co., Research Division): Asked what's different in the strategic push for the biggest brands (e.g., Lay's).
  Response: Holistic relaunches focusing on simplicity, natural ingredients, and elevated quality (e.g., Lay's with avocado oil) to change brand perception and drive engagement.

• Question from Stephen Robert Powers (Deutsche Bank AG, Research Division): Asked about energy portfolio contribution in PBNA and early returns on Celsius/Alani.
  Response: Focus on increasing competitiveness in soft drinks and functional hydration; energy is a fast-growing profit pool with meaningful participation via Celsius ownership and Alani integration showing positive early metrics.

• Question from Peter Galbo (BofA Securities, Research Division): Asked to frame the organic contribution from upcoming M&A (poppi, Siete, Alani).
  Response: Specific contribution not detailed, but will report as quarters evolve; transitions to organic will be in March (Siete), July (poppi), and year-end (Alani).

• Question from Christopher Carey (Wells Fargo Securities, LLC, Research Division): Asked about what drove Pepsi volume/dollar growth in 2025 and plans for Mountain Dew.
  Response: Pepsi success due to advertising, consumer programs, and food partnership; Mountain Dew progressing with innovation (Baja) and localized marketing, expecting improvement.

• Question from Robert Moskow (TD Cowen, Research Division): Asked for update on distribution integration tests in Texas/Florida and strategic review for North America Beverages.
  Response: Initial tests show positive insights in integrated delivery/inventory; focusing on cost efficiency and customer service; plans to update later in the year.

• Question from Robert Ottenstein (Evercore ISI Institutional Equities, Research Division): Asked about macro backdrop and expectations for key markets in guidance.
  Response: Guidance assumes continuation of Q4 trends: stretched low-income consumer in U.S.; optimistic on Mexico, China, Middle East; weaker in Western Europe, neutral in Brazil.

Contradiction Point 1

Frito-Lay Volume Outlook and Growth Trajectory

Contradiction on the expected organic sales performance for Frito-Lay in the near-term.

How are pricing reinvestment (e.g., 15% price cuts), mitigation tools, volume trajectory, and guidance cadence being addressed, particularly with PBNA's easier comps? - Andrea Teixeira (JPMorgan Chase & Co)

2025Q4: Frito-Lay is expected to grow volume, net revenue, and operating margin in 2026, with growth coming early in the year. - Ramon Laguarta(CEO)

What factors contributed to the expected flat Q4 volume for Frito-Lay, and does recent growth indicate a positive path forward? - Peter Grom (UBS Investment Bank)

2025Q3: Expect Frito-Lay organic sales to be flat in Q4, with growth expected in the last period (September). - Ramon Laguarta(CEO)

Contradiction Point 2

Strategic Focus on One North America/US Supply Chain Model

Contradiction on the strategic approach and timeline for implementing a new U.S. supply chain model.

Update on Texas/Florida tests for merging food and beverage distribution: What’s working, challenges, and how they inform the broader strategic review? - Robert Moskow (TD Cowen)

2025Q4: Not a one-size-fits-all for U.S.; may use small refranchising models in some areas. Update planned for end of 2026. - Ramon Laguarta(CEO)

What is the status of Frito-Lay's productivity interventions, and why wasn't One North America mentioned this quarter? - Stephen Robert Powers (Deutsche Bank AG)

2025Q3: A pilot test in Texas... is showing benefits. The final rollout will be a nuanced, market-specific solution, not a one-size-fits-all approach. - Ramon Laguarta(CEO)

Contradiction Point 3

Timeline for Returning to Low End of Long-Term Growth Algorithm

Contradiction on when sequential improvement in North America will lead to meeting the company's growth target.

Can you discuss pricing reinvestment, including potential 15% price cuts and mitigation tools, as well as volume trajectory and guidance cadence, especially considering PBNA's easier comps? - Andrea Teixeira (JPMorgan Chase & Co)

2025Q4: Frito-Lay is expected to grow volume, net revenue, and operating margin in 2026, with growth coming early in the year. - Ramon Laguarta(CEO)

With tougher Q3 volume comparisons, could North America Foods see a step-back before reacceleration? - Peter Thomas Galbo (Bank of America)

2025Q2: PepsiCo expects to return to the low end of its long-term top-line algorithm in the next few quarters as a combination of strong International performance and sequential North America improvement. - Ramon Laguarta(CEO)

Contradiction Point 4

North America Integration and Future Refranchising

Contradiction on whether the integration of PepsiCo and Frito-Lay North America operations precludes future refranchising.

What updates on Texas/Florida tests for merging food and beverage distribution, including successes, challenges, and insights for the broader strategic review? - Robert Moskow (TD Cowen)

2025Q4: Initial insights show benefits in integrated delivery... Not a one-size-fits-all for U.S.; may use small refranchising models in some areas. - Ramon Laguarta(CEO)

What factors contributed to higher beverage vs. food growth in International, and does North America integration prevent future refranchising? - Robert Edward Ottenstein (Evercore ISI)

2025Q2: The integration is a priority to synergize two large, adjacent businesses... It does not preclude refranchising, which remains an option. - Ramon Laguarta(CEO)

Contradiction Point 5

Price/Value Strategy and Consumer Affordability

Contradiction on the strategic approach to pricing and consumer affordability initiatives.

What is the focus on affordability (specific packages/brands), payback from prior retailer actions (volume vs. price investment), and outlook for more aggressive actions in 2026? - Dara Mohsenian (Morgan Stanley)

2025Q4: The strategy is surgical and well-tested, with very good ROI. Volume return is strong, and the category needs unit growth. - Ramon Laguarta(CEO)

Is Frito's pricing strategy focused on negative pricing to boost volume, or is the risk of not investing in price greater? - Stephen Robert Powers (Deutsche Bank)

2024Q4: No plan for negative pricing. Strategy is surgical price-pack architecture... to give consumers choice across the month, driving category growth without diluting value. - Ramon Laguarta(CEO)