PepsiCo, once regarded as a staple of reliable earnings growth and steady returns, is facing mounting investor skepticism as its stock has declined roughly one-third from its 2023 peak and currently trades at its widest discount to Coca-Cola in more than 25 years. Despite efforts to stabilize performance, the company’s turnaround has yet to gain significant traction, prompting calls for more fundamental strategic changes.

Activist investor Elliott Management acquired a $4 billion stake in PepsiCo last year, urging the company to streamline its North American snacks and beverage operations. However, a year later, the anticipated improvements have not materialized. The company’s North American snacks segment has shown sluggish performance despite price cuts, new product launches, and increased marketing efforts. Although volumes slightly increased in the latest quarter, operating profits in the snacks division declined by 13%, leading PepsiCo to announce plans for additional price hikes.

The beverage segment is faring worse. Volumes declined 2% in the most recent quarter, and the company faces intensified competition. Notably, KFC has made a deal to replace Pepsi products with Coca-Cola at thousands of locations across the United States. While strong international sales have helped buffer the decline, PepsiCo has revised its profit forecast downward twice this year.

Analysts on Wall Street have expressed frustration over the company’s slow progress and lack of clarity on strategic priorities. Some credit CEO Ramon Laguarta, in his role since 2018, for demonstrating openness to structural changes and focusing on long-term growth rather than short-term cost-cutting. Yet, many believe the pace of change remains inadequate. David Wagner, portfolio manager at Aptus Capital Advisors, stated that the current approach will not suffice.

Underlying challenges stem from shifting consumer preferences, including a move toward healthier options and the growth of weight-loss drug use, pressuring snack brands. PepsiCo is also losing ground in key beverage categories where it has historically competed strongly. For example, in the growing protein shake market, Coca-Cola’s Fairlife brand saw a 78% sales increase year-over-year, while PepsiCo’s Muscle Milk declined 16%.

A significant factor behind these struggles may be the company’s complex structure. Unlike Coca-Cola, which has outsourced its bottling to independent operators and concentrated on brand management, PepsiCo maintains an expansive network encompassing its snacks division, beverage production, and its own bottling and distribution infrastructure. This has resulted in operational challenges and diluted focus.

Management has so far implemented incremental, and at times contradictory, measures. Laguarta indicated on a recent earnings call that the company is willing to revisit all strategic options, including potentially outsourcing bottling operations in some regions and testing integration of snack and drink delivery systems.

Some investors remain cautious, despite PepsiCo’s status as a quality business. They point to structural issues within key parts of the company’s portfolio and question the current leadership’s ability to execute a meaningful turnaround. Others highlight that challenges are not unique to PepsiCo; peers such as General Mills are facing similar pressures, and corporate breakups do not guarantee success.

Possible restructuring moves discussed include divesting the North American Quaker business, which has experienced volume declines, and addressing the U.S. beverage segment more radically. Options range from franchising out bottling operations to spinning off or selling the drinks business, possibly even in combination with Keurig Dr Pepper’s soda division.

Any such moves would involve significant costs and risks. Refranchising bottling operations could take years to complete and temporarily depress earnings. Moreover, PepsiCo lacks a deep network of independent bottlers comparable to what Coca-Cola leveraged during its own restructuring.

Industry observers also note the potential upside from a separation, where PepsiCo’s snack and international food units could form an independently focused company similar to Mondelez, which commands a higher valuation multiple. For now, PepsiCo’s leadership has committed to exploring all options, but investors remain watchful for definitive action.