Pepsi is losing its fizz. Sales volumes in PepsiCo’s North American soft drinks business fell 2% in the third quarter, the company reported Thursday. CEO Ramon Laguarta didn’t sugarcoat it. “We do not feel good about the beverage business,” he said on the earnings call.

That admission came alongside a lowered full-year outlook. PepsiCo narrowed its organic revenue growth forecast to about 3%. It also cut expectations for core earnings per share growth to between 2.5% and 3.5%, down from a previous range pointing to 5% to 7%. The moves reflect persistent pressure in its largest market. North American beverage volumes dropped. Food volumes stayed flat. International operations, by contrast, delivered solid gains.

Consumers appear clearly challenged. Wages haven’t kept pace with inflation. Consumer sentiment has slipped below pandemic-era levels. Higher interest rates add further strain. Shoppers and diners pull back. They buy less soda. Snacks suffer too. “Our business in North America performed below our expectations and represents a meaningful opportunity for improvement,” Laguarta told analysts, per a Morningstar report.

Yet some categories held up. Energy drinks performed well. Functional beverages and zero-sugar options gained traction. They offset weakness in traditional sodas. New product launches and price cuts on snacks like Lay’s and Doritos — some by as much as 15% earlier this year — helped lift snack volumes modestly. Still, overall margins took a hit from higher advertising costs, input inflation and an unfavorable product mix.

The company now plans deeper cost reductions. Executives expect North American consumers to stay under pressure for the next 12 to 18 months. “We don’t expect the consumer to suddenly be in a much better place in the next 12 to 18 months,” Laguarta added. So PepsiCo will push harder on affordable pricing. It will adapt its portfolio. More pack sizes. Products with added protein or fiber. Removal of artificial colors and flavors. All while increasing brand investment behind names like Pepsi, Mountain Dew and acquired prebiotic soda Poppi.

But the soda side stands out as the sore spot. “We’re putting all the urgency of the business and the focus on improving our performance in soft drinks,” Laguarta said, according to Business Insider. The shift away from sugary drinks isn’t new. U.S. soda volumes have declined for years as drinkers turn to water, energy drinks and functional options. PepsiCo’s own pivot toward zero-sugar variants reflects that reality. Diet labels carry a “radioactive” image among younger buyers. Zero Sugar now commands most of the marketing dollars.

Analysts point to structural issues. Nik Modi of RBC Capital Markets offered a blunt assessment. “The beverage business continues to disappoint, and we expect PepsiCo will continue to be a source of share to both Coca-Cola and Keurig Dr Pepper,” he said in Reuters coverage. He suggested full refranchising of the beverage business might be necessary to halt market share losses. Pressure from activist investor Elliott Investment Management, which took a nearly $4 billion stake last year, adds urgency. The firm wants faster portfolio pruning and bottling network changes.

Weight-loss drugs like GLP-1 agonists compound the challenge. They suppress appetite. That threatens demand for both snacks and sugary beverages. PepsiCo has responded with reformulations — Doritos Protein, SunChips with added fiber. These moves mirror actions across the packaged-food industry. Results so far remain mixed. Snack sales stayed flattish in some periods. Market share erosion continues in key categories.

Third-quarter revenue still beat expectations, rising 5.6% to $25.27 billion. International strength masked much of the North American weakness. Global beverage volume grew. Food volume rose modestly when adjusted for certain businesses. Hydration brands such as Gatorade and Propel accelerated. Energy acquisitions like Celsius offer promise once fully integrated.

Even so, the domestic beverage disappointment looms large. PepsiCo raised some chip prices recently after earlier cuts, aiming to offset commodity cost increases tied to global events including the conflict in the Middle East. Retailers grow tougher. They allocate less shelf space to big brands. Private labels gain ground. Competition for placement stays fierce.

Laguarta struck some optimistic notes. Organic volumes accelerated globally. The company sees progress from the prior quarter in North America. Yet the lowered guidance signals caution. Higher input costs. Expiring hedges. Lost tariff benefits. These factors will pressure fourth-quarter margins. Additional structural cost cuts are under review.

Investors reacted with skepticism. PepsiCo shares slipped in trading following the announcement. The stock has posted annual declines in recent years. That performance gap has drawn activist attention and heightened calls for bolder moves. Whether refranchising, portfolio sales or accelerated innovation can restore momentum remains an open question.

For now, PepsiCo bets on execution at retail, stronger marketing behind zero-sugar and functional drinks, and continued cost discipline. It also eyes its broader portfolio — snacks, grains, water — to reduce reliance on traditional soda. The consumer environment offers little immediate relief. Inflation lingers. Sentiment stays soft. And drinkers keep shifting away from the fizzy staples that built the company.

Executives acknowledge the road ahead won’t be easy. Recovery in North America is taking longer than planned. The beverage business needs urgent attention. How PepsiCo balances price, innovation and structural change will determine if it can regain its sparkle — or if the slump marks a lasting shift in consumer habits.