PepsiCo, Inc. (NASDAQ:PEP) just took a punch to the gut and responded by flexing. On Thursday, the beverage giant renewed its landmark U.S. partnership with Yum! Brands, Inc. (NYSE:YUM)-owned Taco Bell for 11 years through 2036. Not a bad way to change the subject.
The timing matters. Just a week ago, rival Coca-Cola Co (NYSE:KO) secured a major beverage supply agreement with KFC, ending PepsiCo's nearly 40-year relationship with the fried chicken chain in the U.S. So yes, PepsiCo lost a iconic partner. But it just locked down another one for more than a decade.
Investors seem to like the trade. PepsiCo stock is trading higher by about 3% on Thursday, while Yum! Brands stock is higher by more than 1%, with Consumer Staples up 2.59%.
What Exactly Did PepsiCo Keep?
PepsiCo renewed its partnership with Taco Bell in the U.S. and several international markets. The U.S. deal runs 11 years and covers participating Taco Bell, Taco Bell Cantina, and Live Más Cafe locations nationwide.
The beverage lineup includes Pepsi, Pepsi Zero Sugar, Mountain Dew, Starry, and the iconic exclusives Mountain Dew Baja Blast and Mountain Dew Baja Midnight. If you've ever wondered why Baja Blast tastes like a tropical vacation only available at Taco Bell, that's the power of an exclusive partnership.
The companies will also expand their collaboration into crafted, functional, and energy beverages, targeting evolving consumer preferences and younger customers, particularly Gen Z. Internationally, PepsiCo will serve as Taco Bell's beverage partner in Canada, the U.K., Ireland, and Thailand. The companies also plan to develop localized beverages and market-specific initiatives.
Anne Fink, president of PepsiCo Global Away from Home, highlighted the companies' history of creating successful and innovative products, including Baja Blast and Doritos Locos Tacos.
The North American Headache Isn't Going Away
This renewed partnership brings some confidence to the PepsiCo brand, which is struggling to revive growth in its North American beverage business. During its recent earnings call in early October, PepsiCo lowered its fiscal 2026 earnings outlook amid ongoing margin pressure in North America.
The company anticipates margin pressure in the fourth quarter due to rising input costs and the expiration of tariff benefits. Management emphasized a strategic focus on cost reduction and reinvestment in growth areas, particularly in North America, to address competitive pressures and improve execution.
Analysts have been trimming their targets recently. Citigroup maintains a Neutral rating but lowered its target to $163 on Oct. 21. TD Cowen keeps a Buy rating with a target cut to $177 on Oct. 7. Guggenheim also has a Buy rating and lowered its target to $155 on Oct. 6. The stock carries a Buy rating with a consensus price target of $146.
Coca-Cola's KFC Win Raises the Stakes
The news follows Coca-Cola's announcement on Oct. 15 that it would replace PepsiCo as KFC's beverage supplier across approximately 3,600 U.S. restaurants. However, international KFC locations will continue to serve PepsiCo beverages. The transition for KFC will begin in January 2027 and is expected to be completed by spring 2027.
Coca-Cola already supplies major chains, including McDonald's Corporation (NYSE:MCD) and Wendy's Company (NASDAQ:WEN). So the cola wars are alive and well, just playing out in drive-thrus instead of Super Bowl ads.
PEP Price Action: PepsiCo shares were up 2.65% at $136.18 and Yum Brands shares were up 1.18% at $153.03 at the time of publication on Thursday, according to market data.
