Shares in PepsiCo (NASDAQ:PEP) popped after the food and drink powerhouse served up forecast-beating third quarter results. However, enthusiasm for the stock was tempered by a downgrade to its FY26 earnings outlook amid margin pressures in North America.
| Share price: $126.6 (+2.3%) | Market cap: $169bn |
| PE FY26: 14.5x | Dividend yield FY26: 4.7% |
Source: Marketscreener
New York-headquartered PepsiCo continues to struggle in its home market. As a result, investors fear the sodas-to-snacks maker’s turnaround could take longer than expected.
Q3 earnings beat
PepsiCo delivered a 5.6% rise in revenue to $25.27 billion for Q3. That was above the $24.96 billion Wall Street expected and included organic revenue growth acceleration to 3.1%. Adjusted earnings per share (EPS) improved 2% to a forecast-beating $2.34.
PepsiCo’s overseas business remained a source of strength. In fact, the company generated volume growth in all but one of its international business units. Only the convenient foods division in Europe, the Middle East and Africa suffered a drop in volume.
| Q3 FY26 | Year-on-year change | |
| Revenue ($m) | 25,274 | +5.6% |
| Operating profit ($m) | 4,260 | +19% |
| EPS ($) | 2.34 | +2% |
Source: PepsiCo, Q3 results
Unfortunately, volumes in the North America beverage unit shrank 2%. Additionally, PepsiCo’s North America food division reported a flat volume performance.
What did Laguarta say?
‘Looking ahead, we remain focused on building upon the strength of the international business while acting with urgency to sustainably improve our performance in North America through more investments in innovation, effective brand building, and sharper marketplace execution by channel,’ said CEO Ramon Laguarta.
The CEO explained that additional cost-cutting measures are being identified.
And these will be implemented in the months ahead ‘to help fund investments that aim to accelerate organic revenue growth and mitigate the impacts of rising input cost inflation’.
Earnings guidance downgrade
For FY26, PepsiCo now expects core EPS to increase by between 2.5% to 3.5%. That represents a downgrade from previous guidance for growth at the low end of a 5% to 7% range.
Despite the EPS downgrade, the company is forecasting sales growth of about 6%. That is at the top end of previous guidance from PepsiCo.
PepsiCo’s turnaround is proving a protracted affair. Consequently, we would avoid the stock for now.
Worries over weak demand for its snacks in North America continue to weigh on the stock. Furthermore, the long-term impact of weight-loss drugs on consumers’ appetite for sugary drinks and snacks is impossible to predict.
Our preference from an investment standpoint is for arch-rival Coca-Cola (KO:NYSE). Despite its higher rating, we reckon revenue growth at this pure-play beverages behemoth will be more predictable going forwards.
