PepsiCo’s Earnings Stagnate While Organic Revenue Expands

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By Brian Nelson, CFA

On October 9, PepsiCo (PEP) reported third quarter results that came in better than expected on the top and bottom lines. Net revenue increased 2.6% thanks to a 1.3% increase in organic revenue performance. Earnings per share, however, fell 11%, to $1.90, while core earnings per share of $2.29. Core constant currency earnings per share dropped 2% in the quarter. PepsiCo Goods North America experienced a decline of 3% on an organic basis, while PepsiCo Beverages North America increased 2% organically. Organic revenue in its International Beverages Franchise fell 1%, while organic revenue increased nicely in the EMEA (+5.5%) and Latin America Foods (+4%) divisions. Organic revenue increased 1% in its Asia Pacific Foods segment. Volumes for Convenient Foods and Beverages dropped 1% in the quarter.

Management had the following to say about the results:

Our reported net revenue growth accelerated and reflects the resilience of our international business, improved momentum within North America Beverages and the benefits of our portfolio reshaping actions.

As we look ahead to the balance of this year and beyond, our top priorities are to accelerate growth and aggressively optimize our cost structure. To accomplish this, we are introducing a strong pipeline of innovation to accelerate portfolio transformation, continuously sharpening our price pack architecture to provide good value to consumers, and right sizing our entire cost base to help fund our activities. As a result, for fiscal 2025, we continue to expect to deliver low-single-digit organic revenue growth with core constant currency EPS to be approximately even with the prior year. Our full year core USD EPS outlook has improved due to a more favorable outlook on foreign exchange translation rates for the balance of this year.

Looking to 2025, PepsiCo continues to expect a low-single-digit increase in organic revenue and core constant currency earnings per share to be approximately even with the prior year. Management expects total cash returns to shareholders of approximately $8.6 billion, comprised of dividends of $7.6 billion and share buybacks of $1.0 billion. On a core earnings per share basis, the company expects a 0.5% decline in 2025 versus previous expectations of a 1.5% decline and compared to core earnings per share of $8.16 in 2024. The company ended the quarter with debt obligations of $50.8 billion and cash and short-term investments of $8.7 billion. We like PepsiCo, but think there are better opportunities in the simulated newsletter portfolios.

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