Key Stats for Pepsi Stock
- Price Change for $PEP stock: 4.2%
- Current Share Price: $145
- 52-Week High: $177
- Pepsi Stock Price Target: $152
What Happened?
Pepsi (PEP) stock jumped more than 4% on Thursday after the company reported third-quarter earnings that beat Wall Street expectations. The Frito-Lay and Gatorade owner posted adjusted earnings of $2.29 per share on revenue of $23.94 billion, both slightly ahead of analyst estimates.
Organic revenue, which strips out acquisitions and currency effects, increased 1.3%. However, worldwide volume for both food and drinks fell 1% during the quarter.
The North American business remains under pressure as Pepsi Foods North America saw volume drop 4%, while the beverage unit’s volume shrank 3%. CEO Ramon Laguarta said volume was also softer as Pepsi shifts to smaller package sizes to appeal to price-conscious consumers.
Despite the volume challenges, Laguarta struck an optimistic tone on the earnings call. He noted that the beverage business experienced volume growth, excluding the company’s new case pack water business model.
On the food side, Pepsi changed its promotional strategy in the summer. Instead of offering deep discounts on specific brands, it provided everyday low prices across all brands. Laguarta said service levels have improved to 97-98% after system transition issues earlier in the year.
He noted the business actually grew in the last four weeks of the quarter, providing confidence about future acceleration.
International growth helped offset North American weakness. September was particularly strong internationally after a softer summer impacted by the weather.
Laguarta expects international to return to mid-to-high single-digit growth, and PepsiCo reiterated its full-year outlook, expecting core earnings per share to be roughly unchanged from last year and organic revenue to grow by a low single-digit percentage.
The company also announced that CFO Jamie Caulfield plans to retire after 33 years, and Walmart U.S. CFO Steve Schmitt will replace him effective November 10.
See analysts’ growth forecasts and price targets for Pepsi stock (It’s free!) >>>
What the Market Is Telling Us About Pepsi Stock
The 4% pop in Pepsi stock shows investors are relieved the company met estimates and sounded confident about improving trends. The bar was set pretty low after several quarters of declining volume, so any signs of stabilization get rewarded.
Laguarta’s comments about seeing growth in the final four weeks suggest the business might be bottoming after a tough year. Pepsi has been investing heavily in its brands and exploring cost-cutting measures to turn things around.
Pepsi is relaunching three of its top brands: Lay’s, Tostitos, and Gatorade. The Lay’s relaunch features new packaging that highlights the absence of artificial colors and flavors. Pepsi also plans to launch Doritos and Cheetos “NKD” without synthetic dyes.
The push to remove artificial ingredients stems from pressure from the Trump administration’s “Make America Healthy Again” movement. Pepsi is also planning to use more olive and avocado oils in its snacks after the movement villainized seed oils.
Pepsi is launching products with added protein, including Doritos Protein and a new offering from Propel designed for consumers using GLP-1 weight loss drugs. The company is also developing higher-fiber products and snacks made with avocado and olive oils.
Recent acquisitions like Poppi and Siete are showing promise. Poppi’s year-to-date retail sales climbed more than 50% compared to last year. These deals enable Pepsi to capture growth in categories such as functional beverages and better-for-you snacks.
Pepsi is aggressively attacking its expense structure, particularly in Frito-Lay North America. The company is closing less efficient manufacturing plants, rationalizing warehouse infrastructure, and rightsizing its go-to-market operations.
Activist investor Elliott Investment Management’s $4 billion stake also looms in the background. Elliott has pushed for changes, including potentially refranchising Pepsi’s North American bottling network. Laguarta said both Pepsi and Elliott agree the company is undervalued and plan to have constructive conversations in the coming months.
Pepsi stock is still down about 5% for the year despite Thursday’s gains. The company trades at a lower valuation than Coca-Cola, reflecting concerns about its ability to return to consistent growth.
The margin improvement story is taking longer than investors hoped. While Pepsi expects margins to expand next year, driven by international growth and cost cuts, the Frito-Lay business continues to struggle with fixed cost leverage.
For now, investors are betting the numerous initiatives Pepsi is pursuing will eventually pay off. The innovation pipeline looks robust. Cost actions are starting to show results. International remains a bright spot. But turning all that activity into sustained revenue growth and margin expansion will take time.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
