Key Takeaways
- PepsiCo plans low-to-mid single-digit price increases on some chips, reversing part of the cuts of up to 15% it made in February to revive North American volume.
- Gross margin fell year over year in both quarters since the cuts, down 48 basis points in the first quarter and 89 basis points in the second, as input cost inflation built.
- PepsiCo trades at 14.80x NTM normalized earnings, just above its three-year low of 14.72x and well below its 18.56x average.
PepsiCo is repricing its snacks just as the market reprices its stock. See PepsiCo’s gross margin history on TIKR for free →
PepsiCo’s Price Cut Bought Volume, Not Growth
Seven months after PepsiCo cut the price of Lay’s and Doritos by as much as 15%, some of those bags are about to cost more again.
On September 24, a PepsiCo spokesperson confirmed that prices on certain chips will rise by a low-to-mid single-digit percentage, in line with inflation. Bloomberg, which first reported the plan, said the increases cover grocery-sized bags of Doritos and Ruffles, plus some sodas, by the end of this year or early 2027. Its sources said the cuts had failed to grow sales. The company says the new prices will still sit below pre-February levels. Shares fell 1.1% to $128.70 that day, leaving the stock down about 10% for the year.
The February cut was the centerpiece of the North America turnaround. On the July 9 second-quarter call, CEO Ramon Laguarta described it as the year’s “first strategic intent” and said it had worked: salty snacks were growing volume again, and PepsiCo was gaining share of that volume.
The results tell a thinner story. North America food volume was flat in the second quarter, sales in that business fell 2%, and company-wide organic revenue grew 2.4%. Laguarta blamed high gas prices for hurting convenience store traffic and said some retailers had been slow to put the price investments in place. Core EPS of $2.20 missed the $2.21 estimate.
The cost side explains why the company is pulling back. Gross margin reached 55.29% in the first quarter of 2026, down from 55.77% a year earlier. In the second quarter it fell to 54.22% from 55.11%, a gap of 89 basis points. Not all of that came from pricing. CFO Stephen Schmitt said about half of the gross margin decline in the North American beverage unit came from the Alani Nu commercial arrangement. Still, the direction was clear, and management warned that input cost inflation would run higher in the second half as the Iran war kept oil and packaging costs elevated.
Schmitt said refunds of tariffs paid last year would add about one point of EPS growth and help absorb that pressure. A refund helps for one year. Pricing is what protects margin after that.
PepsiCo’s gross margin fell 89 basis points year over year in the quarter after its price cuts. Track PepsiCo’s quarterly gross margin on TIKR for free →
What 14.80x Earnings Is Pricing In
The market has been marking PepsiCo down through all of this. The stock trades at 14.80x NTM normalized earnings, just above its three-year low of 14.72x and about 20% below its 18.56x average. The multiple was close to 20x in February, around the time the price cuts took effect.
That discount reflects doubt that North America can grow volume and hold margin at the same time. The February cut bought volume at the expense of margin. The new increase takes some margin back and puts that volume at risk, with shoppers still squeezed by fuel costs.
There is a sturdier business underneath. International revenue is on track to pass $40 billion this year, its operating margin rose a full point in the second quarter, and management reaffirmed full-year guidance. Elliott’s roughly $4 billion stake keeps pressure on the board, and BNP Paribas analyst Kevin Grundy wrote that “everything is likely ‘in play’.” Nine of 25 brokerages rate the stock a buy, and their median target of $155 sits well above Monday’s $128.50 close.
At 14.80x, the stock is pricing in a stalled turnaround, not a broken franchise. The unresolved question is whether the volume PepsiCo bought in the first half stays once shelf prices climb again. The third-quarter report gives the first read, with gross margin up against a 53.83% base from a year earlier.
The harder test comes in early 2027 reports, once the new prices are on shelves. If North America food volume holds while gross margin stops falling year over year, the low multiple looks overdone. If volume slips back into decline, February’s cut will have bought two quarters of share gains at the cost of margin.
PepsiCo’s discount hinges on whether its snack volume survives the next price increase. Follow PepsiCo’s valuation and margin trends on TIKR for free →
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 of the stocks mentioned. Thank you for reading, and happy investing!
