Executive Summary / Key Takeaways

• PepsiCo is undergoing a significant strategic transformation, focusing on reigniting top-line growth and expanding margins through aggressive cost optimization, a robust innovation pipeline in "permissible" and "functional" categories, and strategic portfolio reshaping. This is critical for driving shareholder value amidst evolving consumer preferences and a challenging macro environment.
• Third-quarter 2025 results showed a mixed performance, with net revenue increasing to $23.937 billion (up 2.6% year-over-year) and organic revenue growing 1.3%, primarily driven by international resilience and improved momentum in North America Beverages. However, reported operating profit declined 8% and net income attributable to PepsiCo fell to $2.603 billion, largely due to increased operating costs, impairment charges related to the Rockstar and Be Cheery brands, and acquisition-related expenses.
• The company maintains its 2025 guidance for low-single-digit organic revenue growth and roughly flat core constant currency EPS, acknowledging headwinds from tariffs and macroeconomic uncertainty. Management anticipates a return to its long-term organic revenue growth algorithm of 4-6% by 2026, supported by sustained international growth and sequential improvements in North America.
• PepsiCo's competitive advantage is being reinforced by substantial investments in technology, including AI-powered supply chain optimization, warehouse automation, and data analytics, which are enhancing efficiency, reducing costs, and improving service levels. This technological edge is foundational to its ability to adapt to future demand and maintain market leadership.
• Key areas of focus for future growth include accelerating "away-from-home" consumption, expanding the "permissible" snack portfolio (already over $2 billion), and launching new protein and fiber-rich products, with fiber identified as the "next protein" by CEO Ramon Laguarta.

A Global Powerhouse Adapts to Evolving Tastes and Technologies

PepsiCo, Inc. (NASDAQ:PEP) stands as a global leader in the food and beverage industry, a titan whose diverse portfolio spans iconic brands from Pepsi and Mountain Dew to Lay's, Cheetos, and Doritos. The company's journey began in 1898, with its snack food roots tracing back to the 1932 origins of Fritos corn chips and the subsequent 1961 merger forming Frito-Lay, which then joined PepsiCo in 1965. This foundational integration of beverages and snacks has long been a core strength, allowing PepsiCo to leverage synergies across its vast operations. Today, PepsiCo's overarching strategy is centered on reigniting top-line growth and aggressively optimizing its cost structure to drive shareholder value in a rapidly changing consumer and technological landscape.

The competitive arena for PepsiCo is intense, with Coca-Cola (KO) as its primary rival in beverages and numerous formidable players like Mondelez International (MDLZ), The Kraft Heinz Company (KHC), and Keurig Dr Pepper (KDP) in the snacks and broader food segments. PepsiCo's diversified portfolio, which includes both beverages and convenient foods, provides a distinct advantage, offering greater resilience across economic cycles compared to competitors with narrower focuses. The company's global reach, with operations in over 200 countries and 43% of its consolidated net revenue generated outside the U.S. for the 36 weeks ended September 6, 2025, is a key competitive differentiator. This extensive distribution network and strong brand recognition enable PepsiCo to reach consumers worldwide and capitalize on diverse market opportunities.

A critical differentiator for PepsiCo is its deep investment in technology to enhance operational efficiency and supply chain agility. The company has been leveraging AI, data, and automation across its global distribution centers. This includes AI-powered inventory tracking, robotic picking systems, and Automated Guided Vehicles (AGVs), which have transformed its supply chain into a faster, more efficient, and cost-effective operation. For example, order processing times have been reduced by over 50% in automated warehouses compared to traditional setups. PepsiCo's digital transformation also encompasses modernizing data and cloud infrastructure, automating repeatable processes, and utilizing mobile barcoding and RPA via software solutions. These technological advancements provide tangible benefits, such as enhanced supply chain visibility, manufacturing agility, efficiency, and forecast accuracy, directly contributing to cost reduction and improved service levels. The company's 2019 Multi-Year Productivity Plan, extended through 2030, explicitly leverages new technology and business models to simplify, harmonize, and automate processes, further optimizing its manufacturing and supply chain footprint.

Strategic Evolution and Operational Agility

PepsiCo's history of strategic decisions, such as the 2010 acquisition of most of its bottlers for a vertically integrated North American beverage business, has shaped its current operational model. While this move was later identified by some as impacting PBNA's operating margins compared to Coca-Cola's refranchised model, it has also provided PepsiCo with direct control over its supply chain and distribution in a key market. The company has consistently invested in its international business, which has grown to become a major growth engine and is now accretive to overall profitability.

Recent strategic initiatives underscore PepsiCo's commitment to portfolio transformation and operational excellence. In January 2025, PepsiCo acquired Siete, a Mexican-American foods business, for $1.20 billion, integrating it into its PFNA segment. In May 2025, the company completed the acquisition of poppi, a prebiotic soda business, for $1.95 billion, enhancing its PBNA segment's functional beverage offerings. Further reshaping its portfolio, PepsiCo divested its Rockstar brand in the U.S. and Canada to Celsius Holdings, Inc. (CELH) in August 2025, while simultaneously securing an agreement to be the exclusive distributor for the Alani Nu brand in certain channels. These acquisitions and divestitures reflect a deliberate pivot towards "permissible" and "functional" products, aligning with evolving consumer preferences for healthier options.

The company's "One North America" integration strategy, currently being piloted in Texas, aims to synergize its food and beverage businesses by leveraging common infrastructure for supply chain and go-to-market models. This initiative is expected to drive both efficiency and growth opportunities by optimizing costs and enhancing service delivery. PepsiCo's ongoing SAP system implementation, recently completed for Frito-Lay, is also expected to improve service levels and execution, providing better visibility across operations.

Segment Performance and Growth Drivers

PepsiCo's financial performance for the 36 weeks ended September 6, 2025, reflects a slight increase in net revenue to $64.582 billion from $64.070 billion in the prior year. However, net income attributable to PepsiCo saw a significant decrease to $5.700 billion from $8.055 billion. This decline was primarily driven by increased operating costs, impairment charges related to the Rockstar and Be Cheery brands, and acquisition and divestiture-related charges. Despite these challenges, the company's core operations demonstrated resilience.

PepsiCo Foods North America (PFNA)

PFNA experienced a slight decrease in net revenue for both the 12 and 36 weeks ended September 6, 2025, primarily due to a decline in organic volume. For the 12 weeks, net revenue decreased 2.50%, and operating profit fell 5% to $1,536 million. The 36-week period saw a 2% net revenue decrease and a 7% operating profit decline to $4,463 million. This was largely attributed to operating cost increases and lower organic volume, partially offset by productivity savings. Management noted a shift in promotional strategy in Q3 2025, moving from deep discounts to everyday value, which impacted volume but led to better revenue realization. The "permissible" snack portfolio, including brands like SunChips, PopCorners, and Siete, is a significant and growing part of the business, exceeding $2 billion in annual sales. Relaunches of major brands like Lay's and Tostitos are underway, focusing on eliminating artificial colors and elevating their "real food" credentials. Portion control is a critical strategy, with over 60% of the U.S. food business volume now in smaller formats.

PepsiCo Beverages North America (PBNA)

PBNA reported a 2% increase in net revenue for the 12 weeks ended September 6, 2025, reaching $7,327 million, and a 1% increase for the 36-week period, totaling $19,999 million. However, operating profit saw a significant decline, decreasing 20% to $729 million for the 12 weeks and a substantial 77% to $550 million for the 36 weeks. These declines were primarily due to acquisition and divestiture-related charges (poppi acquisition), operating cost increases, and the impact of higher commodity costs, including tariffs. Despite these profit pressures, the beverage business demonstrated volume growth in Q3 2025, excluding case pack water divestments, with larger brands like Pepsi growing volume, net revenue, and market share. The Pepsi brand relaunch has been a success, particularly with zero sugar offerings and new flavors attracting younger consumers. Mountain Dew, with its Baja Blast platform (a billion-dollar retail value including Taco Bell sales), and the upcoming Gatorade relaunch focusing on superior hydration, are key growth drivers.

International Operations (IB Franchise, EMEA, LatAm Foods, Asia Pacific Foods)

PepsiCo's international segments continue to be a strong growth engine. For the 36 weeks ended September 6, 2025, operations outside the U.S. generated 43% of consolidated net revenue. The International Beverages Franchise segment saw net revenue increase 2% for the 36 weeks, with operating profit up 2% to $1,248 million, despite an impairment charge related to the Rockstar brand. EMEA reported a 6% net revenue increase for the 36 weeks, but operating profit decreased 13% to $1,310 million due to higher commodity costs and the Rockstar brand impairment. Latin America Foods experienced a 5% net revenue decrease for the 36 weeks, primarily due to unfavorable foreign exchange, with operating profit down 9% to $1,301 million. Asia Pacific Foods saw a slight net revenue increase for the 36 weeks, but operating profit decreased 21% to $321 million, impacted by an impairment charge related to the Be Cheery brand.

Despite some regional challenges like a "weaker summer" due to weather in Q3 2025, the international business rebounded strongly in September, returning to mid-to-high single-digit performance. This segment is now accretive to PepsiCo's overall profitability, driven by consistent strategies of cost reduction, reinvestment in growth platforms (zero-sugar beverages, lower-sodium/fat snacks), and strong execution in availability and affordability.

Financial Health and Liquidity

PepsiCo maintains a robust financial position, with total assets of $106.558 billion as of September 6, 2025, up from $99.467 billion at December 28, 2024. Total liabilities also increased to $87.015 billion from $81.296 billion over the same period. The company's liquidity is supported by strong cash generation from operations, supplemented by revolving credit facilities and debt financing. Net cash provided by operating activities for the 36 weeks ended September 6, 2025, was $5.468 billion, a decrease from $6.220 billion in the prior-year period, primarily reflecting unfavorable operating profit performance.

Investing activities utilized $5.237 billion, largely due to the acquisitions of poppi ($1.90 billion) and Siete ($1.20 billion), alongside $2.499 billion in capital spending. Financing activities resulted in a net cash outflow of $1.008 billion, reflecting $6.40 billion in dividends and share repurchases, and $3.245 billion in long-term debt payments, partially offset by $8.179 billion in long-term debt issuances. PepsiCo plans to return approximately $8.60 billion to shareholders in 2025, comprising $7.60 billion in dividends and $1.0 billion in share repurchases. The company's dividend program, with 53 consecutive annual increases as of 2025, highlights its commitment to shareholder returns.

Competitive Positioning and Technological Moats

PepsiCo's competitive landscape is defined by its dual leadership in beverages and convenient foods, a strategy that offers diversification and resilience. Compared to Coca-Cola (KO), PepsiCo's broader portfolio provides a buffer against market volatility, though KO has historically demonstrated higher profitability margins in its streamlined beverage operations. PepsiCo's PBNA segment, for instance, has faced challenges with operating margins that are significantly lower than Coca-Cola's, partly due to its vertically integrated bottling network. However, PepsiCo's extensive distribution network and scale allow it to compete effectively across diverse channels and geographies.

Against snack-focused rivals like Mondelez International (MDLZ), PepsiCo leverages its integrated supply chain and cross-category selling opportunities. While MDLZ may exhibit faster innovation cycles in specific snack categories, PepsiCo's "permissible" portfolio and strategic acquisitions like Siete and poppi are designed to capture new growth segments. The Kraft Heinz Company (KHC) emphasizes cost leadership, which could pressure PepsiCo's margins in price-sensitive segments, but PepsiCo's investment in marketing and innovation across a wider global network provides stronger brand loyalty and market reach. Keurig Dr Pepper (KDP) excels in beverage-specific technological advancements and single-serve formats, prompting PepsiCo to accelerate its own functional beverage innovations and distribution partnerships.

PepsiCo's competitive advantages are significantly bolstered by its technological moats. The company's investments in AI and automation for its supply chain, including demand sensing software and warehouse robotics, enhance efficiency, reduce waste, and improve delivery speed. This technological edge allows for precise inventory optimization and lightning-fast order fulfillment, which are critical for maintaining freshness and responsiveness in a fast-moving consumer goods market. Furthermore, the ongoing ERP system implementation and the "One North America" integration are expected to further streamline operations, reduce fixed costs, and provide a more agile and flexible business model. These capabilities are crucial for PepsiCo to maintain its cost leadership in manufacturing and distribution, enabling competitive pricing while protecting margins.

Outlook and Risks

PepsiCo has reaffirmed its 2025 financial guidance, expecting low-single-digit organic revenue growth and core constant currency EPS to be approximately even with the prior year. This guidance accounts for anticipated headwinds from tariffs, which are expected to increase supply chain costs, and a subdued, uncertain macroeconomic and consumer environment. Management is confident in mitigating these impacts through accelerated cost savings, sourcing adjustments, and surgical revenue management actions.

Looking to 2026, PepsiCo anticipates a "clear line of sight" to returning to its long-term organic revenue growth algorithm of 4-6% and achieving overall company margin improvement. This optimism is driven by sustained international growth, which is expected to continue at mid-to-high single digits, and sequential improvements in the North America businesses. Key growth initiatives include the relaunch of major brands like Lay's, Tostitos, and Gatorade, a significant push into protein and fiber-rich products (with fiber being highlighted as the "next protein"), and expanding the "away-from-home" business, which is growing at 2-3 times the retail rate.

Despite the strategic momentum, PepsiCo faces several risks. Volatile geopolitical conditions, an increasingly complex global tax environment, and expanded tariffs pose ongoing threats to international operations and profitability. Fluctuations in commodity prices and foreign exchange rates can impact costs and revenue. The evolving retail landscape, marked by the growth of e-commerce and the increasing power of large retailers, necessitates continuous adaptation. Furthermore, changing consumer preferences towards healthier options, potentially influenced by the rising adoption of GLP-1 medications, require constant innovation and portfolio transformation. While management sees little direct impact from GLP-1 usage currently, they acknowledge the broader trend of increased consumer awareness around health and wellness, driving demand for protein, fiber, and portion-controlled offerings. Regulatory changes regarding ingredients and packaging also present compliance and cost challenges.

Conclusion

PepsiCo is actively reshaping its future, demonstrating a clear commitment to profitable growth through strategic innovation and operational agility. The company's recent financial performance, while impacted by one-time charges and macroeconomic pressures, reveals underlying strengths in its international segments and a renewed focus on North America. By leveraging its robust technological infrastructure, particularly in supply chain automation and data analytics, PepsiCo is enhancing efficiency and responsiveness, which are critical for maintaining its competitive edge against rivals like Coca-Cola (KO) and Mondelez (MDLZ).

The investment thesis for PepsiCo is rooted in its ability to adapt to evolving consumer demands by expanding its "permissible" and "functional" portfolios, exemplified by acquisitions like poppi and Siete, and a strong pipeline of protein and fiber-rich products. With a clear roadmap to return to its long-term organic revenue growth algorithm by 2026, supported by sustained international expansion and a revitalized North American strategy, PepsiCo is positioning itself for continued value creation. Investors should monitor the execution of its productivity initiatives, the success of its brand relaunches, and its ability to effectively integrate new technologies to drive both top-line growth and margin expansion in a dynamic global market.