PepsiCo Inc (PEP) reported Q3 results that modestly exceeded Wall Street expectations. The company’s earnings were supported by steady global beverage sales and strong international market performance.
The firm’s revenue reached $23.94 billion, slightly higher than the analysts’ expectations of $23.85 billion, while adjusted earnings per share came in at $2.29, surpassing the forecast of $2.27. Shares rose about 1% in premarket trading following the announcement.
PepsiCo’s North American beverage division reported a 2% revenue increase, driven by strong performance in its flagship Pepsi brand and hydration products, including Propel. The recent acquisition of the prebiotic soda brand Poppi at $1.95 billion was also a significant influencer, and the brand's retail sales increased by more than 50% annually.
According to CEO Ramon Laguarta, net revenue growth was a byproduct of the robustness of the global companies and the beneficial effects of its actions to transform the portfolio.
However, struggles continued in the US snack category, which saw sales drop 3% due to a broader decline in consumer packaged food spending. To overcome this, PepsiCo announced plans to shut down two snack manufacturing plants and cut down product lines by nearly 15% in the fourth quarter.
The company also plans to repackage its Lay's and Tostitos products, focusing on healthier options and lower-volume packaging to meet changing consumer demand.
The company's international operations also showed strong results for the quarter. The revenue from Europe, the Middle East, and Africa increased by 5.5%, while Latin America saw a 4% rise. Demand for local tastes and smaller, more affordable pack sizes drove overall sales in the key regions, facilitating the market's expansion into new territories.
PepsiCo's international business now accounts for approximately 40% of the total revenue, reflecting a strategic movement toward global diversification. Despite tariff-related challenges that reduced core earnings by about 3%, the company plans to counter these effects with sourcing changes and cost-efficiency initiatives.
Along with the earnings report, PepsiCo announced a change in the leadership. Chief Financial Officer Jamie Caulfield will retire after more than 30 years with the company. Steve Schmitt, previously CFO of Walmart US, will assume the role effective November 10. Board member Darren Walker, president of the Ford Foundation, will step down on November 19.
PepsiCo continues to face pressure from activist investor Elliott Management, which recently disclosed a $4 billion stake and urged the company to streamline its operations. The investor has called for divestitures of underperforming units to enhance competitiveness against Coca-Cola, whose profit margins have outpaced those of PepsiCo in recent years.
Nonetheless, the company reiterated its fiscal 2025 forecast, showing organic revenue growth and earnings per share in the low single digits, with no change in constant currency. PepsiCo's 12-month forward earnings multiple currently stands at 16.54, while Coca-Cola's stands at 20.90, illustrating investor expectations for continued improvement in operational efficiency and profitability.
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