PepsiCo is finally moving in the right direction. Wall Street is taking notice and cheering them on, although the mood remains cautious.
The world’s largest food and drink company had better-than-expected results for the third quarter, with both sales and profits above analysts’ expectations.
Bank of America, a name worth its weight in gold in the investing world, also weighed in on the whole situation, reiterating a neutral rating on PepsiCo.
Encouraging progress, but still early innings….questions around incremental improvement in the organic sales/demand for North America are likely to dictate share performance given new product/innovation/re-launches occurring in 4Q and beyond.
Bank of America Global Research
Bank of America upgraded its price target on PepsiCo to $155 from $150, referring to the results as “encouraging progress.” That’s notable for a company often seen as past its growth prime.
But the report’s tone was not very happy. The bank gave PepsiCo a Neutral rating again, stating that the company’s recovery is still in the “early innings” as it tries to boost sales in its largest market, North America.
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PepsiCo’s quarter beat expectations, but the story beneath the numbers matters
Pepsi performed exceedingly well across almost all major metrics in the third quarter.
Its top-line beat shows resilience, but soft volume trends and flat snack sales raise concerns about underlying consumer demand.
In addition, a smaller foreign-exchange headwind gave the company breathing room to raise its full-year 2025 EPS outlook.
Pepsico revenue:
- Q3 revenue rose 2.6% year over year to $23.94 billion
- Slightly ahead of Wall Street consensus
Earnings:
- Adjusted EPS hit $2.29, topping estimates of approximately $2.26
- Beat driven in part by lower-than-expected foreign exchange drag
Guidance raised:
- BofA now expects FY25 EPS of $8.12 (up from $8.04)
- FY26 and FY27 EPS estimates also nudged higher to $8.60 and $9.10, respectively
FX relief helped, but fundamentals are mixed:
- Sales for Frito-Lay North America, which includes brands such as Lay’s, Cheetos, and Doritos, were flat year over year, despite added volume from the recent acquisition of Siete Foods.
- Pepsico’s Beverage division posted a 2% organic sales gain, yet its volumes fell about 3% before adjusting for the shift away from case-pack water.
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Where the pressure lies: Pepsico North America and volume
Despite a solid quarter globally, PepsiCo’s core U.S. business is still under strain.
- Flat snacks: Frito-Lay North America sales were unchanged year over year, even with help from Siete.
- Volume declines: Beverage volumes fell about 3%, even as organic revenue edged up about 2%.
- Margin pressure: Tariffs, inflation, and supply chain costs continue to squeeze gross margins.
- Activist scrutiny: Elliott Investment Management’s $4 billion stake has added pressure for leaner operations, with possible divestitures or refranchising on the table.
Bottom line: FX helped this quarter, but North America — Pepsi’s profit engine — remains the battleground.
Pepsico bets big on protein, cleaner ingredients, and smarter logistics
PepsiCo’s commitment to innovate extends beyond just changing the taste. PepsiCo bought Poppi, a fast-growing prebiotic soda brand, for about $2 billion earlier this year.
This deal gives Pepsi a stronger position in the functional beverage market, which is expanding faster than regular sodas.
PepsiCo is also consolidating its food and drink distribution into one place. Its new “mixing center” in Brookshire, Texas, will be 1.1 million square feet and will integrate the supply of Quaker, Frito-Lay, and Pepsi drinks to make things run more smoothly and save money on shipping.
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These structural changes aren’t occurring in a vacuum.
Elliott Investment Management, an activist investor with an estimated $4 billion stake, is pressing for speedier cost-cutting and even the sale of certain bottling facilities. This pressure may explain why Pepsi has recently tightened its operations.
BofA’s outlook: cautious optimism, not conviction
Bank of America forecasts earnings per share will increase by 14.4% in the fourth quarter, hitting $2.24. This will happen because organic sales will rise by 1.7% year over year and operating margins will climb by 141 basis points.
Analysts think that sequential increases will keep happening until the end of fiscal 2026. Bank of America also forecasts that organic growth might go up from 2.1% in early 2026 to around 4% by the end of the year.
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Those figures are stable, but not very impressive. BofA’s analysts said PepsiCo must show that its new innovation cycle, which includes restaged snacks and functional drinks, can continuously generate volume growth to keep the stock price rising.
That’s why the company maintained its neutral rating, even if it boosted the pricing goal. Although the increased value multiple (now 18x 2026 EPS, up from 17.5x) shows that people believe in PepsiCo’s plan to rebuild itself, it’s not yet a breakthrough story.
Investors want proof that the new PepsiCo can grow again
PepsiCo’s plan makes sense for those who own shares for a long time. People want more items that are natural, useful, and low in sugar, and the corporation can provide these needs since it is so big.
But investors aren’t willing to reward promise unless they see results after years of slow sales.
If the firm can keep growing for many quarters, not simply because of FX-driven beats, Wall Street’s mood might change.
PepsiCo’s playbook appears good for now, but whether this is the beginning of a meaningful resurgence or simply a short break in decline will depend on how well the company follows it.
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