PepsiCo Inc. (NASDAQ: PEP) is showing modest gains after delivering its third-quarter earnings report on October 9. The company delivered earnings per share of $2.29, which was three cents higher than the expected amount. Revenue of $23.94 billion was just a fraction higher than the $23.85 billion analysts had forecasted. The company also raised its full-year earnings guidance to $8.12 per share, which is above the consensus estimate of $8.03 per share.
PEP stock was up approximately 3% in midday trading after the announcement. However, the news wasn’t all good. Organic revenue growth of 1.3% was lighter than the 2.2% expected. That points to an issue that’s bedeviled the company for several quarters. It’s struggling with volume while still managing to remain profitable.
That data shows that Pepsi’s problem may be more transitory than the existential hyperbole of GLP-1 drugs. It also shows that Pepsi isn’t losing shelf space but needs to optimize that premium space. It’s a turnaround story that’s not being called a turnaround story. It also means the stock could offer great value as it’s trading at multi-year lows.
Pepsi(PEP Stock) is Leaning Into Value
Pepsi’s results show that consumer tastes are changing. This highlights the company’s concerted effort to be more than a soft drink company, which has both positive and negative aspects.
The company has differentiated itself from its rival Coca-Cola by offering a portfolio of snack foods along with its beverage category. And like Coca-Cola, Pepsi has expanded its beverage category to include energy drinks and, recently, prebiotic drinks under the Poppi brand.
However, the results also showed that there can be too much of a good thing. In this case, Pepsi’s portfolio has become too diverse, which is eating into the company’s profits. The company said it plans to trim its snack foods portfolio by around 15% in the coming quarter.
The company also gave a nod to the MAHA (Make America Healthy Again) movement. Specifically, it highlighted its plans to
- Remove artificial flavors from its iconic Cheetos and Doritos brands.
- Expand the use of avocado oil and olive oil for its Lay’s brand; the company will also highlight that the chips are made with real potatoes.
- Lean into healthier snack brands, including Siete Foods, which the company acquired in 2025.
What the Numbers Aren’t Saying?
For the first time in several quarters, the company didn’t overtly link its volume decline to weight loss drugs. The company will examine its pricing strategy as consumers have become wise to the practice of “shrinkflation.” But the real issue seems to be a value-conscious customer who perceives the company’s products as being too expensive..
Cost-cutting and marketing jiu-jitsu will only get the company so far. However, Pepsi does seem to be listening to its consumers and is adapting its product portfolio accordingly. In a bifurcated economy, the turnaround may take time to play out. However, if the company is fighting a cyclical downturn, this is a time for investors to snack on PEP stock.
Skeptics will point to the total return in PEP stock, which, if looked at over any meaningful time period has underperformed the S&P 500. High single-digit returns aren’t sexy in the age of AI. However, it beats the heck out of most fixed-income investments, and you’ll still be able to sleep well at night.
Plus, at around 16x forward earnings, PEP stock is trading at a discount to its historical averages. That’s an attractive proposition for an investor whose primary objective is to generate income while minimizing volatility.
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