PepsiCo, Inc. PEP has reported robust first-quarter 2025 results, wherein revenues and earnings per share (EPS) missed the Zacks Consensus Estimate and declined year over year. PepsiCo's core gross margin was flat year over year, while its core operating margin experienced a decline.
PEP’s first-quarter core EPS of $1.48 missed the Zacks Consensus Estimate of $1.50 and declined 8.1% year over year. In constant currency, core earnings fell 4% from the year-ago period. Its reported EPS of $1.33 fell 10% year over year in the quarter. Foreign currency impacted EPS by 4%. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
Shares of the Zacks Rank #3 (Hold) company have lost 8% in the past three months against the industry’s 11% growth.
Zacks Investment Research
Image Source: Zacks Investment Research
Peek Into PEP’s Q1 Details
Net revenues of $17.92 million dipped 1.8% year over year and missed the Zacks Consensus Estimate of $17.76 billion. The unit volume was down 3% for the convenient food business and was flat for the beverage business. Foreign currency impacted revenues by 3%.
On an organic basis, revenues grew 1% year over year. The variance mainly resulted from a soft PepsiCo Foods North America (PFNA) performance and a decline in Asia Pacific Foods. The company’s consolidated organic volume was down 2%, while effective net pricing improved 3% in the first quarter.
Our model predicted year-over-year organic revenue growth of 1.7% for the first quarter, with a 3% gain from the price/mix and a 1.2% decline in volume.
On a consolidated basis, the reported gross profit declined 0.1% year over year to $9.99 billion. The core gross profit declined 1.8% year over year to $9.98 million. The reported gross margin declined 100 bps, whereas the core gross margin was flat year over year.
We anticipated the core gross margin to expand 20 bps year over year to 55.9% in the first quarter. In dollar terms, core gross profit was expected to decline 0.7% year over year.
PepsiCo, Inc. Price, Consensus and EPS Surprise
PepsiCo, Inc. Price, Consensus and EPS Surprise
PepsiCo, Inc. price-consensus-eps-surprise-chart | PepsiCo, Inc. Quote
The company reported an operating income of $2.6 billion, which fell 4.9% year over year. The core operating income declined 5.1% year over year to $2.8 billion. The core constant-currency operating income declined 1% year over year. The operating margin contracted 50 bps from the year-ago quarter on both reported and adjusted basis.
Our model predicted core SG&A expenses of $7.2 billion, which indicated year-over-year growth of 0.2%. As a percentage of revenues, core SG&A expenses were anticipated to be 40.1%, suggesting a 50-bps rise from the prior-year quarter.
We expected a core operating margin of 15.8%, implying a 30-bps decline from the year-ago quarter’s actual.
PEP’s Segmental Details
Beginning in the first quarter of 2025, PepsiCo realigned its reporting segments to better reflect its updated organizational structure, and the way its chief executive officer evaluates performance and allocates resources. The company’s North America convenient food businesses — Frito???Lay and Quaker Foods — are now reported collectively as PFNA. This change does not affect its PepsiCo Beverages North America (PBNA) segment.
Internationally, the company established the International Beverages Franchise (IB Franchise) as a distinct reportable segment. Its international convenient food businesses have been reorganized into three regional segments — Latin America Foods (LatAm Foods); Europe, Middle East and Africa (EMEA); and Asia Pacific Foods. The Asia Pacific Foods segment includes operations primarily in China, Australia, New Zealand and India. Additionally, its company-owned international bottling operations are reported under the EMEA segment.
On a reported basis, PepsiCo witnessed revenue declines across most operating segments, except for PBNA and IB Franchise.
Revenues on a reported basis declined 1% year over year in PFNA, 2% in EMEA, 12% in LatAm Foods and 2% in Asia Pacific Foods. However, reported revenues were flat in PBNA and increased 3% in IB Franchise.
PEP’s organic revenues improved across most operating segments, except for PFNA and Asia Pacific Foods. Organic revenues rose 1% for PBNA, 7% for IB Franchise, 8% for EMEA and 3% for the LatAm Foods segment. However, organic revenues declined 2% for the PFNA and 1% for the Asia Pacific Foods segment.
Financials of PepsiCo Show Stability
PEP ended first-quarter 2025 with cash and cash equivalents of $8.3 billion, long-term debt of $39.4 billion, and shareholders’ equity (excluding non-controlling interest) of $18.4 billion.
Net cash used in operating activities was $973 million as of March 22, 2025, compared with $1.04 billion cash used as of March 23, 2024.
PEP’s Outlook for 2025
Going forward, PepsiCo anticipates continued volatility and uncertainty, particularly related to global trade developments, including tariffs, leading to higher supply-chain costs. Additionally, consumer demand in many markets remains soft, with uncertain outlooks.
To address these headwinds, the company is proactively implementing mitigation strategies to manage rising supply-chain costs, while striving to avoid disruptions to its operations, customer and consumer relationships, and the long-term strength of its business. The company also remains committed to expanding its international business, building on its sustained momentum and taking targeted steps to enhance performance in North America. Additionally, the company’s multi-year productivity initiatives are poised to help fund disciplined commercial investments and aid profitability.
Consequently, PepsiCo expects low-single-digit organic revenue growth for 2025. Due to anticipated increases in supply-chain costs, driven by tariffs, heightened macroeconomic volatility and ongoing softness in consumer demand, the company expects core constant-currency EPS for 2025 to be flat with the prior year, revised from its previous guidance of mid-single-digit growth.
Based on the current rates, PEP expects currency headwinds to hurt revenues and the core EPS by 3 percentage points in 2025. The company expects a core effective tax rate of 20% for 2025.
Given the above assumption, PepsiCo expects core EPS to decline 3% year over year in 2025 compared with the previous expectation of a low-single-digit increase. The company reported a core EPS of $8.16 in 2024.
PEP has been committed to rewarding shareholders through dividends and share buybacks. It expects to return a value worth $8.6 billion in 2025, including $7.6 billion of dividends. Additionally, the company plans to repurchase shares worth $1 billion in 2025.
Don’t Miss These Better-Ranked Stocks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Fomento Economico Mexicano FMX, Primo Brands Corporation PRMB and Carlsberg CABGY.
Fomento, which participates in the beverage industry through Coca-Cola FEMSA, currently has a Zacks Rank #2 (Buy). FMX shares have rallied 25.6% in the past three months. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Fomento’s 2025 earnings suggests growth of 41.5% from the year-ago period’s reported figure. FMX sales for 2025 indicate a year-over-year decline of 3.6%.
Primo Brands is a branded beverage company with a focus on healthy hydration, delivering sustainably and domestically sourced diversified offerings. The company currently has a Zacks Rank #2.
The Zacks Consensus Estimate for PRMB’s 2025 earnings and sales indicates surges of 146.9% and 57.4%, respectively, from the previous year’s reported figures. Primo Brands has a trailing four-quarter average earnings surprise of 7.2%.
Carlsberg is a brewing company and has operations in Northern and Western Europe, Eastern Europe, and Asia. CABGY currently has a Zacks Rank #2.
The Zacks Consensus Estimate for the company’s 2025 sales and earnings implies growth of 23.4% and 3.8%, respectively, from the previous year’s reported number.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
