PEP 3Q25 - Selling more chips - Lay's not AI. Bull case $210

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October 09, 2025

PepsiCo Investment Report - Q3 2025 Earnings Beat & Strategic Transformation

PEPSICO, INC. (PEP)

🥤🍟 Global Snacks & Beverages Leader | Q3 Beat, Elliott Activist Stake, Strategic Transformation Underway

Q3 2025 Results | Beat on Revenue & EPS, International Growth Offsetting NA Weakness, Elliott $4B Stake Catalyst, New CFO, Innovation Focus

💰 Market Cap: $193.0B | 🏢 Employees: 319,000 | 🌍 Global Food & Beverage Giant
👨‍💼 CEO Ramon Laguarta | 🎯 Innovation & Efficiency | 👑 Dividend King 53 Years
$140.79
📉 -$10.71 (-7.4%) YTD
Current Price
Price Target Scenarios

18-Month Horizon (2026 Targets)

$210.00
Bull Case (+49%)
Transformation Success
Elliott Catalyst
📊 Valuation Calculation:
• 2026E EPS: $10.00 × P/E: 21.0x = $210.00
🚀 What Needs to Happen:
Elliott changes work • NA turns around • International grows 6%+ • Margins hit 18% • Volumes come back • New products succeed • Market share recovered
$165.00
Base Case (+17%)
Gradual Improvement
Steady Progress
📊 Valuation Calculation:
• 2026E EPS: $8.75 × P/E: 18.9x = $165.00
⚖️ What Needs to Happen:
Slow steady improvement • NA gets better gradually • International +4% • Cost cuts deliver $1B+ • Margins 16-17% • Dividend keeps growing • New products work okay
$105.00
Bear Case (-25%)
Continued Struggles
Market Share Loss
📊 Valuation Calculation:
• 2026E EPS: $7.00 × P/E: 15.0x = $105.00
🔻 What Could Go Wrong:
Recession hits • NA volumes drop 5% • Coke keeps winning • People keep eating healthier • Changes fail • Costs spike • Margins fall to 13-14% • Weight loss drugs hurt snacking more
Bottom Line for Retail Investors
👑
Dividend King Quality
53 years of dividend growth. 4% yield. Owns Pepsi, Lay's, Doritos, Gatorade, Quaker. $92B revenue. Safe blue chip quality.
🎯
Inflection Point Visible
Beverages grew Q3. Food grew last month. Service fixed. CEO sees clear path to growth in 2026. Elliott working with them. Open to big changes. Tech investments paying off. Major brand updates coming.
📈
Upside Catalysts
Beat estimates. Volumes turning positive. Service problems solved. Away-from-home up big. Protein products everywhere. Baja Blast $1B brand. New products working. International strong in Sept. Cost cuts carrying into 2026. CFO: "best days ahead."
⚠️
Risk Factors
CEO says consumers "stressed everywhere." Tariffs hurt margins. New products cost more. Plant closures messy. Big changes still being tested. New CFO in Nov. Timing uncertain. Weight loss drugs a threat.

📊 Q3 2025 "Inflection Visible, Momentum Building" Performance

Beat Estimates • Drinks Actually Grew (After Adjusting) • Food Grew Last Month • Service Fixed at 97-98% • International Strong in Sept • Elliott Working With Them • CEO Sees Clear Path to Growth in 2026 • Big Brand Updates Coming

✅
$2.29
Q3 Adj EPS
Beat by $0.03
💰
$23.94B
Q3 Revenue
+2.6% YoY, Beat Est
📉
-1%
Volume Decline
Food & Beverage
🌍
+1.3%
Organic Growth
International Led

📞 Key Q3 2025 Earnings Highlights

🎊
Beat & Momentum Building
Beat earnings and sales. Beverages grew (after adjusting for sold business). Pepsi brand winning. Food turned positive last month. Service back to normal at 97-98%. Business improving. CEO sees path back to growth in 2026.
🚨
Volume Pressures But Inflecting
Food down 4%, drinks down 3% officially but drinks actually positive after adjusting. Summer strategy didn't work great. But last month showed real growth. Service fixed. Customers happy again. Expecting flat food Q4, drinks keep improving. International back to strong growth after bad weather.
💎
Elliott Engagement Constructive
Elliott bought $4B stake Sept. CEO Ramon: talks "constructive and collaborative." Both agree stock undervalued. Most Elliott ideas already in company plan. Open to big changes including selling bottling plants. Testing combined warehouses in Texas. New Walmart CFO brings fresh ideas. Acting fast on changes.
🔬
Major Innovation Pipeline
Relaunching Lay's and Tostitos now. Gatorade relaunch early 2026. Protein in everything: new Muscle Milk, Propel for weight loss drug users, Doritos protein, Quaker protein. Removing artificial colors from all brands. CEO: "fiber will be the next protein." New avocado and olive oil chips. Baja Blast is $1B brand. New Mountain Dew "Dirty Dew" coming.

📍 CEO Commentary: Ramon sees "clear path back to growth in 2026." Three keys: (1) Fix the basics - better prices, service, execution. (2) Relaunch big brands - Pepsi working, now doing Lay's, Tostitos, Gatorade. (3) Focus on what's growing - away-from-home up 2-3x, healthier snacks, functional drinks. "Acting with urgency" on changes. Tech investments now giving advantage vs competitors.

🌍 International: Q3 weakness was just weather. September "was strong" back to mid-high single digit growth. India growing well. Middle East consumers feeling good. Eastern Europe better than Western. Brazil "close to double digit in September." Mexico tied to US trends. China consumers stressed but managing. "Keeping consumers in our brands."

💰 Margin Plan: Company margins expanding from: (1) International growing and more profitable. (2) Drinks margins up (tariffs hurt Q3 but Q4 better). (3) Food margins "starting to bend" after cost cuts. Closing old factories, combining warehouses, right-sizing workers. Productivity "back to couple years ago levels." Big savings carryover into 2026. 70% more savings coming H2 vs H1.

🔮 Brand Updates: Pepsi relaunch working - growing globally. Zero Sugar and flavors (cherry, cream) driving it. Gatorade relaunch focuses on "superior hydration" message. Muscle Milk getting better taste and packaging. Propel growing double digits for 5-6 years, expanding to functional drinks. Baja Blast $1B including Taco Bell. Cutting small unprofitable products = "better service." Poppi distribution helping already.

🚀 Why PEP Bulls Are Right
💎
Iconic Brand Portfolio
World's biggest brands: Pepsi growing now. Lay's relaunching. Gatorade relaunch early 2026 with better messaging. Baja Blast $1B brand. Away-from-home up 2-3x regular stores. Strong brand power. Everyone knows these brands.
⚡
Momentum Inflecting
Food grew last month. Drinks volume positive after adjustments. Service fixed at 97-98%. Customers happy. International Sept strong, back to normal. Clear improvement happening. Ramon sees "clear path" to growth in 2026. Turnaround actually working. Basics fixed.
👑
Technology Competitive Advantage
5 years of tech spending paying off now. Can handle complexity better than before. Using AI on their data. More flexible and faster. Ready for future (online orders, delivery, fewer big customers). Order taking, shipping, manufacturing all upgraded. Removes bottlenecks. Ramon: "will beat competitors" with this tech.
🚀
Strategic Repositioning
New products coming fast: Protein in everything (Muscle Milk, Propel for Ozempic users, Doritos protein, Quaker protein). Fiber next big thing per CEO. Removing fake colors from everything. New avocado and olive oil chips. Healthier snacks $2B+. Poppi working. Propel up double digits for years. Closing old factories. Getting more efficient.
🐻 Why PEP Bears Have Valid Concerns
📉
Consumer Stress Global
Ramon says consumers "stressed everywhere." China bad. Mexico tied to weak US trends. Cost of living up globally. People being careful with money. Private label threat real. Value matters now. Price increases hit limits. Middle and low income households hurting. This continues.
🏥
Structural Secular Headwinds
Ramon admits big problems: People want healthier food, clean labels matter, health awareness rising everywhere. Weight loss drugs need special Propel product (they know it's hurting). Online shopping changing everything. Move to better ingredients is real and permanent. New products risky (Starry and SodaStream flopped). Can't easily reverse decades of soda decline.
💸
Cost & Execution Complexity
Q3 drink margins hit by tariffs. New products cost more (protein, clean ingredients all expensive). Need to spend savings on ads. Factory closings = charges. Warehouse changes = disruption. Cutting workers risks service. Tech gets complicated. Doing many things at once = risky. Demand changed a lot from 2023.
⚠️
Strategic Uncertainty
Combined warehouses only "testing in Texas" - no real plan yet. Thinking about selling bottling = current model broken? Elliott talks nice but no commitments. New CFO in Nov (old one there 33 years). Big brand relaunches risky. Growth timing "Q3? Q4? We'll see" = unsure. Weather blamed again.

This analysis is for informational purposes only and should not be considered investment advice. Please consult with a financial advisor before making investment decisions.