PepsiCo Nears Q2 Earnings: Is a Buy Warranted Before the Release?

PepsiCo, Inc. PEP is expected to register top and bottom-line declines when it reports second-quarter 2025 numbers on July 17, before the opening bell.The Zacks Consensus Estimate for second-quarter revenues is pegged at $22.4 billion, implying a 0.5% decline from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $2.04, suggesting a 10.5% decline from the $2.28 reported in the prior-year quarter. The consensus mark for earnings has been unchanged in the past 30 days. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)In the last reported quarter, the company registered a negative earnings surprise of 1.3%. It has delivered an earnings surprise of 1.4%, on average, in the trailing four quarters.PEP's Earnings WhispersOur proven model does not conclusively predict an earnings beat for PepsiCo this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.PepsiCo has a Zacks Rank #4 (Sell) and an Earnings ESP of -0.30%.You can see the complete list of today’s Zacks #1 Rank stocks here.What to Look for in PEP’s Q2 Earnings ReleasePepsiCo continues to grapple with multiple headwinds that have been dampening its performance, particularly persistent top-line softness and lingering challenges in its North America operations since early 2024. The downturn has been led primarily by underwhelming results in PepsiCo Foods North America (“PFNA”) and a decline in Asia Pacific Foods.The PFNA segment's weakness is largely attributed to ongoing softness at Frito-Lay, which continues to face muted demand as inflation-conscious consumers pull back on discretionary spending. While Quaker Foods has shown a solid recovery following last year’s product recall, its rebound has not been sufficient to counterbalance the drag from Frito-Lay.The company highlighted that consumer sentiment remains cautious, with inflationary pressures prompting more value-driven purchasing behavior. This shift is especially pronounced in North America, where price sensitivity and reduced discretionary spending are weighing on snack category sales. Our model predicts organic sales to decline 1% year over year in the PBNA segment in the second quarter of 2025.PepsiCo faces a challenging cost environment in 2025, primarily fueled by rising supply-chain expenses and growing exposure to tariffs on globally sourced inputs. The company has flagged incremental cost pressures tied to sourcing key ingredients and materials, exacerbated by shifting international trade dynamics.These challenges are unfolding against a backdrop of escalating global logistics costs and heightened geopolitical uncertainty, particularly around U.S. trade relations, which are disrupting pricing and procurement strategies for multinationals. Without successful cost containment, these pressures can erode margins and weigh on the earnings performance throughout the year.PepsiCo, Inc. Price and EPS Surprise  PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. Quote PepsiCo’s second-quarter 2025 results are expected to reflect margin pressure, led by the timing and phasing of its productivity initiatives. Although efforts like automation, supply-chain optimization, and digital transformation are aimed at long-term efficiency gains, the delayed benefits have weighed on near-term profitability. This is further compounded by elevated supply-chain costs and tariff-related headwinds, intensifying pressure on operating income. As a result, despite ongoing cost discipline, the company’s core profitability appears temporarily constrained.We anticipate the adjusted gross profit to decline 0.8% year over year in the second quarter, with adjusted operating income falling 9.6%.However, PepsiCo benefits from its strong core categories, diversified portfolio, modernized supply chain, enhanced digital capabilities and flexible distribution network. Its international business remains a key growth driver, which contributes roughly 40% to the total net revenues. PepsiCo plans to deepen its international reach by adapting pack sizes and pricing, tailoring flavors to local preferences, and improving supply-chain efficiencies. These are expected to aid the company’s second-quarter revenues. Our model predicts revenues for the International Beverages Franchise segment to improve 2% year over year in the second quarter of 2025.The company expects to achieve this productivity goal through savings generated from restructuring actions. Savings from the productivity and restructuring plans should go a long way in driving the top line and margins.Our model projects year-over-year overall organic revenue growth of 2.3% for second-quarter 2025, with core EPS expected to decline 10.7%.Price Performance & ValuationPEP shares have exhibited a dismal performance in the past three months. The stock has lost 7.3% compared with the broader industry and the Consumer Staples sector’s decline of 5.2% and 1.1%, respectively. The PepsiCo stock has also underperformed the S&P 500 index, which increased 15.7% in the same period.PEP Stock’s 3-Month Performance Image Source: Zacks Investment Research At the current stock price of $136.08, PepsiCo trades 6.6% above its 52-week low mark of $127.6 and 24.8% below its 52-week high of $180.91.The PEP stock’s performance has lagged its peers, The Coca-Cola Company KO and Keurig Dr Pepper Inc.’s KDP declines of 3.7% and 5.8%, respectively, in the past three months. The stock has also underperformed Monster Beverage’s MNST growth of 1%. This disparity highlights a significant dip in PepsiCo's stock price compared with its key rivals.The stock is trading at a forward P/E ratio of 16.83X, below the S&P 500’s average of 22.64X and the broader industry’s average of 18X. Image Source: Zacks Investment Research The PEP stock’s valuation on a forward 12-month P/E basis reflects a significant discount to the market at large. While this may seem like an opportunity for some investors, the valuation gap with its peers may not be as advantageous as it appears. The lower price can signal underlying issues rather than presenting an upfront investment opportunity.PepsiCo’s Investment ThesisPEP has consistently delivered revenue growth and strong profitability, driven by its diverse product portfolio and global presence. Investments in brands, distribution systems, supply chains, manufacturing and digital capabilities strengthen its long-term growth potential.Despite its solid financial performance and strategic initiatives, industry dynamics and external risks warrant a cautious investment outlook. Inflationary pressures, operational challenges in North America and shifting consumer behavior have been hurting performance. Recent market data suggests bleak prospects for near-term recovery in its North America business.ConclusionAs PepsiCo prepares to report its second-quarter 2025 results, investors may be questioning whether now is the right time to take a position. Ongoing challenges in its North American operations, coupled with broader market volatility, introduce a layer of uncertainty. Rising supply-chain costs, tariff-related pressures, currency headwinds and a cautious consumer environment further suggest that operating leverage may remain limited in the near term.However, PepsiCo’s strong international momentum, investments in digital transformation, sustainability initiatives and continued product innovation can serve as meaningful tailwinds.With limited estimate revisions and a generally cautious tone from analysts, a wait-and-watch approach may be prudent. Tracking how the company navigates current headwinds and leverages its growth drivers post-earnings can offer a clearer entry point, making patience a potentially smarter strategy for now.#1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.See This Stock Now for Free >>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 CocaCola Company (The) (KO): Free Stock Analysis Report PepsiCo, Inc. (PEP): Free Stock Analysis Report Monster Beverage Corporation (MNST): Free Stock Analysis Report Keurig Dr Pepper, Inc (KDP): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks