PepsiCo Sees Momentum Pre-Q3 Earnings: Is This the Right Time to Buy?

PepsiCo, Inc. PEP is expected to register top-line growth and a bottom-line decline when it reports third-quarter 2025 numbers on Oct. 9, before the opening bell.The Zacks Consensus Estimate for third-quarter revenues is pegged at $23.9 billion, implying a 2.4% decline from the year-ago quarter's reported figure. For quarterly earnings, the consensus mark is pegged at $2.27, suggesting a 1.7% decline from the $2.31 reported in the prior-year quarter. The consensus mark for earnings has moved up by a penny in the past 30 days.In the last reported quarter, the company registered an earnings surprise of 4.4%. It has delivered an earnings surprise of 1.01%, on average, in the trailing four quarters.PEP's Earnings WhispersOur proven model conclusively predicts 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. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.PepsiCo has a Zacks Rank #3 and an Earnings ESP of +0.49%. You can see the complete list of today’s Zacks #1 Rank stocks here.What to Look for in PEP’s Q3 Earnings ReleasePepsiCo’s third-quarter 2025 performance is expected to have benefited from continued momentum in its international and North America beverage businesses. The company’s international business remains a key growth driver, generating roughly 40% of net revenues. The company’s international business is expected to reflect strength across both beverages and convenient foods in the third quarter. Our model predicts revenues for the International Beverages Franchise segment to improve 2% year over year in the third quarter of 2025.Additionally, PepsiCo’s Beverages North America (PBNA) segment is expected to have witnessed momentum in the third quarter, backed by improved volume trends, with standout results from trademark Pepsi, particularly Pepsi Zero Sugar. Marketing initiatives like the “Food Deserves Pepsi” campaign and the “Pepsi Zero Sugar Taste Challenge” have been driving brand awareness and market share gains in North America. The recent acquisition of poppi further enhances PBNA’s innovation edge and appeal among younger consumers, positioning the segment well for sustained, profitable growth, which is likely to get reflected in the to-be-reported quarter’s results. Our model predicts revenues for the PBNA segment to improve 1% year over year in the third quarter.PepsiCo is seeing signs of recovery in its Quaker Foods business, supported by focused innovation and cost actions. PepsiCo has taken targeted steps to enhance its value proposition, refreshing price-pack offerings and expanding affordable, portion-controlled options. With more than $2 billion in annual net revenues from its permissible snack portfolio, PepsiCo is well-positioned to reignite growth in Quaker Foods and capture additional share in the health-conscious food category. Gains from these initiatives are expected to get reflected in the company’s third-quarter results.PepsiCo’s focus on productivity and digital transformation remains a cornerstone of its strategy to enhance efficiency, fund innovation and support margin expansion. The company continues to advance its multi-year, enterprise-wide productivity initiatives, which are fueled by automation, standardization, and increased adoption of digital tools and data analytics. PepsiCo has also been investing in digital capabilities like consumer insights, demand forecasting and trade promotion management to enhance decision-making and commercial execution. These initiatives not only generate cost savings to reinvest in innovation and growth but also modernize PepsiCo’s operations, positioning the company to remain competitive and adaptive in an increasingly digital and fast-changing global market. These actions are expected to have bolstered its performance in the to-be-reported quarter.PepsiCo, Inc. Price and EPS Surprise  PepsiCo, Inc. price-eps-surprise | PepsiCo, Inc. QuoteHowever, PepsiCo’s North America food business (PFNA) continues to face softness, with subdued category demand and evolving consumer preferences. Key subcategories like flavored tortilla chips and pretzels saw modest share gains in the second quarter, but overall momentum was tempered. While consumers remain focused on affordability, preferences are shifting toward bold flavors, permissible ingredients and portion control. To address this, PFNA is accelerating innovation, restaging major brands like Lay’s and Tostitos with cleaner labels, and scaling platforms such as Simply and Sun Chips.PepsiCo expects these actions to improve PFNA’s performance in the second half of 2025 and beyond. Our model predicts revenues for the PFNA segment to be flat year over year in the third quarter.PEP has been grappling with a challenging cost environment, primarily fueled by rising supply-chain expenses, unfavorable product mix and inflationary headwinds tied to global trade dynamics. These headwinds are expected to have weighed on the gross and operating margin performances in the third quarter.While PepsiCo has launched mitigation strategies, such as cost-optimization efforts and sourcing adjustments, these measures have yet to fully offset the margin drag. Plant closures, headcount reductions and promotional rebalancing reflect the urgency of the situation but signal underlying strain on operations.This margin softness raises concerns about PepsiCo’s ability to sustain profitability amid macro volatility and competitive intensity, particularly if cost pressures persist into the second half. The company’s flat core constant-currency EPS guidance for 2025 underscores limited near-term earnings leverage. The anticipated increases in supply-chain costs, driven by tariffs, heightened macroeconomic volatility and ongoing softness in consumer demand, are expected to have weighed on the company’s third-quarter EPS.We anticipate the adjusted gross margin to contract 20 bps year over year in the third quarter, with adjusted operating margin falling 60 bps.Price Performance & ValuationPEP shares have exhibited a strong performance in the past three months. The stock has risen 5.6% against the broader industry and the Consumer Staples sector’s declines of 6.4% and 6%, respectively. However, the PepsiCo stock has underperformed the S&P 500 index, which has rallied 9.3% in the same period.PEP Stock’s 3-Month Performance Image Source: Zacks Investment Research At the current stock price of $141.98, PepsiCo trades 11.3% above its 52-week low mark of $127.6 and 20% below its 52-week high of $177.5.The PEP stock’s performance has outperformed its peers, The Coca-Cola Company KO and Keurig Dr Pepper Inc.’s KDP declines of 6.1% and 23.5%, respectively, in the past three months. However, the stock has underperformed Monster Beverage’s MNST growth of 6.9%.The stock is trading at a forward P/E ratio of 16.93X, below the S&P 500’s average of 23.35X and the broader industry’s average of 17.42X. Image Source: Zacks Investment Research PEP’s forward 12-month P/E valuation shows a notable discount to the broader market. While this may appear attractive, supported by solid net revenue growth, strong international momentum and improving North American trends, the lower valuation also hints at underlying challenges rather than a clear buying 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 PEP’s performance. Recent market data suggests bleak prospects for near-term recovery in its North America business.ConclusionAs PepsiCo prepares to report its third-quarter 2025 results, investors may question whether now is the right time to take a position. The company continues to showcase solid fundamentals, driven by its strong international presence, innovative product portfolio and digital transformation initiatives that enhance efficiency and competitiveness. Momentum in beverages, improving trends in Quaker Foods and positive estimate revisions underscore confidence in its near-term outlook.However, challenges persist. Margin pressures from inflation, supply-chain costs and a softer North America foods segment may tamper earnings growth in the short run. Nonetheless, PepsiCo’s resilient execution, disciplined cost management and steady brand strength provide a reassuring backdrop.With its stock showing renewed momentum and trading at a valuation discount to the broader market, PepsiCo appears well-positioned for investors seeking a blend of stability, innovation and long-term growth potential.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. 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