PepsiCo Earnings: Natural Ingredients and Away-From-Home Channels in Focus as Turnaround Takes Hold

Key Morningstar Metrics for PepsiCo

• Fair Value Estimate: $162
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of PepsiCo’s Earnings

PepsiCo’s organic revenue rose 2% in the second quarter of 2025 as price increases of 4% more than offset a 2% decline in volume. Adjusted operating profits fell 10%, however, as margin narrowed 190 basis points to 16.1%.

Why it matters: We are encouraged by the sequential volume lifts in both US snacks and beverages for the quarter, as early signs that PepsiCo’s sharpened focus on innovation and away-from-home channels for better outreach are resonating with US consumers.

• We view as prudent management’s heavy investment in new recipes and packaging in recent quarters to elevate the appeal of its snack portfolio. This, coupled with investments in entry price points and in-store presentation, should position US snack volume to return to growth in the second half.
• The 6% international sales expansion reaffirmed our confidence in the unit’s long-term growth runway. We expect a rising international sales mix (from 40% now) and accretive margins to help lift overall profitability in the coming years.

The bottom line: Our $162 fair value estimate for wide-moat PepsiCo is likely to rise by a low-single-digit percentage as we adjust earnings estimates for the near term. Shares remain attractive after a 7% pop on July 17 as the market underestimates the long-term sales growth potential in US snacks.

• Following a weak patch since early 2024, we now see a path for PepsiCo’s organics sales growth to rebound to its 4%-6% long-term target range in the coming quarters, as snack recipe innovation, the success of zero-sugar colas, and affordability initiatives are set to buoy volumes in the US.
• We expect beverage and snack supply chain integration and better advertising efficiencies to help expand operating margins by 200 basis points to 16% over the next decade. However, we see near-term margin lift as capped by investment needs in innovation and away-from-home channels.