Lay's, Tostitos Comeback Set To Ignite Q4, But Can PepsiCo Fend Off Q3 Earnings Dip?

PepsiCo, Inc. (NASDAQ:PEP) is making bold operational shifts across its global portfolio as it navigates shifting demand patterns and prepares for key product relaunches.

These moves come as the company looks to balance short-term pressures with long-term growth, especially in its North American and international markets.

Bank of America Securities analyst Peter T. Galbo reiterated the Neutral rating on PepsiCo, raising the price forecast from $145 to $150.

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On Thursday, the company registered second-quarter adjusted earnings per share of $2.12, beating the analyst consensus estimate of $2.03.

Quarterly sales of $22.726 billion (+1% year over year) outpaced the Street view of $22.292 billion.

Galbo notes that while Pepsi Foods (PFNA) delivered stronger-than-expected results, it may still face headwinds in the near term, particularly due to tough year-over-year comparisons in the third quarter following last year’s promotional period.

The company expects to face a temporary setback in the third quarter before re-launching key brands like Lay’s and Tostitos, which should drive sequential improvement in the fourth quarter.

To protect volumes, PepsiCo is adjusting its promotional strategy to emphasize everyday value and is also undertaking structural margin improvements, including two plant closures.

On the PBNA side, the company is sharpening its revenue growth strategies, phasing out case pack water, and optimizing transportation to lift margins.

International operations are expected to remain the primary growth engine for the rest of fiscal year, with strong contributions from Latin America, particularly Brazil and Mexico, and EMEA.

These regions are benefiting from favorable pricing actions and rising per capita consumption and are projected to grow at a mid-single-digit (MSD) to high-single-digit (HSD) pace organically.

Galbo now forecasts a 2.5% year-over-year decline in the third quarter earnings per share to $2.26, down from a prior estimate of $2.37.

The revised outlook reflects expected total organic sales growth of 2%, a gross margin contraction of 60 basis points (in line with the second quarter), and a smaller 20 basis point drop in operating margin.

Notably, PFNA’s productivity gains and PBNA’s tariff mitigation strategies are expected to have a more pronounced impact in the fourth quarter.

Price Action: PEP shares are trading lower by 0.29% to $145.03 at last check Friday.

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