Is PepsiCo Stock a Buy After Earnings?

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In simple terms, PepsiCo (PEP) shared its second-quarter earnings report for 2025. Although there was a slight revenue growth accompanied by decreased profits, the stock jumped up by 6% during the subsequent trading day. This surge occurred because the company restated its future expectations and provided additional information about their turnaround strategy, such as cost reduction plans.

A key concern for investors remains: Can PepsiCo continue to increase its stock value in a stable manner even as costs escalate within a low-growth economy? To make informed decisions, it’s essential for investors to scrutinize the company’s overall health and financial status closely before making any judgments about the stock.

The second-quarter results

PepsiCo’s expansion remains challenging as its annual net income, amounting to approximately $22.7 billion, increased by almost 1%. Growth was minimal across most regions, with a notable 7% drop in revenue from Latin America seemingly counterbalancing the 8% increase in revenue from Europe, the Middle East, and Africa.

Additionally, I noticed a 4% rise in the expenses associated with sales dampening earnings. Furthermore, PepsiCo faced a nearly $1.9 billion reduction in the value of its intangible assets, which significantly impacted their financial statement. As a result, the net income for the quarter was approximately $1.3 billion, significantly lower than the $3.1 billion profit recorded during the same period last year. However, it’s essential to consider that, without the impairment charge, profit growth would have been roughly 1%.

From now through the end of 2025, PepsiCo continues to predict modest growth in its revenue. Additionally, they have unveiled a strategy for revitalization, concentrating on healthier options and expense reduction. Moreover, they plan to give back $8.6 billion to their shareholders; this includes $1 billion set aside for stock repurchases, while the rest, $7.6 billion, will cover the dividend expenses.

PepsiCo consistently ranks as a “Dividend Aristocrat,” having increased its dividends for 53 consecutive years. The current dividend, now standing at $5.69 per share annually, provides a yield of approximately 3.8% following a rise in the stock after earnings were reported.

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Where the report leaves investors

Indeed, the high dividend of this stock appeals significantly to income investors, not merely due to its being well above the 1.2% average yield of the S&P 500. Similar to most Dividend Kings, PepsiCo is likely to steer clear of damaging investor trust by reducing the payout, thereby almost guaranteeing that future increases in the dividend will persist.

Even though some investors seeking growth may question if the turnaround strategy alone can justify the surge in the stock following earnings, it’s important to remember that PepsiCo is not just its famous cola brand. It includes beverage and food brands like Mountain Dew, Gatorade, Lay’s, and Quaker, which could potentially contribute positively to the stock’s performance.

In brief, it’s not surprising that revenue growth has remained flat, considering it barely increased in 2024 and dipped slightly during Q1. Moreover, the packaged food sector is experiencing challenges due to heightened consumer health awareness and stricter government oversight on product ingredients. The company recently disclosed plans to reduce expenses, but opting for healthier ingredients might increase costs, potentially offsetting the benefits of cost reduction.

I’m thrilled about the announcement from President Donald Trump that Coca-Cola (KO) is swapping high fructose corn syrup for cane sugar in their sodas! This might prompt PepsiCo to do the same, which could be a win for sales as consumers seem to favor healthier options. However, it’s important to consider that this switch could also increase costs at a time when we’re striving to cut down on expenses.

Additionally, PepsiCo’s market value alone might not be sufficient to attract investors. Lately, its Price-to-Earnings (P/E) ratio has reached 21, while its earnings multiple surpassed a low not seen in years. This valuation could entice bargain seekers in various other stocks, but it may struggle to compensate for PepsiCo’s stagnant revenue growth. Consequently, this situation might make it more challenging to validate the buy argument for investors who prioritize growth.

Should I buy PepsiCo stock after earnings?

Given the state of PepsiCo, the stock is probably only a buy for income investors.

Undeniably, this company presents an appealing opportunity for investors who prioritize dividend income. With a yield of 3.9%, it significantly surpasses typical market returns, and its Dividend King status suggests that regular dividend increases are likely to persist.

Regrettably, there’s a higher degree of unpredictability regarding their financial status. However, by leveraging the power of their well-known brands and shifting focus towards catering to health-conscious customers, they aim to prevent drops in earnings and preserve the trust of income investors.

In light of PepsiCo lacking a clear strategy for significant revenue growth beyond low single digits and potential changes in government regulations affecting ingredients potentially counteracting cost-saving measures, a higher 21 P/E ratio alone may not be enough to entice investors seeking growth opportunities beyond just dividend income.

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2025-07-22 10:31