PepsiCo beats earnings estimates on steady demand for sodas and snacks, names new CFO

Pepsi bottles are on display at a supermarket. (AP/Elise Amendola)

PepsiCo topped Wall Street expectations for third-quarter revenue and profit on Thursday, helped by steady demand for its snacks and sodas in key international markets and strength in its healthier drinks category in the United States.

The company also named Steve Schmitt, who is currently U.S. finance head at its biggest customer Walmart, as its new CFO, effective November. He succeeds Jamie Caulfield, who was in the CFO role for about two years and will retire after more than three decades with PepsiCo.

The company is under pressure from activist investor Elliott Management for lagging behind main rival Coca-Cola, while also facing consumer pushback on price hikes over the years and scrutiny on synthetic flavors from the Trump administration.

CEO Ramon Laguarta said the company’s interactions with Elliott have been collaborative and he agrees with the activist investor that the company is undervalued. He said many of the investor’s ideas were included in PepsiCo’s current strategy.

Laguarta, however, did not give a clear answer to the activist investor’s boldest idea to grow PepsiCo’s margins by spinning off the company’s large North American bottling network.

PepsiCo, which in recent months bought prebiotic soda brand Poppi and raised its stake in energy drink maker Celsius, said it was evaluating acquisitions in segments that are showing faster growth in the packaged food industry.

“We’ll see how consumers react,” Laguarta said, adding that the prices on the new products would be higher, helping margins as PepsiCo continues to cut costs in its supply chain.

PepsiCo’s net revenue of US$23.94 billion beat analysts’ average expectations of $23.83 billion, according to data compiled by LSEG, while its adjusted earnings per share also topped estimates by three cents.

“I would characterize it (the results beat) as mildly encouraging. Certainly they’re being shaken up by Elliott Management... that’s probably got their attention,” said Greg Halter, director of research at Carnegie Investment Counsel, which holds shares in PepsiCo.

Its shares opened up one per cent as the company maintained its annual organic revenue growth and adjusted profit in constant currency targets.

The company’s 12-month forward earnings multiple, a common benchmark for valuing stocks, was 16.54, lagging Coca-Cola’s 20.90.

Laguarta said PepsiCo would “aggressively reduce costs” in the snacks category in the U.S., with a plan that includes closing two plants and cutting nearly 15 per cent of its product lines during the fourth quarter.

The company is also offering smaller pack sizes as consumers look for affordable options, a move that helped drive volume growth in some Asian markets this year. The company’s international business accounts for about 40 per cent of its revenue.

Overall consumer sentiment remained weak despite spurts of growth in India and Middle East markets, Laguarta said on the call, adding that immigration crackdown under the Trump administration was denting demand among its Hispanic customers.

While tariffs were a roughly three-percentage point headwind to its core earnings in the third quarter, the company plans to return to margin growth in the North America beverages category later this year, executives said.

(Reporting by Prerna Bedi and Juveria Tabassum in Bengaluru; Editing by Anil D’Silva)