PepsiCo (PEP) Q3 2026 earnings review
PepsiCo's sales grow faster, but it cut its profit forecast
PepsiCo sold more snacks and drinks abroad, but its North American business earned less and forced a lower profit outlook. Underlying sales, which strip out acquisitions and currency moves, grew 3%, the fastest pace since late 2023. Profit per share excluding one-offs rose 2%, and by our math tariff refunds supplied all of that gain. Finance chief Steve Schmitt said North America needs more time.
| Sales growth without acquisitions and currency | +3.1% +2.4% last quarter |
|---|---|
| Revenue | $25.3B +5.6% from a year ago |
| Profit per share, excluding one-offs | $2.34 +2% from a year ago; about −2% without tariff refunds, by our math |
| Full-year profit-per-share growth outlook, excluding one-offs and currency | Cut to +1% to +2% was the low end of +4% to +6% |
⚖️ Verdict: 🔴 Bearish
The story got worse because PepsiCo cut this year's profit growth outlook by more than half while sales sped up. The company spends more on lower prices and advertising in North America, and profit there fell. The good news: international sales grew 8%, with higher margins.
The question now is whether North America's price cuts and extra advertising will bring back profitable growth. Either snack volumes keep rising and profit recovers, or PepsiCo has bought volume that earns less. Fourth-quarter North American profit and February's 2027 outlook will tell.
🐂 Bull Case
International Sales Grew 8%, With Higher Margins
PepsiCo runs four businesses outside the US and Canada, and they sell snacks and drinks in markets such as Mexico, India and Turkey. Chief executive Ramon Laguarta credited the quarter to "the scale and resilience of the international business", and the numbers support him.
Underlying international sales, which strip out acquisitions and currency moves, grew about 8%. Laguarta called it the fastest pace since early 2024. Customers also bought more units in three of the four businesses, so higher prices did not carry the growth alone.
- Asia Pacific Foods volume: up 11%, led by India
- International Beverages Franchise, which sells drink concentrate to bottlers abroad: volume up 5%
- International profit excluding one-offs: up 16%
- International profit margin: 20.9%, up about 1 percentage point
This matters because the international group now brings in 44% of revenue and has a higher profit margin than North America. One caution: in Europe, the Middle East and Africa, prices added 7 points of growth and volume only 1. Several of that region's markets have very high inflation.
What to watch: international volume in the fourth quarter, which PepsiCo reports in February. Continued volume growth would show that demand, and not only price increases, supports the region's sales.
North American Snack Volume Is Growing Again
PepsiCo Foods North America sells Lay's, Doritos, Cheetos and Quaker in the US and Canada. The unit lowered prices and launched new products this year to win back shoppers, and Laguarta said those efforts "have resonated well with consumers".
Shoppers bought about 0.5% more from the unit this quarter, after no growth in the second quarter. Savory snacks did better than the rest, and the company said it gained share of US potato chip volume.
- Savory snack volume: up 1%; other foods: down 4%
- Multipacks of small portions: more than $3.5 billion of yearly revenue, with volume growth
- Snacks the company calls "Permissible options", such as Baked and Sun Chips: about $3 billion of yearly revenue
What to watch: whether the unit's sales in dollars grow next quarter. Volume growth with flat dollar sales means lower prices still pay for every extra bag, so dollar growth would show real demand.
Positives this quarter didn't test
Three strengths of the PepsiCo case came with descriptions but without figures this quarter, so the results neither confirmed nor weakened them.
- Cost savings: executives again credited productivity savings in every business and gave no dollar amount; a yearly savings figure would test the claim.
- Energy drinks sold with partner Celsius: the brands hold nearly 20% of the US category, but PepsiCo does not disclose its revenue from them.
- Sales in restaurants, gyms and workplaces: the company reported "good net revenue growth" and no size; a revenue figure would show how much this channel matters.
🐻 Bear Case
Lower Taxes Hide Part of the Profit Cut
PepsiCo measures its yearly target as growth in profit per share, excluding one-offs and currency moves. It lowered that target this quarter, and finance chief Steve Schmitt blamed margin "pressures we expect in the North America business". Two items make the cut larger than the headline figures suggest.
- Profit-per-share growth target: 1% to 2%, down from the low end of 4% to 6%
- Expected tax rate: about 21%, down from 22%, which adds about 1.3 points of growth by our math
- Tariff refunds in the quarter: $178 million, or about $0.10 of profit per share by our math
- Operating profit excluding one-offs: up 3% with the refunds, down about 1% without them by our math
- Selling, advertising and overhead costs: 37.5% of revenue, up 0.8 points from a year ago
First, a lower tax rate lifts profit per share without any change in the business. So by our math the operating outlook fell by nearly 4 points, more than the target shows. Second, the US government returned tariffs that PepsiCo paid last year, and that money comes only once. Without it, third-quarter profit per share fell about 2% by our math.
What to watch: fourth-quarter profit per share excluding one-offs, which arrives in February. The new target implies a small fall by our math, and a larger one would mean PepsiCo enters 2027 with shrinking profit and no refunds.
North American Snack Profit Fell 12%
PepsiCo Foods North America, the unit behind Lay's, Doritos and Quaker, earns more than any other PepsiCo business. Its profit excluding one-offs fell 12% this quarter, and Laguarta said North America "performed below our expectations".
- Profit margin excluding one-offs: 21.2%, down 2.8 points from a year ago
- Selling, advertising and overhead costs: up 2.4 points of revenue
- Cost of making the products: up 0.4 points of revenue
- Underlying sales: down 0.2% by our math, after a 2% fall last quarter
Schmitt named three causes: lower prices, more advertising and a gain from an asset sale a year ago that did not repeat. The filing puts that gain at 4 points of the decline, so most of the fall comes from the business itself. He expects North American margins "to remain under pressure in the fourth quarter".
What to watch: the unit's profit margin in the fourth quarter, and any target for it in February. PepsiCo gives no profit target for this business, so a number would let investors measure the recovery that Schmitt says needs more time.
Beverage Growth in North America Came From Acquisitions
PepsiCo Beverages North America sells Pepsi, Mountain Dew and Gatorade in the US and Canada. The unit's revenue grew 5%, but acquisitions and new distribution deals supplied about 6 points. Without them and without currency moves, sales slipped 0.3% by our math.
- Volume: down 3%, against a 3-point gain from prices and product mix
- Soda volume: down 2%; non-carbonated drinks: down 3%
- Value of the future payment tied to poppi's targets: $12 million, down from $278 million in December
Laguarta said the company's sodas "trailed category performance". Management also said poppi, the prebiotic soda brand it bought in 2025, "delivered improved results". The accounts are less hopeful. PepsiCo owes poppi's sellers $300 million "if certain performance milestones are achieved by the third quarter of 2027", and it now values that promise at a small fraction of the sum.
That markdown and related items added $96 million to reported operating profit this quarter, although the lower value signals weaker prospects for the brand. Profit excluding one-offs leaves the gain out.
What to watch: the unit's underlying sales in the next two quarters, as last year's distribution deals enter the comparison. Growth without help from deals would show that the core drinks have stopped shrinking.
Risks this quarter didn't answer
Five standing risks received little or no new information this quarter. Each one has a specific reading that would change the picture, and none of those readings arrived.
- Ingredient and energy costs: Laguarta cited "rising input cost inflation" without a figure; a stated cost increase for 2027 would size it.
- Currency: exchange rates added 0.7 points to revenue, down from 2 points last quarter; a weaker Mexican peso would remove that help.
- Russia: 6% of revenue but 20% of cash; any new limit on moving money out would matter more than the revenue share suggests.
- Weight-loss drugs and healthier eating: executives did not mention the drugs; data on snack demand among users would show the effect.
- Retailers' own brands: the filing again warns that store chains favor them on the shelf; share figures against those brands would measure it.
👓 Other Themes
PepsiCo Plans More Cost Cuts, Without a Figure
Laguarta said "Additional structural cost reduction actions are being identified and will be implemented in the coming months". His examples include "reductions in corporate costs", and he gave no savings target. Severance charges already rose to $148 million this quarter from $46 million. The filing expects about $500 million of further restructuring charges before year-end.
The Supreme Court Returned PepsiCo's Tariff Payments
The US Supreme Court ruled this year that many tariffs imposed under an emergency-powers law were invalid. PepsiCo claimed refunds and said it "received substantially all of the refunds of such tariffs". The administration has since introduced new tariffs, so the group's import costs remain uncertain, and the refund will not repeat.
💲 Other KPIs
Cash left after capital spending rose 81% from $3,241 million a year ago. Operating cash flow grew because profit rose and payments to suppliers drained less cash. PepsiCo also made its final payment, $965 million, under the Tax Cuts and Jobs Act, so that outflow now ends.
Spending on plants and equipment fell 13% from a year ago, to 3.2% of revenue. Five of the six businesses spent less, and only Europe, the Middle East and Africa spent more. Lower spending explains part of the stronger cash flow.
Debt fell $1.3 billion in the quarter after it rose through the first half. It still stands $2.7 billion above the December level. Short-term borrowings make up $9.2 billion of the total. Cash and short-term investments add up to $11.2 billion.
Receivables, the bills customers have not yet paid, grew 8% from a year ago against revenue growth of 6%. The gap is small. A wider gap next quarter would suggest that customers pay more slowly.
🔮 Guidance
Unchanged. PepsiCo replaced a range with one figure, the middle of the old range. By our math, that leaves about 3.6% underlying growth for the fourth quarter, above this quarter's 3.1%. The comparison gets harder, because last year's fourth quarter grew faster than last year's third.
Raised. Exchange rates should now add about 1.5 points to revenue and profit-per-share growth this year, up from 1 point. The benefit is shrinking, though: currency added only 0.7 points to third-quarter revenue. The Mexican peso supplied most of this year's gain, according to the filing.
Raised. Acquisitions and distribution deals from 2025 should now add about 1.5 points to revenue growth, up from 1 point. They added 1.7 points this quarter, almost all in North American beverages. The outlook covers only deals from 2025, so the boost ends next year.
Raised to the top of the earlier range. The whole increase comes from currency and acquisitions, because the underlying sales outlook did not move. By our math, the plan leaves about 4.5% growth for the fourth quarter, below this quarter's 5.6%. Revenue grew 6.7% in the first nine months.
Lowered. PepsiCo now expects to pay about 21% of pre-tax profit in tax, down from 22%. The nine-month rate was 21.5%. A lower rate lifts profit per share: by our math it adds about 1.3 points to this year's growth, and that softens the cut to the profit target.
Cut. The plan now has profit per share, before one-offs and currency moves, growing 1% to 2% this year. Growth reached 2% in the first nine months, so by our math the fourth quarter adds almost nothing. PepsiCo held this target for two quarters, pointed to its low end last quarter, and has now lowered it.
Cut. Including currency, the plan has profit per share excluding one-offs growing about 3% at the middle of the range, to roughly $8.38. By our math, that leaves about $2.23 for the fourth quarter, 1% below a year ago. Nine-month growth was 5%, so the plan implies a clear slowdown at year-end.
Unchanged. Capital spending stays below 5% of revenue. Nine-month spending ran at 3.2%, well inside the limit, so PepsiCo has room for a heavier fourth quarter. Last year's fourth quarter took 6.5% of revenue by our math.
Unchanged. PepsiCo still plans to turn at least 80% of profit excluding one-offs into free cash flow. The nine-month figure is 70% by our math, up from 40% a year earlier. Last year's fourth quarter brought most of the year's cash, and the full year still ended at 73%, so the target needs a strong finish.
Unchanged. The plan returns $8.9 billion to shareholders this year, mostly as dividends. Nine-month payouts reached $6.7 billion, three-quarters of the total. Buybacks stay at $1.0 billion a year, although the board approved up to $10 billion of repurchases through February 2030.
❓ Key Questions
How much refund money sits in this year's profit?
Tariff refunds added $178 million to third-quarter profit, more than the full-year benefit the finance chief described three months ago. Investors need the yearly total to know what profit base PepsiCo carries into 2027.
Does the long-term sales growth target still stand?
PepsiCo's long-term goal calls for 4% to 6% underlying sales growth, and it planned to reach the low end during 2026. This year's outlook is about 3%. Management has not said which year the goal now applies to.
How large are the new cost cuts?
Laguarta announced further structural cost reductions without a savings figure, a charge estimate or a timetable. The size decides whether the cuts can pay for more advertising and still let North American profit recover.
What does the Alani Nu distribution deal earn?
Acquisitions and distribution deals supplied all of the North American beverage unit's growth. PepsiCo does not disclose the revenue or margin of the Alani Nu arrangement, so investors cannot tell how much profit that growth brings.
Will the fourth-quarter $50 million gain count in profit excluding one-offs?
The filing expects $50 million of pre-tax income in the fourth quarter from an investment hedge. If PepsiCo includes it in profit excluding one-offs, the lowered outlook depends on one more item that does not repeat.