Can PepsiCo's Zero-Sugar Bet Help Keep Up Its Beverage Momentum?

PepsiCo, Inc.’s PEP zero-sugar push is emerging as a cornerstone of its strategy to drive beverage growth amid shifting consumer preferences. On its second-quarter 2025 earnings call, the company highlighted notable progress in the cola category, particularly through its focus on no-sugar variants and taste-led marketing initiatives. These efforts have translated into positive share gains for the brand, not only in the United States but globally.

PepsiCo is also leaning into functional hydration with strong performances from Gatorade Zero and Propel, further anchoring its position in health-forward beverage categories. The growing traction of these products suggests that the company’s zero-sugar and better-for-you offerings are resonating with consumers at a time when demand for permissible, low-calorie beverages is accelerating.

Behind this momentum lies a deliberate and multifaceted strategy. PepsiCo is investing in cleaner ingredient profiles, eliminating artificial flavors and colors across its portfolio, and gearing up for new protein-infused beverage launches in fourth quarter 2025 and first-quarter of 2026. These moves reflect a broader transformation focused on providing functional benefits and natural alternatives while maintaining strong taste profiles. PepsiCo’s ability to execute this transformation at scale by leveraging its major brands and expansive distribution network gives it a competitive advantage. 

PepsiCo remains confident in its ability to sustain beverage growth and expects sequential improvements in top-line performance and aims to return to the low end of its long-term organic growth in the next few quarters. With zero-sugar innovation and broader retail and foodservice reach, PepsiCo is well-positioned for today’s shifting consumer trends.

PEP’s Competitors: KO & KDP’s Smart Moves

While PepsiCo continues to gain traction with its zero-sugar beverages, it faces strong competition from rivals like The Coca-Cola Company KO and Keurig Dr Pepper KDP, both of which are aggressively investing in similar consumer trends.

Coca-Cola Zero Sugar remains one of the most successful product lines in Coca-Cola’s portfolio, benefiting from global brand strength, consistent taste innovation and broad distribution. Coca-Cola’s targeted marketing campaigns and partnerships, especially in the entertainment and sports sectors, have helped it maintain a dominant position in the zero-sugar cola segment, challenging PEP’s Pepsi Zero Sugar in core markets, like North America and Europe.

Keurig is another formidable competitor, with a different but equally potent strategy. KDP leverages its broad portfolio to win health-conscious consumers, focusing on zero- and low-calorie options across sodas, flavored waters and functional drinks. Brands like Canada Dry Zero Sugar, Snapple Zero Sugar and Bubly (through distribution agreements) cater to consumers seeking healthier hydration. KDP’s innovation engine, supported by its vast distribution network and DSD (Direct Store Delivery) capabilities, allows it to rapidly introduce new SKUs and respond to emerging trends, especially in convenience and club channels.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 5.8% year to date against the industry’s growth of 6.8%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.66X, below the industry’s average of 18.10X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 3.4%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.2%. Estimates for 2025 have increased by a penny, and 2026 estimates have been stable in the past seven days.

PEP stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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