PepsiCo's Q3 Test: Can PBNA Gains Outweigh Frito-Lay Struggles?

PepsiCo, Inc. PEP enters the third quarter of 2025 with strong momentum in the PepsiCo Beverages North America division (PBNA), which delivered high-single-digit growth in away-from-home channels and gained market share in both no-sugar colas and Gatorade sports drinks. Management has emphasized that PBNA’s focus on innovation, affordability and functional hydration offerings like Propel is helping the business capture more consumption occasions, while its shift toward cleaner ingredients is resonating with consumers. These trends suggest PBNA will remain a key growth driver in the back half of 2025.

On the other hand, Frito-Lay North America (FLNA) continues to face challenges, particularly in stabilizing volumes across its core snack portfolio. PepsiCo has made progress in subcategories like Cheetos and Doritos, as well as in its permissible snacking lineup with SunChips, PopCorners and Simply. However, the potato chip segment and Lay’s brand require further reinvigoration, which management is addressing through relaunches emphasizing natural ingredients and “real food” positioning. The division is also rightsizing its manufacturing footprint and pushing productivity savings, but excess capacity and workforce adjustments could hurt near-term performance.

The question for the third quarter is whether PBNA’s strong trajectory can offset FLNA’s ongoing headwinds. Management remains confident that sequential improvement in snacks, combined with beverage strength and international growth, will help PepsiCo return to the low end of its long-term organic revenue growth algorithm. Still, with more difficult year-over-year comparisons in the food business and heavy reliance on productivity initiatives, Frito-Lay’s stabilization remains critical to sustaining PepsiCo’s balanced growth profile going forward.

PEP vs. KO & MDLZ: A Contrast in Growth Strategies

PepsiCo navigates strong beverage momentum but faces challenges in the snacking business. Examining peers like The Coca-Cola Company KO and Mondelez International MDLZ highlights how different portfolio mixes shape growth trajectories.

Coca-Cola is heavily beverage-focused. Its North America business has also leaned on no-sugar innovation and away-from-home recovery, helping it post steady volume growth. KO’s push into functional categories like hydration, energy and coffee mirrors PepsiCo’s beverage strategy, giving it a more streamlined focus. However, the absence of a snacks portfolio means Coca-Cola is less exposed to the challenges PepsiCo faces in stabilizing Frito-Lay. This makes KO’s near-term trajectory more straightforward but leaves it dependent on beverage performance alone.

Mondelez represents the closest peer to PepsiCo’s Frito-Lay, with brands like Oreo, Ritz and Cadbury fueling global growth. Unlike PepsiCo’s FLNA, Mondelez has benefited from strong pricing power and steady category growth in biscuits and chocolates, which has helped it offset inflation and deliver resilient results. However, Mondelez lacks a large-scale beverage arm, meaning it cannot leverage a balanced portfolio the way PepsiCo does with PBNA. In contrast to PepsiCo’s dual growth engines, Mondelez’s fortunes remain tied to the snacking category, where it is performing well but still exposed to shifts in consumer preferences and affordability pressures.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have gained 12.8% in the past three months against the industry’s decline of 0.5%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.89X, slightly below the industry’s average of 18.24X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 1.8%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.2%. The company’s EPS estimates for 2025 and 2026 have moved northward in the past 30 days.

PEP stock currently carries a Zacks Rank #2 (Buy). 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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