PepsiCo Eyes Efficiency Gains: Can It Protect Margins Amid Inflation?

PepsiCo, Inc. PEP delivered a solid second-quarter 2025, with EPS of $2.12 beating estimates and revenues rising 1% year over year to $22.73 billion. While top-line growth was modest, management placed a sharp focus on productivity and efficiency gains as levers to protect margins against inflationary headwinds. Multi-year investments in technology, AI and data are now unlocking new ways to streamline operations across Frito-Lay, North America Beverages and international units. These moves, combined with North America integration efforts, are designed to lower the cost-to-serve while improving flexibility and growth potential.

The company is pursuing three major efficiency layers. First, its ongoing productivity initiatives, ranging from plant closures to workforce rightsizing, are expected to deliver 70% more cost savings in the second half of 2025 compared with the first half. Second, the integration of PepsiCo’s nearly $30 billion North American businesses is creating synergies across the value chain, from serving rural markets more efficiently to consolidating logistics. Finally, global capability centers, unified under “One PepsiCo,” are reducing duplicative processes and enabling scale efficiencies across markets.

These efficiency measures, however, come with a delicate balance: PepsiCo must preserve capacity to capture growth while tightening costs. The company is carefully managing asset rationalization so that shuttered lines can quickly be reactivated as demand rebounds. At the same time, reinvestments in technology, value offerings and away-from-home channels are intended to drive long-term growth. Whether these gains will be enough to fully shield margins from persistent cost pressures remains to be seen. Still, PepsiCo’s strong execution track record and diversified strategy suggest it is positioning itself well to defend profitability.

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

Both The Coca-Cola Company KO and Keurig Dr Pepper Inc. KDP are sharpening their focus on productivity and efficiency gains as critical levers to defend margins and sustain growth in an inflationary environment.

Coca-Cola’s second-quarter 2025 results highlight how the company is leaning on productivity and efficiency gains to safeguard margins against persistent inflationary pressures. Management pointed to stronger-than-expected benefits from its marketing transformation, tighter expense discipline and accelerated productivity initiatives, which together drove robust gross and operating margin expansion. These actions helped offset softer volumes in some markets and currency headwinds, allowing Coca-Cola to beat earnings expectations while reaffirming its ability to navigate a dynamic cost environment.

Keurig Dr Pepper is actively leveraging efficiency gains to help offset rising input costs and defend margins amid ongoing inflationary pressures. In the second quarter of 2025, the company delivered strong productivity savings and implemented strategic pricing actions across key categories, which partially mitigated the impact of higher green coffee costs, broader commodity inflation and tariffs. While gross margins contracted 110 basis points year over year, these operational improvements have helped stabilize profitability and provide a buffer against cost headwinds. KDP continues to prioritize high-return categories, channels and households, alongside disciplined cost management, as it seeks to maintain margin resilience while supporting growth initiatives across coffee, CSDs, energy and functional beverages.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 2.2% year to date against the industry’s growth of 4.5%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.93X, slightly above the industry’s average of 17.75X.

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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