PepsiCo Showcases Emerging Market Growth: Sustainable or Cyclical?

PepsiCo, Inc.’s PEP international expansion has become a cornerstone of its growth strategy as the company looks beyond its mature North American markets for new opportunities. Emerging markets like India, parts of Latin America and regions of the Middle East delivered double-digit or mid-single-digit growth in second-quarter 2025, driven by increasing consumption of both snacks and beverages. PepsiCo’s global scale allows it to tailor products to local preferences, while investments in no-sugar colas, energy drinks and hydration platforms like Gatorade strengthen its competitive positioning. This geographic diversification has made international markets an increasingly profitable and accretive part of the business compared to earlier years when returns were below corporate averages.

However, the question remains whether this emerging market growth is sustainable or more cyclical. Some regions, such as China, have recently shown signs of weaker consumer demand, underscoring the risk of economic slowdowns and volatility in developing economies. PepsiCo’s reliance on macro factors like inflation, tariffs and currency fluctuations adds another layer of unpredictability. While the company benefits from a growing middle class in many markets, swings in affordability and consumer confidence can quickly impact demand.

Overall, PepsiCo’s approach suggests that its emerging market growth has the potential to be sustainable, but only with continued reinvestment and portfolio adaptation. By pushing into permissible snacking, expanding protein and functional beverage offerings and strengthening away-from-home channels, the company is broadening its relevance in diverse consumer environments. The profitability of international operations, once a weakness, has now turned into a strength, which bodes well for long-term resilience. However, the sustainability of this growth will depend on PepsiCo’s ability to balance near-term macroeconomic headwinds with innovation and affordability strategies that keep its brands accessible to a wide consumer base.

PepsiCo’s Competitors: KO & KDP in Focus

Both The Coca-Cola Company KO and Keurig Dr Pepper Inc. KDP are intensifying their focus on productivity and efficiency gains, leveraging these levers to protect margins and drive sustainable growth amid persistent inflationary pressures.

Coca-Cola continues to rely on emerging markets as a critical growth engine, with regions such as India, Africa and Southeast Asia driving strong volume and revenue expansion. The company leverages its deep distribution network, localized product innovations and marketing that resonates with regional consumer preferences. Coca-Cola also focuses on affordability, smaller pack sizes and functional beverages to meet the needs of younger and more health-conscious consumers, ensuring its offerings remain relevant as these markets grow in disposable income and urbanization.

Keurig Dr Pepper has been selectively expanding its footprint in emerging markets, focusing on high-growth regions in Latin America and parts of Asia. The company leverages its diverse beverage portfolio including soft drinks, flavored waters and single-serve coffee — to adapt to local tastes while maintaining brand consistency. KDP’s strategy emphasizes partnerships with local distributors, targeted marketing campaigns and affordable packaging formats to gain traction in price-sensitive markets, positioning the company to capture incremental volume growth outside its core U.S. base.

PEP’s Price Performance, Valuation & Estimates

Shares of PepsiCo have lost around 3.7% year to date against the industry’s growth of 3.1%.

From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 17.53X, slightly above the industry’s average of 17.49X.

The Zacks Consensus Estimate for PEP’s 2025 earnings implies a year-over-year decline of 1.6%, whereas its 2026 earnings estimate suggests year-over-year growth of 5.8%. 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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