PepsiCo Q3: Solid Beat and a Strategic Reset as Tariffs and Costs Bite into Staples

PepsiCo’s third-quarter report delivered a modest but reassuring start for a consumer staples sector that has spent much of 2025 under pressure. With dividend yields still lagging Treasuries and cost inflation gnawing at margins, staples have lacked the allure of growth and income simultaneously. PepsiCo’s results didn’t rewrite that narrative but did inject a note of resilience. The company beat expectations on both the top and bottom lines, reaffirmed full-year guidance, and named a new CFO with deep operational experience from Walmart. Amid widespread concern over tariffs, supply chain disruptions, and the health of the consumer, PepsiCo’s results suggested a company managing turbulence better than most peers—and a potential catalyst for value-focused investors watching the sector’s technical support levels.

Adjusted EPS came in at $2.29 versus consensus expectations of $2.26, while revenue of $23.94 billion edged slightly ahead of forecasts ($23.83 billion). Organic revenue rose 1.3%, and reported net revenue growth accelerated nearly 3% from the prior quarter, a sign of improving momentum in North America Beverages and continued resilience in international markets. Core margins held steady even with tariff-related supply chain costs acting as a 3-percentage-point headwind to EPS—a significant figure but one management believes it can mitigate in the coming quarters. PepsiCo reaffirmed its 2025 financial guidance, expecting low-single-digit organic revenue growth and core EPS roughly flat year-over-year in constant currency terms.

Margins, long a flashpoint for consumer-staples investors, showed both challenge and progress. The company’s beverage segment saw improving core operating margin trends despite the tariff hit, helped by cost control, SKU reductions, and improved pricing architecture. PepsiCo Foods North America also reported sequential improvement in its margin trajectory, benefiting from aggressive cost cuts and portfolio streamlining. Management emphasized that without the supply chain headwinds—largely tied to the sourcing of global inputs and ingredient tariffs—core margins would have expanded in Q3. The company expects further cost savings from automation, SKU rationalization (35% fewer since 2022, with another 15% reduction coming), and AI-driven operational efficiencies.

On tariffs and costs, CEO Ramon Laguarta and his team did not sugarcoat the impact. Higher supply chain expenses, primarily from tariffs and elevated ingredient costs, trimmed about three points from EPS. But management also stressed a clear plan to offset these pressures—via sourcing flexibility, revenue management, and product mix optimization. PepsiCo expects to “mitigate the impact of higher supply chain costs moving forward,” citing early gains in procurement adjustments and manufacturing efficiency. The tone suggested realism more than resignation: tariffs remain an unwelcome cost of doing business, but PepsiCo’s global scale and pricing power give it more levers than most to adapt.

The bright spots in the quarter came from premiumization, portfolio reshaping, and international stability. In North America Beverages, trademark Pepsi continued to post volume and revenue growth, bolstered by double-digit expansion in Pepsi Zero Sugar and successful marketing around its “Food Deserves Pepsi” and “Zero Sugar Taste Challenge” campaigns. The company called out strong consumer engagement with its flavor extensions—Wild Cherry, Cream, and Mountain Dew variants like HoneyDEW and Baja Cabo Citrus—all contributing to incremental growth. Pepsi’s bet on “permissible” and “functional” drinks also appears to be paying off, with Poppi—its prebiotic soda brand acquired earlier this year—posting year-to-date retail sales up more than 50%. Propel, its hydration line, is now on track to exceed $1 billion in sales this year.

In snacks, PepsiCo Foods North America leaned on its permissible snack portfolio to stabilize growth. Brands like Sun Chips, Simply, Stacy’s, and Quaker rice cakes all logged double-digit revenue growth, even as traditional Frito-Lay volumes remained constrained by price-sensitive consumers. The company highlighted its focus on “affordability, permissibility, and functionality” as guiding principles for product strategy—an admission that price elasticity in packaged foods remains real, but also an indication that the company is adapting to value-seeking consumer behavior rather than fighting it.

Internationally, PepsiCo continued to outperform expectations, delivering 4% organic revenue growth in Q3 and marking the eighteenth consecutive quarter of at least mid-single-digit expansion. Markets like Brazil, Argentina, the U.K., Germany, and China all contributed, and the company held or gained market share in two-thirds of its top regions. Notably, international beverage profit rose 7%, highlighting pricing strength even amid volatile foreign exchange and weather-related disruptions. FX headwinds are expected to moderate in Q4, with the company now projecting only a 0.5-point drag on reported results (down from 1.5 points previously).

Guidance for fiscal 2025 remains measured but stable. PepsiCo expects organic revenue growth in the low single digits and flat constant-currency EPS versus 2024’s $8.16, implying a roughly 0.5% decline in reported terms. Management maintained its $8.6 billion target for cash returns to shareholders—$7.6 billion in dividends and $1 billion in buybacks—signaling confidence in cash generation despite margin pressures. Laguarta reiterated priorities around cost discipline, AI-driven productivity, and innovation-led revenue growth, including continued expansion in zero-sugar beverages and functional snacking.

One notable development came on the leadership front: PepsiCo named Steve Schmitt, formerly CFO of Walmart U.S., as its incoming finance chief effective November 10. His background overseeing Walmart’s omni-channel U.S. operations signals a shift toward a more data-driven and logistics-focused approach—potentially key as PepsiCo leans on technology and automation to offset cost inflation. Outgoing CFO Jamie Caulfield will remain through mid-2026 in an advisory capacity to ensure a smooth transition.

From a market standpoint, PepsiCo’s stock enters a pivotal juncture. Shares were trapped in an descending triangle formation near $140, sitting on critical support just as the broader XLP sector flirts with breakdown territory. The 1.4% premarket pop on the results offers some breathing room, but the bigger question is whether the rally holds. If PEP can maintain support and the market begins rotating from tech into value, the stock could see renewed interest from defensive investors hunting for stability at a discount.

Ultimately, this was a good print for a bad tape. PepsiCo didn’t escape the drag of tariffs or cost inflation, but it demonstrated operational agility, pricing power, and innovation depth—all qualities staples investors reward when the market gets choppy. It’s too soon to call a rotation into the sector, but if Pepsi holds its line, it could mark the first steady note in an earnings season that’s off to a surprisingly stable start.