PEP Q1 Earnings Call: International Strength Offsets North America Volume Pressure; Tariffs Cloud Outlook

Food and beverage company PepsiCo (NASDAQ:PEP) reported Q1 CY2025 results topping the market’s revenue expectations, but sales fell by 1.8% year on year to $17.92 billion. Its non-GAAP profit of $1.48 per share was 1% below analysts’ consensus estimates.

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StockStory’s Take

PepsiCo’s first quarter was shaped by continued international momentum, partially offsetting persistent volume challenges in its North America snack division. Management attributed sluggish North American snack sales to a pressured consumer environment, ongoing portfolio transformation, and early-stage benefits from new pricing strategies. CEO Ramon Laguarta highlighted, “We’re starting to see the returns on some of the value and new price points investments that we’re making,” but acknowledged that a full turnaround would take time as operational adjustments and innovation efforts take hold.

Looking ahead, management’s guidance was adjusted downward, citing new tariffs, consumer uncertainty, and ongoing weakness in the Frito-Lay business. CFO Jamie Caulfield explained, “The rationale behind the guidance adjustment...is really driven by three things: tariffs, heightened macro and consumer uncertainty, and Frito’s subdued performance.” While international markets are expected to remain a key growth engine, management was clear that macroeconomic headwinds and cost pressures would continue to weigh on near-term profitability and investment priorities.

Key Insights from Management’s Remarks

PepsiCo’s leadership detailed a multi-pronged strategy for addressing Q1’s mixed performance, emphasizing operational execution, pricing architecture, and product innovation as central themes. The company’s Q1 results reflected both external pressures and internal transformation efforts, with management outlining actions taken to stabilize the North American snacks business and leverage international growth.

• Frito-Lay North America Recovery Plan: Management is rolling out a granular pricing and packaging strategy, including dual-size offerings and expanded entry-level price points, to address value-sensitive consumers and revive volume trends. Early results from these efforts—especially in convenience channels—are promising, but the full impact is expected later in the year.
• Portfolio Transformation: PepsiCo continues to invest in expanding its snack and beverage range, targeting consumer trends toward more functional, permissible, and portion-controlled products. The company is accelerating the shift to natural ingredients and reducing artificial colors, with major brands like Lay’s and Tostitos transitioning by year-end.
• International Division as Growth Engine: The international business delivered solid growth and remains a primary source of revenue expansion. Management noted particular strength in Europe, India, and Brazil, even as consumer sentiment weakened in China and Mexico. Investments in capacity, brands, and go-to-market capabilities are expected to sustain mid-single-digit growth in these markets.
• Operational Improvements and Technology: Recent SAP system implementations and data upgrades are expected to improve service levels and execution, particularly in the Frito division. Management also cited increased talent stability and more nuanced revenue management as supports for future performance.
• Strategic Segment Recasting: PepsiCo recently recast its segment reporting to sharpen focus on international and North American operations. Management stated this move is intended to better align resources for long-term growth and efficiency, not to signal major portfolio changes.

Drivers of Future Performance

Management’s outlook for the coming quarters centers on international growth, execution of value-oriented pricing strategies, and navigating cost pressures from tariffs and macro uncertainty. Sustained progress on portfolio innovation and operational efficiency are key to achieving the company’s targets for revenue and adjusted operating profit.

• International Momentum: Ongoing investment in international capacity, talent, and brand support is expected to maintain mid-single-digit growth, offsetting slower trends in North America.
• Tariff and Cost Headwinds: Tariffs and macroeconomic volatility remain primary concerns for margins. Management is actively pursuing mitigation strategies but expects some near-term impact on profitability.
• Portfolio and Channel Innovation: New product development focused on health, convenience, and portion control—such as smaller pack sizes and functional snacks—aims to keep PepsiCo’s offerings aligned with evolving consumer demand, particularly as GLP-1 (a class of weight-loss medications) adoption influences eating patterns.

Top Analyst Questions

• Bonnie Herzog (Goldman Sachs): Asked about the payback from price-pack architecture and away-from-home investments in Frito-Lay; management stressed early positive results in unit growth and outlined plans for broader execution across channels.
• Steve Powers (Deutsche Bank): Pressed for details on the reduced earnings outlook; CFO Jamie Caulfield cited tariffs, consumer uncertainty, and Frito performance as key drivers, clarifying that mitigation plans are in progress but will require time.
• Lauren Lieberman (Barclays): Queried the business’s readiness for new legislation on ingredients and SNAP exposure; CEO Laguarta emphasized ongoing portfolio transformation to natural ingredients and minimal expected impact from potential SNAP restrictions.
• Kaumil Gajrawala (Jefferies): Raised the impact of GLP-1 medications on product mix; management acknowledged a shift toward protein, fiber, and hydration, with innovation focused on meeting these evolving dietary trends.
• Robert Ottenstein (Evercore ISI): Asked about the rationale for the Poppi acquisition and PB&A margin drivers; management highlighted margin improvement efforts, brand momentum in Pepsi and Gatorade, and cautious optimism tied to pending regulatory approval of recent acquisitions.

Catalysts in Upcoming Quarters

In the next few quarters, the StockStory team will be monitoring (1) the effectiveness of PepsiCo’s North America snack pricing and packaging initiatives in stabilizing or improving volume trends, (2) sustained international market growth and any shifts in consumer sentiment in key regions such as China and Mexico, and (3) the company’s ability to mitigate the impact of tariffs and other cost pressures on margins. Progress in product innovation and the integration of new system upgrades will also be important markers for tracking execution.

PepsiCo currently trades at a forward P/E ratio of 15.6×. Is the company at an inflection point that warrants a buy or sell? Find out in our free research report.

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