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Is PepsiCo's Margin Outlook Improving Despite Tariff Cost Pressures?
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Key Takeaways
PepsiCo faces margin pressure, with Q3 2025 core gross margin down 160 bps and operating margin down 60 bps.
PEP drives productivity via cost cuts, SKU reductions, automation and digitalization to aid margin recovery.
PEP projects 2-4% organic revenue growth in 2026 and at least 100 bps operating margin growth in three years.
PepsiCo, Inc. (PEP - Free Report) is focused on improving overall margins as a key component of its growth strategy. Despite tariff headwinds, the company is advancing productivity through supply-chain optimization, automation and digitalization, alongside disciplined cost management and procurement efficiencies.
However, PepsiCo continues to face pressure on margins, reflecting a challenging cost environment and uneven performance across key segments. The ongoing cost pressures limited margin expansion, particularly in North America, where PFNA is still working through operational inefficiencies and elevated labor and manufacturing expenses. PepsiCo’s third-quarter 2025 results were weighed down by weak gross and operating margin performance, highlighting ongoing cost pressures and structural inefficiencies. PEP’s core gross margin fell 160 basis points (bps) year over year, with core constant-currency adjusted operating margin contracted 60 bps.
While management is executing productivity initiatives and reducing SKUs, margin recovery remains gradual. The reliance on aggressive cost-cutting highlights structural challenges PepsiCo must address to restore stronger profitability. The company continues to streamline its portfolio, simplify operations and reinvest savings into brand building, innovation and long-term margin expansion. PEP is aggressively cutting operating costs and strengthening operational excellence, with the resulting savings reinvested in advertising, marketing and enhanced consumer value.
On Dec. 8, 2025, management anticipated 2026 organic revenue growth of 2-4%, delivering at the high end in the second half. It targets accelerating organic revenue growth and improving core operating margin with record productivity savings in 2026. PepsiCo continues to strengthen its international momentum and sharpen execution across North America. Beyond 2025, PepsiCo’s focus on portfolio transformation, cost efficiencies and strategic reinvestment positions it for faster growth and sustained value creation. Management anticipates at least 100 basis points of core operating margin expansion in aggregate in the next three years.
At its core, PepsiCo is executing broader, consumer-centric innovations that align well with the shifting consumer preferences toward healthier offerings, positioning it to reignite growth over time. The company intends to advance and accelerate its global productivity efforts through more automation, digitalization and simplification.
PEP’s Peers: How are They Doing?
The Coca-Cola Company (KO - Free Report) and Monster Beverage Corp. (MNST - Free Report) are making constant efforts to aid margins.
Coca-Cola is driving productivity gains by leveraging technology for data analytics, streamlining supply-chain operations and improving employee engagement. This has led to increased efficiency, reduced costs and enhanced customer satisfaction, alongside aiding KO’s margins for a while. In third-quarter 2025, KO’s comparable currency-neutral operating income advanced 15% on strong organic revenue growth across most segments, effective cost management and the timing of marketing investments. Coca-Cola is achieving greater productivity in the marketing area through advanced analytics, improved media efficiency and disciplined spending.
Monster Beverage places a strong emphasis on boosting productivity. It focuses on productivity through strategic investments in research and development, operational excellence and cost management. MNST continues to innovate with new flavors and health-oriented products while optimizing its supply chain and implementing strategic pricing actions to enhance gross profit margins. In third-quarter 2025, gross margin expanded 250 bps, buoyed by pricing, supply-chain optimization and product sales mix. MNST’s productivity efforts, bolstered by product innovations and launches, offer a competitive edge and boost growth in the energy drinks market.
PEP’s Price Performance, Valuation and Estimates
Shares of PepsiCo have gained 8.9% in the past six months compared with the industry’s growth of 1.6%.
Image Source: Zacks Investment Research
From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 16.82X compared with the industry’s average of 18.15X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for PEP’s 2025 earnings per share (EPS) implies a year-over-year drop of 0.5% while that of 2026 EPS shows 5.4% growth. The estimates for 2025 have been on the rise while the estimate for 2026 has moved down in the past 30 days.
Image: Bigstock
Is PepsiCo's Margin Outlook Improving Despite Tariff Cost Pressures?
Key Takeaways
PepsiCo, Inc. (PEP - Free Report) is focused on improving overall margins as a key component of its growth strategy. Despite tariff headwinds, the company is advancing productivity through supply-chain optimization, automation and digitalization, alongside disciplined cost management and procurement efficiencies.
However, PepsiCo continues to face pressure on margins, reflecting a challenging cost environment and uneven performance across key segments. The ongoing cost pressures limited margin expansion, particularly in North America, where PFNA is still working through operational inefficiencies and elevated labor and manufacturing expenses. PepsiCo’s third-quarter 2025 results were weighed down by weak gross and operating margin performance, highlighting ongoing cost pressures and structural inefficiencies. PEP’s core gross margin fell 160 basis points (bps) year over year, with core constant-currency adjusted operating margin contracted 60 bps.
While management is executing productivity initiatives and reducing SKUs, margin recovery remains gradual. The reliance on aggressive cost-cutting highlights structural challenges PepsiCo must address to restore stronger profitability. The company continues to streamline its portfolio, simplify operations and reinvest savings into brand building, innovation and long-term margin expansion. PEP is aggressively cutting operating costs and strengthening operational excellence, with the resulting savings reinvested in advertising, marketing and enhanced consumer value.
On Dec. 8, 2025, management anticipated 2026 organic revenue growth of 2-4%, delivering at the high end in the second half. It targets accelerating organic revenue growth and improving core operating margin with record productivity savings in 2026. PepsiCo continues to strengthen its international momentum and sharpen execution across North America. Beyond 2025, PepsiCo’s focus on portfolio transformation, cost efficiencies and strategic reinvestment positions it for faster growth and sustained value creation. Management anticipates at least 100 basis points of core operating margin expansion in aggregate in the next three years.
At its core, PepsiCo is executing broader, consumer-centric innovations that align well with the shifting consumer preferences toward healthier offerings, positioning it to reignite growth over time. The company intends to advance and accelerate its global productivity efforts through more automation, digitalization and simplification.
PEP’s Peers: How are They Doing?
The Coca-Cola Company (KO - Free Report) and Monster Beverage Corp. (MNST - Free Report) are making constant efforts to aid margins.
Coca-Cola is driving productivity gains by leveraging technology for data analytics, streamlining supply-chain operations and improving employee engagement. This has led to increased efficiency, reduced costs and enhanced customer satisfaction, alongside aiding KO’s margins for a while. In third-quarter 2025, KO’s comparable currency-neutral operating income advanced 15% on strong organic revenue growth across most segments, effective cost management and the timing of marketing investments. Coca-Cola is achieving greater productivity in the marketing area through advanced analytics, improved media efficiency and disciplined spending.
Monster Beverage places a strong emphasis on boosting productivity. It focuses on productivity through strategic investments in research and development, operational excellence and cost management. MNST continues to innovate with new flavors and health-oriented products while optimizing its supply chain and implementing strategic pricing actions to enhance gross profit margins. In third-quarter 2025, gross margin expanded 250 bps, buoyed by pricing, supply-chain optimization and product sales mix. MNST’s productivity efforts, bolstered by product innovations and launches, offer a competitive edge and boost growth in the energy drinks market.
PEP’s Price Performance, Valuation and Estimates
Shares of PepsiCo have gained 8.9% in the past six months compared with the industry’s growth of 1.6%.
Image Source: Zacks Investment Research
From a valuation standpoint, PEP trades at a forward price-to-earnings ratio of 16.82X compared with the industry’s average of 18.15X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for PEP’s 2025 earnings per share (EPS) implies a year-over-year drop of 0.5% while that of 2026 EPS shows 5.4% growth. The estimates for 2025 have been on the rise while the estimate for 2026 has moved down in the past 30 days.
Image Source: Zacks Investment Research
PepsiCo stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.