Earnings Call Insights: PepsiCo (PEP) Q4 2025
Management View
- CEO Ramon Laguarta described a multi-vector strategy for category growth, emphasizing accelerated affordability initiatives targeting low- and middle-income consumers. He explained, “this will be a very surgical, very focused on particular brands, particular formats, particular channels, investment. And we — from the test that we’ve done at scale in multiple markets, this has very good ROI for us. You should be thinking this on top of space gains, big space games that we’re getting through the partnership with our customers because of these investments in price.”
- Laguarta highlighted ongoing restaging of key brands, including Gatorade and Quaker, with early-year relaunches for Lay’s and Tostitos and major campaigns for Gatorade and Quaker later in the year.
- CFO Stephen Schmitt noted, “we’re playing offense here. And second, we’re excited about the initiatives and the benefits that will come both in volume and sales growth. And third, from an overall perspective, this investment is manageable for the business. It’s included in our guidance and our productivity progress, as you mentioned, certainly, that’s going to help fund the initiatives that we have.”
- Schmitt also addressed advertising spend: “You’re right. It did go down this year. We did get some efficiency from both the working and non-working advertising line. And your assumption that it should go up next year is a good one, too. That’s a benefit from — just from a cost of sales standpoint that we did get in 2025 that we would expect not to get that same benefit.”
Outlook
- Management expects Frito-Lay to grow volume, net revenue, and operating margin in 2026, with volume and net revenue growth anticipated early in the year. Laguarta stated, “we expect Frito-Lay to grow volume, net revenue and operating margin this year. So that should be the framework that we operate in.”
- The company projects sales to strengthen in the second half as more initiatives gain traction and acquisitions such as poppi contribute to organic growth. Schmitt described the year as “pretty balanced from a first half, second half standpoint.”
- Laguarta expects international business to maintain mid-single-digit growth, with acceleration mainly from North America, especially in the food business. He explained, “the acceleration comes mostly from our North America businesses.”
Financial Results
- Executives cited strong productivity in the fourth quarter, with expectations for this to continue funding commercial initiatives and innovation.
- Significant shelf space gains were announced for Frito-Lay, with Laguarta stating, “the average space gain for Frito-Lay in the new resets of both the main aisle and the perimeter will be double digit.”
- The company reported advertising expense declined by $500 million in 2025, with plans to increase investment in 2026 to support growth and innovation.
Q&A
- Bonnie Herzog, Goldman Sachs, asked about balancing affordability initiatives and margin expansion in PFNA. Schmitt responded that investments are “manageable for the business” and productivity gains will fund these initiatives. Laguarta emphasized the focus on targeted affordability and innovation.
- Andrea Teixeira, JPMorgan, inquired about pricing reinvestment and volume trajectory. Laguarta reiterated expectations for early-year growth in Frito-Lay and described space gains as a key return driver. Schmitt highlighted the expectation of stronger sales in the second half.
- Dara Mohsenian, Morgan Stanley, questioned the focus and ROI of affordability investments. Laguarta confirmed the approach is “very surgical” and “well tested at scale,” with good volume return.
- Lauren Lieberman, Barclays, asked about the advertising decrease. Schmitt confirmed the reduction and indicated increased spending in 2026.
- Filippo Falorni, Citi, probed organic sales acceleration. Laguarta explained international growth is expected to remain steady, with acceleration from North America and contributions from acquisitions.
- Kevin Grundy, BNP Paribas, asked about the impact of GLP-1 adoption. Laguarta stated, “we should assume that there will be a broader adoption of GLP-1 medicines,” outlining portion control, hydration, and fiber/protein innovation as levers.
- Michael Lavery, Piper Sandler, asked about strategic shifts in marketing for major brands. Laguarta detailed the holistic relaunch of Lay’s, emphasizing simplicity, natural ingredients, and increased A&M investment.
- Robert Moskow, TD Cowen, asked about integrated food and beverage distribution tests in Texas and Florida. Laguarta noted positive early results and plans to provide more details later in the year.
Sentiment Analysis
- Analysts expressed concerns about the sustainability of margin expansion amid affordability investments, the volume trajectory in PFNA, and the impact of GLP-1 drugs, with a tone that was neutral to slightly skeptical. Questions focused on strategic execution, ROI of investments, and financial discipline.
- Management maintained an optimistic and confident tone in both prepared remarks and responses, repeatedly emphasizing the strength of their productivity initiatives and the expected ROI of targeted affordability actions. Laguarta stated, “we feel very good about how these different interventions will continue to drive accelerated growth in the balance of the year.”
- Compared to the previous quarter, management’s tone was more assertive about acceleration, while analysts’ skepticism shifted from cost structure and innovation costs to the impact and timing of new initiatives.
Quarter-over-Quarter Comparison
- The current quarter saw a more explicit focus on affordability and shelf space expansion as growth drivers, compared to previous quarter’s broader discussion of portfolio transformation and innovation.
- Guidance language shifted from a general expectation of returning to long-term growth algorithms to explicit projections for early-year volume and margin growth in Frito-Lay and balanced EPS throughout the year.
- Analysts in both quarters pressed on margin sustainability, cost efficiency, and growth trajectory, but this quarter’s questions focused more on the execution and payback of new affordability strategies and recent acquisitions.
- Management’s confidence increased regarding the effectiveness of targeted investments and productivity gains in driving both growth and profitability.
Risks and Concerns
- Management acknowledged the ongoing challenge of meeting the needs of middle- and low-income consumers, who remain “stretched and choiceful.”
- The company is actively addressing the potential impact of broader GLP-1 drug adoption through portion control, hydration, and product innovation.
- Execution risk exists in scaling integrated distribution and achieving projected shelf space gains.
- The macro backdrop remains uncertain, with varying consumer trends across major markets.
Final Takeaway
PepsiCo management underscored a comprehensive plan to drive accelerated growth in 2026, centered on targeted affordability initiatives, double-digit shelf space expansion for Frito-Lay, and a robust pipeline of brand restaging and innovation. Productivity gains from 2025 are expected to fund these commercial investments, with a balanced approach to volume and margin growth. The company remains confident in early-year acceleration and sustained improvement through the year, supported by focused execution and adaptability to evolving consumer trends.