PepsiCo, Inc. PEP reported third-quarter fiscal 2026 net revenues of $25.27 billion, up 5.6% year over year from $23.94 billion.The company released earnings on Oct. 8, 2026, before market open, beating expectations and helping its shares gain 3.7% that day.
Overview of PepsiCo’s Earnings
Organic revenues grew 3.1%, while acquisitions and divestitures added 1.7 percentage points and foreign-exchange effects contributed 0.7 percentage points to reported growth.
PepsiCo’s core earnings per share (EPS) beat the Zacks Consensus Estimate of $2.29 by 2.18%, while revenues surpassed the $24.88-billion estimate by 1.59%.
Reported EPS rose 17.4% to $2.23 from $1.90, while core EPS increased 2.2% to $2.34. Gross profit grew to $13.75 billion from $12.82 billion, lifting the gross margin to 54.4% from 53.6%. The improvement indicates that gross profit grew faster than revenues in the quarter.
Reported operating profit increased 19% to $4.26 billion, but core operating profit rose just 3% to $4.28 billion, while the core operating margin declined 35 basis points to 16.9%, reflecting operating cost increases, and higher advertising and marketing expenses.
For the first 36 weeks of fiscal 2026, PepsiCo generated $7.95 billion in operating cash flow compared with $5.47 billion a year earlier, while the capital expenditure fell to $2.18 billion from $2.50 billion. Consequently, the free cash flow increased 80.7% to $5.86 billion from $3.24 billion.
The company expects core EPS growth of 2.5-3.5%, down from its previous forecast of 5-7%, while core constant-currency EPS growth is projected at just 1-2% compared with the previous outlook of the low end of 4-6%.
Rising Costs Instigate Deeper Cost-Cutting Measures
Higher commodity, energy, transportation and packaging costs are creating additional challenges for PepsiCo. As previous cost hedges expire, the company faces greater exposure to rising input prices, putting pressure on its operating margin.
Since PepsiCo's core operating margin declined year over year in the third quarter of 2026, management plans additional structural cost reductions to eliminate redundancies and discretionary spending.
The savings are expected to help finance investments in innovation, advertising and marketing while offsetting inflationary pressures.
PepsiCo is also expanding its product portfolio to respond to changing consumer preferences. Its initiatives include high-protein and high-fiber snacks, simpler ingredients, zero-sugar beverages and functional hydration products. These efforts are intended to attract health-conscious consumers and address the potential long-term impacts of GLP-1 weight-loss medications on food consumption patterns, per Reuters.
Nevertheless, the company's turnaround remains a work in progress, and investors will be watching whether cost savings can improve profitability without compromising future growth.
ETFs in Focus
PepsiCo's third-quarter results present a mixed picture for investors. Better-than-expected revenues and adjusted earnings demonstrate that the company continues to generate demand, particularly in international markets, putting PepsiCo-heavy ETFs in the spotlight.
Investors will also need to monitor competitive pressures in beverages, consumer spending trends and the company's progress toward its turnaround goals.
A sustained margin recovery, rather than revenue growth alone, will be an important indicator of whether the stock can regain momentum.
First Trust Nasdaq Food & Beverage ETF FTXG is a U.S.-listed exchange-traded fund that provides exposure to food and beverage companies, including packaged-food makers, soft-drink producers, agricultural processors and other businesses across the food supply chain.
PEP has a holding of 7.9% (as of Oct. 15) in its portfolio and an expense ratio of 0.60%.
iShares U.S. Consumer Staples ETF IYK provides exposure to U.S. consumer staples companies, including food and beverage producers, household and personal-care product makers, and consumer staples retailers.
PEP has a holding of 6.8% (as of Oct. 15) in its portfolio, along with an expense ratio of 0.37%.
Global X PureCap MSCI Consumer Staples ETF GXPS is a U.S. sector ETF that invests in consumer staples companies, including food and beverage producers, household-product makers and consumer staples retailers.
PEP has a holding of 5.74% (as of Oct. 15) in its portfolio, along with an expense ratio of 0.15%.
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This article originally published on Zacks Investment Research (zacks.com).