PepsiCo's Q3 Test: Can PBNA Gains Outweigh Frito-Lay Struggles?

Core Insights - PepsiCo, Inc. (PEP) is experiencing strong momentum in its PepsiCo Beverages North America (PBNA) division, which has achieved high-single-digit growth in away-from-home channels and gained market share in no-sugar colas and Gatorade sports drinks [2][9] - The Frito-Lay North America (FLNA) division is facing challenges in stabilizing volumes across its core snack portfolio, particularly with the Lay's brand, while making progress in subcategories like Cheetos and Doritos [3][4][9] - The overall performance of PepsiCo in Q3 2025 will depend on whether the strong growth in PBNA can offset the ongoing headwinds faced by FLNA [4] PepsiCo Beverages North America (PBNA) - PBNA has delivered high-single-digit growth in away-from-home channels and gained market share in no-sugar colas and Gatorade [2][9] - The division's focus on innovation, affordability, and functional hydration products is driving consumer demand [2][9] - Management believes that PBNA will remain a key growth driver in the latter half of 2025 [2] Frito-Lay North America (FLNA) - FLNA is struggling with volume stabilization, particularly in the potato chip segment and Lay's brand, while making progress in other snack categories [3][4][9] - The division is addressing challenges through relaunches that emphasize natural ingredients and "real food" positioning [3] - Management is rightsizing its manufacturing footprint and pursuing productivity savings, but excess capacity and workforce adjustments may impact near-term performance [3] Competitive Landscape - Compared to Coca-Cola (KO), which is heavily beverage-focused and has a more straightforward growth trajectory, PepsiCo faces challenges in its snacking business [5][6] - Mondelez International (MDLZ) benefits from strong pricing power in its snacking category, unlike PepsiCo's FLNA, which is currently under pressure [7] Stock Performance and Valuation - PepsiCo shares have gained 12.8% in the past three months, contrasting with a 0.5% decline in the industry [8] - The company trades at a forward price-to-earnings ratio of 17.89X, slightly below the industry average of 18.24X [10] - The Zacks Consensus Estimate for PepsiCo's 2025 earnings implies a year-over-year decline of 1.8%, while the 2026 estimate suggests a growth of 5.2% [11]