PepsiCo beats revenue estimates but warns North America demand remains under pressure

PepsiCo beat Wall Street expectations for second-quarter revenue and profit on Thursday, but investors focused on the company's warning that inflationary pressures continue to weigh on consumer spending in North America, sending its shares slightly lower in premarket trading.

The snacks and beverages giant reaffirmed its full-year outlook, as it continues to benefit from resilient demand for zero-sugar beverages and improving performance in its salty snacks business in the US.

However, executives cautioned that a recovery in its largest market would take longer than previously expected.

Shares were down more than 1% in premarket trading after briefly turning positive immediately following the earnings release.

The company reported revenue of $24.18 billion for the quarter, up 6.4% from a year earlier and ahead of analysts' expectations of $23.95 billion, according to LSEG data.

Core earnings per share came in at $2.20, compared with $2.12 a year ago.

PepsiCo continues to expect fiscal 2026 organic revenue growth of 2% to 4% and projects core constant-currency earnings per share to increase between 4% and 6%.

International markets drive growth

The company's overall volume growth remained positive, supported largely by international markets.

Global food volumes rose 3% during the quarter, while beverage volumes increased 2%, excluding the impact of pricing and foreign exchange fluctuations.

Demand in North America, however, remained subdued.

Organic sales in PepsiCo's North American foods business declined about 2%, while food volumes were flat.

The company's North American beverage division reported a 4% decline in volumes.

"Results were tempered in the quarter as US food and beverage category performance moderated with consumer budgets tightening due to rising inflationary pressures," Chief Executive Ramon Laguarta said in prepared remarks.

Consumer spending in the US also came under pressure during the quarter as oil prices swung sharply following the US conflict with Iran.

National average gasoline prices climbed to a four-year high of $4.56 per gallon in late May, prompting many households to cut discretionary spending.

Price cuts and brand refreshes continue

PepsiCo has responded by cutting prices on products such as Lay's and Doritos, while expanding smaller pack sizes to appeal to budget-conscious shoppers.

The company has also been refreshing several of its flagship brands, including Gatorade and Lay's, in an effort to stimulate demand and strengthen market share.

Despite these initiatives, executives acknowledged that the turnaround in North America would be slower than anticipated.

"Our North America business was softer than we anticipated in the second quarter, and we now expect a more gradual improvement in performance trends for the balance of this year," Chief Financial Officer Steve Schmitt said in prepared remarks.

While domestic demand remains under pressure, PepsiCo's ability to deliver stronger international growth and maintain its full-year guidance suggests the company expects improving consumer sentiment and product innovation to support performance over the longer term, even as inflation continues to influence purchasing decisions in its home market.