Net revenue of $25,274 million beat the API Ninjas estimate of $24,953 million by 1.3%, and core EPS of $2.34 beat the $2.29 estimate by 2.2%.
Organic revenue grew 3.1% and net revenue 5.6%, but core operating margin contracted 35 basis points to 16.9% from 17.3% despite a 4-percentage-point favorable impact of tariff refunds.
Guidance moved both ways: net revenue raised to approximately +6% from +4% to +6%, core EPS cut to +2.5% to +3.5% from the low end of +5% to +7%, and core constant currency EPS to +1% to +2% from the low end of +4% to +6%.
The one thing that matters: PepsiCo raised net revenue guidance and cut core EPS guidance in the same release, so the top line is working and the earnings line is not. Core operating profit grew 3% while carrying a 4-percentage-point tariff-refund tailwind, which makes underlying margin weaker than the 35-basis-point core contraction shows.
Key metrics
Metric
Reported
Prior year
Change
Organic revenue performance
3.1%
—
—
Operating profit
$4,260
$3,569
19%
Core operating profit
$4,277
$4,137
3%
Core operating margin
16.9%
17.3%
(35) bps
Core constant currency EPS
1.5%
—
—
Free cash flow, non-GAAP measure (36 weeks)
$5,857
$3,241
—
Guidance changes
Item
New guidance
Prior guidance
Organic Revenue
Approximately +3%
+2% to +4%
Net Revenue
Approximately +6%
+4% to +6%
Core Annual Effective Tax Rate
Approximately 21%
Approximately 22%
Core Constant Currency EPS
+1% to +2%
Low-end of +4% to +6%
Core EPS
+2.5% to +3.5%
Low-end of +5% to +7%
Cash Returns to Shareholders
$8.9 billion
$8.9 billion
Quality of earnings
The GAAP line flatters the quarter. Operating profit rose 19% and operating margin expanded 195 basis points to 16.9%, while core operating profit grew 3% and core operating margin contracted 35 basis points to 16.9% from 17.3%; the gap is a $96 million acquisition and divestiture-related credit and $79 million of commodity mark-to-market gains, neither in core.
Core profit growth is smaller than the tariff tailwind inside it. Core operating profit grew 3% including a 4-percentage-point favorable impact of tariff refunds, and in PBNA a 23-percentage-point favorable net impact of global tariffs sits inside that segment's 45% operating profit growth.
Headline EPS growth of 17% to $2.23 is a prior-year comparison, not a run rate. Core EPS rose 2% to $2.34 and core constant currency EPS 1.5%; the prior-year quarter carried $100 million of Rockstar-related impairment charges and an $82 million tax audit settlement, and the $144 million pre-tax pension settlement charge booked this quarter, $0.08 per share, is excluded from core.
Gotchas & watch items
The core annual effective tax rate guide improved to approximately 21% from approximately 22%, a tailwind to core EPS, and core EPS guidance was still cut to +2.5% to +3.5% from the low end of +5% to +7%.
Core constant currency EPS guidance of +1% to +2% sits below the 1.5% already delivered this quarter and the 2% delivered year to date, so the full-year guide assumes no fourth-quarter reacceleration.
North America is the drag behind the international story: PFNA net revenue decreased slightly and its operating profit fell 13%, with a 4-percentage-point impact of higher commodity costs, while PBNA unit volume declined 2% including a 3% decline in noncarbonated beverage volume.
Management says additional structural cost reduction actions are being identified to mitigate rising input cost inflation, with no sizing given, on top of approximately $500 million of remaining 2026 productivity-plan pre-tax charges.