PepsiCo, Inc. 2026 Q3 Earnings Call

Good morning, everyone. Thank you, Kevin. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our updated business plans, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 8, 2026, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures which exclude certain items from reported results. Please refer to our third quarter 2026 earnings release and third quarter 2026 Form 10-Q available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta, and PepsiCo's Executive Vice President and CFO, Steve Schmitt. We ask that you please limit yourself to one question. With that, I will turn it over to the operator for the first question.

Great. Hey, Darr, this is Steve. Good morning, and thanks for the question. Good morning, everyone. Maybe I'll start with the second question kick it to Ramon for the state of the union, where you began your question. Before I get into the guidance revision, maybe I'll talk a little bit about the quarter, at least from a highlight standpoint. The reality is that we're pleased with many aspects of our Q3 performance. Organic revenue accelerated to 3.1%. Reported revenue was north of 5%. Core operating profit increased 3%, and EPS increased 2%. Importantly, as we look at the health of the business around the world, global beverage volume was up 3%, global food volume was up 1%, and it's actually up 4% if you exclude the grains business in South Africa. Overall, international had really a stellar quarter.

Organic revenue increased 8%, operating margin expanded 105 basis points. Now shifting to the North America business. Our foods business in North America, organic sales improved from Q2, and our beverage business in North America decelerated. If I turn to guidance, there are always a number of factors that go into how we think about guidance. The largest changes, and you mentioned, we said in our prepared remarks, was margin performance is below where we expected it to be. Input costs are trending higher, and mix has been a headwind in particular. But despite these pressures, I think it's important to note that we've decided to sustain key investments around the company to make sure that we stimulate growth and build momentum. This includes A&M, which increased in international. It also increased in North America, importantly. It's the margin piece that's driving the guide down in EPS.

Sales, as you mentioned, we expect to be robust. Another mention, we're also identifying structural cost reduction areas, and we're going to be using revenue management tools in the coming months to partially mitigate this margin pressure that we have in the fourth quarter. These benefits should start helping as we turn the calendar year. So that's how I think about guidance, the revision. You mentioned 2027, so maybe I'll touch on that too. In 2027, we have clear priorities. We certainly want North America to grow faster and more efficiently. We're going to continue to fuel the international business and maintain momentum there, and we're going to be very disciplined with costs and capital allocation. As you imagine, we've been working through our 2027 plans for some time.

We're just not in a position today to provide a complete view of what our expectations might be, and I'd rather not give a partial view now. We'll give more detail on our 2027 expectations in February when we report the fourth quarter. I know that was a lot, but now I'll kick it over to Ramon and give a state of the union.

Okay. You guys got a lot, the framework there. We are pleased with the acceleration of the business. Going into the year, our priority number one was to accelerate top line across the company. If you think about the enterprise, we grew 3.1% in organic net revenue in Q3. That is the fastest rate of growth since Q4 2023. Clearly, an important milestone for us to cross the 3%. We like the way that growth came, which was volume led. If you think, as Steve mentioned, a 3% growth in beverages, global beverage volume, and a 4% in snacks globally, the snacks business, not the foods. We had some large business in South Africa that are very heavy kind of commodity type that impacted the overall global. Good, I would say, very positive threshold.

We crossed the threshold at 3%, and obviously, it is on its way to the long-term 4% that we want to get to. International was a big driver of that, and we are very pleased with the momentum that we have been building on international now for many quarters. Darragh, you mentioned weather and some tactic. I think it is much more structural. I think we are becoming much more competitive in both foods and beverages in more markets. The scale of the business now is to the point that we put on the remarks that is year to date, international is already 45% of our profit, so that we keep building it. It is broad, it is broad-based. It is in Europe, it is in Middle East, it is in Asia, it is in LATAM. Good performance overall. We are not satisfied with the performance in the U.S., and as Steve mentioned, I would provide some nuance, though.