PepsiCo (PEP): July 9 earnings, my verdict
2026-07-09 · By Lubin Danilo, founder of Lubin Investment
PEP: see the full analysis on Lubin Investment
PepsiCo reported earnings of 2.20 dollars per share on July 9, up 4% year over year but slightly below consensus, driven by strong international results and held back by a shaky North America. My screener scores the company 5 out of 10, with a valuation still high against my fair buy price. Here is my full verdict.
What happened on July 9
PepsiCo reported second quarter results this morning, before markets opened. Revenue came in at 24.2 billion dollars, up 6.4% year over year, driven by 2.4% organic growth, favorable currency effects and recent acquisitions. Adjusted earnings per share reached 2.20 dollars, up 4% year over year, but slightly below the analyst consensus of 2.229 dollars. The stock fell roughly 1.8% following the release.
A 1.3% gap between the result and consensus is nothing catastrophic on its own. So it is not the earnings number that explains the market reaction, but what sits behind it: the geographic split of growth.
Strong international, shaky North America
The quarter tells two opposing stories. Internationally, volumes are growing (+3% for snacks, +2% for beverages), proof the brand still holds power outside the United States. But on the home market, North American beverage volumes fell 4%, and food volumes were flat. CEO Ramon Laguarta summed it up this way: US food and beverage category performance moderated as consumer budgets tighten under persistent inflationary pressure.
In other words, PepsiCo keeps growing, but the most profitable and mature part of its business, the US market, shows signs of fatigue. It is a theme running across much of the consumer staples sector this year: the American consumer is getting more selective on high margin processed products.
What my quality grid says
My screener scores PepsiCo 5 out of 10, an average rather than a bad score. Net margin stays solid at 9.2%, and cash return on invested capital reaches 17.7%, a respectable figure for a company this size. But two criteria fail outright: revenue growth caps out at 4.5% a year over five years, and free cash flow per share growth does not exceed 3.1% a year, both below my 10% threshold. The operating leverage criterion also fails: margins are compressing rather than expanding, consistent with what this quarter shows in North America.
One figure worth watching: net debt stands at 4.95 times annual free cash flow, elevated without being alarming for a consumer staples company with recurring revenue, but it leaves less room to maneuver than a few years ago.
The price: cheap on one ratio, expensive on my calculation
On the P/FCF criterion, PepsiCo trades at 22.1 times its annual cash flow, below my 25 times tolerance threshold, and in the cheaper half of its sector. On this criterion alone, the stock does not look excessive.
But my fair buy price, which factors in the growth trajectory rather than just today's cash level, sets the bar at 82.56 dollars. The stock currently trades around 137.86 dollars, roughly 67% above that threshold. The gap comes down to growth: my calculation penalizes a company whose cash per share grows barely faster than inflation, even if the instantaneous ratio looks reasonable.
| Criterion | PepsiCo | My threshold |
|---|---|---|
| Earnings per share (Q2) | $2.20 | consensus: $2.229 |
| Revenue growth (5 years) | 4.5%/year | over 10%/year |
| FCF per share (5 years) | 3.1%/year | over 10%/year |
| Fair buy price | $82.56 | current price: $137.86 |
What I take away going forward
PepsiCo maintained its full year targets: organic growth of 2 to 4%, and earnings per share growth of 4 to 6% at constant currency. Keeping these targets after a mixed quarter is fairly reassuring on the direction set by management, but the real test will be whether North American beverage volumes stabilize in the third quarter, or whether the pressure on US household purchasing power keeps weighing.
How I am calling it
This quarter does not fundamentally change my read on PepsiCo: an average quality, profitable, well established company, but one whose growth has clearly slowed, and whose price remains far from my fair buy threshold. Today's pullback brings the stock a bit closer to that threshold without reaching it. I would rather wait for either a genuine growth acceleration or a much sharper price decline before considering PepsiCo an opportunity by my method. Full criteria detail is on the PepsiCo analysis page, and my full methodology explains how I separate quality from price.
- Earnings per share of $2.20 on July 9, up 4% year over year but slightly below consensus ($2.229), stock down roughly 1.8%.
- Strong international (+3% snack volumes, +2% beverages) versus a shaky North America (beverage volumes -4%, food flat).
- Quality score of 5 out of 10: decent net margin and capital returns, but revenue and cash growth below my 10%/year threshold.
- P/FCF of 22.1 times looks reasonable, but my fair buy price of $82.56 is 67% below the current $137.86 price.
- Full year targets maintained (organic growth 2 to 4%, EPS growth 4 to 6%) despite a mixed quarter.
FAQ
Why did PepsiCo stock fall after these results?
Earnings per share of $2.20 were slightly below the $2.229 consensus, but more importantly, North American beverage volumes fell 4%, PepsiCo's most profitable region, as inflation squeezed consumer budgets.
Is PepsiCo a good company by my method?
It scores 5 out of 10 in my screener: profitable and well run, but with revenue and cash growth capping out below my usual thresholds, and margins compressing slightly.
Is PepsiCo expensive at this price?
The P/FCF of 22.1 times looks reasonable, but my fair buy price, which factors in the growth trajectory, sits at $82.56 against a current price around $137.86.
Did PepsiCo change its full year targets?
No, the company maintained its guidance of 2 to 4% organic growth and 4 to 6% constant currency earnings per share growth for the year.
What is the main risk to watch on PepsiCo?
A continued slowdown in North American volumes, its most profitable region, if inflationary pressure on US households persists.
PEP: see the full analysis on Lubin Investment
About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).