By Evie Liu

PepsiCo beat Wall Street estimates for profit in the fourth quarter but missed on revenue. The stock is falling on Tuesday, but some analysts say shares in the snack and beverage giant could bounce back as it invests in new products and further expands internationally.

The maker of Pepsi and Mountain Dew sodas said on Tuesday that adjusted earnings per share were $1.96 in the final three months of 2024. Analysts polled by FactSet expected earnings of $1.94. Revenue came in at $27.78 billion, slightly below the expectations of $27.89 billion.

Pepsi's revenue was hurt by subdued trends in the North America market, with numbers particularly disappointing in the Quaker Foods business, which suffered from a fallout due to product recalls in 2024.

Pepsi shares tumbled 4.4% to around $144 in Tuesday trading, on pace for largest percent decrease since Oct. 5, 2023, when it fell 5.2%. The stock has declined 16% over the past 12 months.

Still, while sales came slightly lower than a year ago, fourth-quarter earnings were up 14% on a constant currency basis.

"Our enhanced multiyear productivity initiatives enabled us to invest in our businesses, and deliver improvements in our gross margin, operating margin expansion and EPS in 2024," said CEO Ramon Laguarta in a statement.

Pepsi, along with many packaged-food companies, has faced some challenges over the past year. Consumers are pulling back from spending amid inflation pressure, while the rising popularity of GLP-1 weight-loss drugs could further dampen appetite for snacks and sugary drinks.

This year, Donald Trump's administration might bring more changes that could negatively affect the food industry, including more prominent labels about harmful ingredients, restrictions on food additives, and cuts to the food stamp program that many low-income households rely on for consumption.

On top of the regulatory pressure, there is also a general trend toward healthier foods. Pepsi's most popular products have historically catered to taste rather than health. The company has been working to evolve its portfolio toward more health and wellness options.

Laguarta said the company will continue to expand in international business, while improving performance in North America. He expects the productivity initiatives to help fund investments and aid profitability.

For 2025, management expects a low-single-digit increase in organic revenue and a mid-single-digit increase in core constant currency earnings per share.

Weaker foreign currencies are expected to hurt revenue and earnings by about three percentage points, the company said. That means a low-single-digit increase to core earnings per share in 2025 compared with 2024 results of $8.16.

Pepsi announced a 5% increase in annualized dividend per share, beginning with the June 2025 payment. Total cash returns to shareholders in 2025 are guided at $8.6 billion, comprised of dividends of $7.6 billion and share repurchases of $1 billion.

Some analysts say uncertainties facing Pepsi might be priced in, and the company is better positioned than peers to grow in the coming years.

"Pepsi's diversified product offering, which includes globally known brands in snacks and beverages, is often a competitive advantage, as it provides a nice mix of at- and away-from-home products," wrote Edward Jones analyst Brittany Quatrochi in a Tuesday note.

The analyst noted that Pepsi's product innovation has driven solid growth in snacks, and it's improving with beverages. With nearly 40% of its sales outside of North America, Pepsi is also geographically diverse.

"International growth, especially in emerging markets, should benefit Pepsi," she wrote. "Usually when people reach the middle class in those markets, they tend to spend more on packaged beverages and snacks."

Pepsi's strong distribution system could help it gain share in those growing markets versus smaller competitors, said Quatrochi, who has a Buy rating for the stock and expects Pepsi to grow earnings at a high-single-digit rate.

Garrett Nelson, a senior equity analyst at CFRA Research also maintained his Buy rating on the stock, but trimmed the 12-month price target to $175 from $190.

Pepsi has a "masterful track record of providing conservative guidance and then exceeding it," he wrote. Despite headwinds, Nelson sees value in Pepsi shares at current levels following the recent slide.

Write to Evie Liu at evie.liu@barrons.com

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February 04, 2025 12:14 ET (17:14 GMT)

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