PepsiCo shares hit one-year low as cautious US spending dents margins

PepsiCo shares have fallen to a one-year low, trading at a forward price-to-earnings multiple of approximately 15.4 times, marking the company’s lowest valuation in more than a decade. The decline follows a second-quarter earnings report released on July 9, which saw shares drop approximately 5% as investors digested mixed results and cautious guidance for the North American market.

The company reported second-quarter revenue of $24.2 billion, a 6.4 per cent increase year-on-year that surpassed Wall Street expectations. Adjusted earnings per share came in at $2.20, landing roughly in line with but slightly below some analyst estimates. Management maintained its full-year outlook, forecasting 2 per cent to 4 per cent organic revenue growth and 4 per cent to 6 per cent core constant-currency EPS growth.

However, the underlying data revealed significant weakness in North America, where consumers remain hesitant to spend on discretionary items. Snack volumes remained flat while beverage volumes declined by 4 per cent. To retain shoppers amidst this caution, PepsiCo implemented price cuts on key brands including Lay’s and Doritos, a strategy that has eroded pricing power.

These pricing measures have directly impacted profitability, with core operating profit margins falling by 40 basis points year-on-year in the second quarter. Executives warned that a recovery in the US market may take longer than anticipated and noted concerns that input cost inflation could rise in the second half of the year.

Investor sentiment remains subdued, with Evercore ISI analyst Robert Ottenstein highlighting persistent skepticism regarding the company’s ability to achieve a sustainable 3 per cent growth target in the US. Ottenstein suggested the stock may trade in a $135–$145 range until there is definitive improvement in the region, noting that the current valuation is supported primarily by a safe and attractive dividend yield.