Management Wins the Latest Pepsi Challenge, Will Investors?

By Jonathan Feeney and David Schick and David Katzman and Jack Hermann Published on December 9, 2025 PDF

Announces ambitious 2026 guidance early. Last night, after a comprehensive board review, Pepsico announced slightly better than expected 2026 guidance for organic revenue growth (+2%-4%) & core EPS (+5%-7%). This includes plans for select price investments aimed at restoring volume growth after several years with virtually none (See Figure 1). CEO Ramon Laguarta cited a belief that “share in the category will be meaningfully higher because of the price investments, the space gains and the testing we’ve been doing in the last 3, 4 months.” In our view, price reduction for share gain increases risk for Pepsico and the snacking category. The data is presumably the same for everyone — others will likely follow.

Notable for what’s not included. The announcement & conference call were most notable for what they did not include: no new board members, no bottler refranchising, no exploration of strategic options and no new distribution strategy other than “piloting an integrated food and beverage model in Texas…and analyzing the results.” Considering that Pepsico already integrates distribution in other geographies, we don’t think this analysis is likely to uncover anything new. We think PEP’s strategic take is likely correct, but it dashes the hopes of those hoping for a quick fix.

Long-term struggle balancing cash flow with productivity & growth. For PEP, the last roughly 42% in revenue & 31% in EBITDA have come with 10% less operating free cash flow (OCF-capex). (See Figure 2). As such, the dividend payout which was well covered in 2015 exceeded operating FCF in 2024. This is chiefly because capex grew a surprising 83% with virtually no volume growth.

Ambitious goal for cash flow – now the main issue. Today, new CFO Stephen Schmitt shared his expectation for FCF to once again exceed 90% of EPS in 2027 – which would putatively represent about 60% more cash flow than the average of the last 3 years. While this comprises a welcome acknowledgment of an unsustainable status quo, reversing the trend with more margin expansion planned & so much investment uncertainty (e.g. AI, agentic commerce) seems like a tall task amidst a valuation (roughly 13x 2026 EV/EBITDA) that’s still premium for the staples sector .

Figure 1: Pepsico 6 Year Volume & Pricing Growth*

*Pepsico changed reporting basis in 2018 making segment analysis more challenging. On a total company basis, organic volume growth was +0.5%, 2%, flat, and +1% in 2015-2018, respectively, which would not materially affect the above total volume analysis.

Source: Company Reports

Figure 2: Pepsico 6 Year Volume & Pricing Growth*

Source: Company Reports

DISCLOSURES AND DISCLAIMERS

Analyst Certification

The analyst primarily responsible for the preparation of this report attests to the following: (1) that the views and opinions rendered in this report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this report.

Analyst Certifications And Independence

Each of the Optimal Advisory analysts whose names appear on the front page of this report hereby certify that all the views expressed in this Report accurately reflect our personal views about any and all of the subject securities or issuers and that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views of in this Report.

Optimal Advisory (the “Company”) is an independent equity advisory provider. The Company is not a member of the FINRA or the SIPC and is not a registered broker dealer or investment adviser. Optimal Advisory has no other regulated or unregulated business activities which conflict with its provision of independent advisory work.

Limitations Of Research And Information

This Report has been prepared for distribution to only qualified institutional or professional clients of Optimal Advisory. The contents of this Report represent the views, opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third-party data presented herein were obtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy or completeness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to, any such material or for any damage or lost opportunities resulting from use of this data.

Nothing contained in this Report or any distribution by the Company should be construed as any offer to sell, or any solicitation of an offer to buy, any security or investment. Any research or other material received should not be construed as individualized investment advice. Investment decisions should be made as part of an overall portfolio strategy and you should consult with a professional financial advisor, legal and tax advisor prior to making any investment decision. Optimal Advisory shall not be liable for any direct or indirect, incidental or consequential loss or damage (including loss of profits, revenue or goodwill) arising from any investment decisions based on information or research obtained from Optimal Advisory.

Optimal Advisory may receive consulting or other compensation from securities mentioned but is not related to any recommendation in this report.

Reproduction And Distribution Strictly Prohibited

No user of this Report may reproduce, modify, copy, distribute, sell, resell, transmit, transfer, license, assign or publish the Report itself or any information contained therein. Notwithstanding the foregoing, clients with access to working models are permitted to alter or modify the information contained therein, provided that it is solely for such client’s own use. This Report is not intended to be available or distributed for any purpose that would be deemed unlawful or otherwise prohibited by any local, state, national or international laws or regulations or would otherwise subject the Company to registration or regulation of any kind within such jurisdiction.

Copyrights, Trademarks, Intellectual Property

Optimal Advisory, and any logos or marks included in this Report are proprietary materials. The use of such terms and logos and marks without the express written consent of Optimal Advisory is strictly prohibited. The copyright in the pages or in the screens of the Report, and in the information and material therein, is proprietary material owned by Optimal Advisory unless otherwise indicated. The unauthorized use of any material on this Report may violate numerous statutes, regulations and laws, including, but not limited to, copyright, trademark, trade secret or patent laws.

Additional Information is available upon request.

For more information on receiving Optimal Advisory, email: [email protected]