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PepsiCo Faces Challenges Amid Slowing Revenue Growth

PepsiCo (NASDAQ: PEP) has struggled with declining EPS and slowing revenue growth over the past three years. As it navigates challenges, investors should assess its long-term viability against the backdrop of strong S&P 500 performance.

Date: 
AI Rating:   5

Current Challenges for PepsiCo

PepsiCo's recent performance metrics indicate a significant slowdown in both net revenue and organic growth, which can impact stock prices moving forward. For example, the company's net revenue growth declined from 8.7% in 2022 to a projected 0.4% in 2024. This decline suggests that PepsiCo may struggle to maintain competitive profitability and market share. The slowing growth in organic revenue from 14.4% in 2022 to 2.0% in 2024 further illustrates the difficulties it faces in capturing new customers and maintaining momentum.

Adding to these challenges, the report indicates that PepsiCo's core gross margin growth is under pressure. The inability to expand margins or achieve significant EPS growth — projected to decrease from 17% in 2022 to only 6% in 2024 — could signal weakening operational efficiency. A decrease in core gross margins also raises concerns about the company’s cost structure and pricing strategies.

Furthermore, recent issues with product recalls, particularly due to a salmonella outbreak, have created additional risks, tarnishing brand reputation and consumer trust. This can further inhibit growth potential and hinder revenue recovery in the near term.

Future Outlook

PepsiCo's management anticipates low single-digit organic revenue growth and mid-single-digit EPS increases for 2025, which reflect muted expectations amid prevailing headwinds. Investment in technology and automation to regain momentum in specific segments, particularly Frito-Lay, could be positive if executed effectively. However, weaker performance from its North American beverage unit and challenges in the Quaker segment reveal ongoing risks that could limit upside potential.

Despite a strong dividend history, with a sustainable payout ratio of 77%, the prospect of underperformance relative to the S&P 500 raises scrutiny about whether PepsiCo remains a suitable investment for income-focused investors. If historical CAGR estimates for revenue at 3% and EPS at 9% hold true, the risk remains that PepsiCo may continue to lag behind broader market returns over the long term.

Stocks:  PEP