PepsiCo 1Q26 beat expectations, with a PFNA volume inflection and reiterated full-year guidance supporting a positive view

Overview

This report is J.P. Morgan's review of PepsiCo's 1Q26 results. The report believes PEP's quarterly performance exceeded JPMe and market consensus expectations, mainly driven by better revenue performance and a lower expense ratio, offsetting the impact of slightly weaker gross margin. The most important change was that PFNA volume growth turned positive at +2% after four years, while the company still reiterated its full-year 2026 guidance despite macro and Middle East conflict uncertainty.

Core views

The core view is positive. First, 1Q26 core EPS, net sales, and organic sales growth all exceeded expectations, indicating a better-than-feared operating start. Second, the improvement in PFNA volumes is a key inflection point for investors, suggesting that pricing adjustments, brand repositioning, innovation, and affordability initiatives are beginning to take effect. Third, although gross margin contracted 60 bps YoY to 55.1%, the SG&A ratio declined 72 bps YoY to 39.4%, keeping operating margin resilient. Fourth, 2026 guidance remains unchanged, with management expecting +2-4% organic sales growth and +5-7% core EPS growth, enhancing visibility into the full-year earnings path.

Analysis framework

The report uses earnings decomposition and expectation-gap analysis, comparing actual 1Q26 revenue, EPS, margins, and organic growth against JPMe and consensus expectations, while assessing the quality of growth across PFNA, PBNA, and international operations by business division. At the same time, the report incorporates management's prerecorded call and full-year guidance to evaluate the impact of volumes, price/mix, cost hedging, productivity savings, and shareholder returns on the 2026 investment view.

Methodology notes

• earnings_reviewactual_vs_estimate_analysis

  Comparison of actual results versus JPMe and consensus expectations

  By comparing EPS, net sales, organic sales growth, gross margin, SG&A ratio, and segment organic growth, the report identifies the sources of upside or downside versus expectations.

• segment_analysisorganic_growth_by_division

  Segment organic growth analysis

  The report compares the organic sales performance of PFNA, PBNA, IB Franchise, EMEA, LatAm Foods, and Asia Pacific Foods against JPMe and Consensus Metrix to assess growth drivers and drags.

• guidance_analysisreiterated_guidance_check

  Full-year guidance reiteration check

  By comparing the company's current and previous 2026 guidance, as well as JPMe and consensus expectations, the report assesses whether management has changed its assumptions for growth, profit, capex, free cash flow, and shareholder returns.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• PEP.US

  Core covered name in the report, rated Overweight

  Strengths

  1Q26 EPS and revenue beat expectations, PFNA volumes showed a positive inflection, international operations maintained mid-single-digit organic growth, and the company maintained its 2026 growth and shareholder return guidance.

  Weaknesses

  Gross margin contracted YoY, PBNA volumes were dragged down by factors including the transition of the packaged water business, and PFNA core operating profit declined due to the prior-year base from asset sale gains and higher advertising and marketing investment.

  Comparison

  Relative to JPMe and market consensus expectations, 1Q26 EPS, net sales, and company-wide organic sales growth were all stronger; among segments, PFNA, IB Franchise, EMEA, and Asia Pacific Foods were better than expected, while PBNA and LatAm Foods were weaker than expected.

  Risks

  Rising commodity, packaging, fuel, and aluminum costs, macro uncertainty caused by the Middle East conflict, and cost pressure after hedge protection weakens in the second half of 2026 and in 2027.

Key data

• 1Q26 core EPS$1.613.6% and 3.9% above JPMe and consensus expectations of $1.55, respectively.
• 1Q26 net sales$19.443bn1.2% above JPMe; YoY sales growth of +8.5%.
• 1Q26 organic sales growth+2.6%Above JPMe +2.5% and Consensus Metrix +2.2%.
• 1Q26 gross margin55.1%Down 60 bps YoY, below JPMe and consensus expectations of 55.5%.
• 1Q26 SG&A ratio39.4%Down 72 bps YoY, below JPMe 39.7% and consensus expectations 39.8%.
• PFNA organic sales growth+1%Above JPMe +0.2% and Consensus Metrix -0.1%; organic volume was +2%.
• PBNA organic sales growth+2%Below JPMe +3.0% and Consensus Metrix +2.3%; volume declined about 2.0-2.5%.
• International organic sales growth+5.5%Management said this marked the 20th consecutive quarter of at least mid-single-digit organic revenue growth.
• 2026 organic sales growth guidance+2-4%The company maintained prior guidance; JPMe is at +3.1%, while consensus is at +2.9%.
• 2026 core EPS growth guidance+5-7%Implies 2026 core EPS of about $8.55-$8.71.
• 2026 shareholder cash return$8.9bnIncluding $7.9bn in cash dividends and $1.0bn in share repurchases.

Impact & implications

The implications for PEP stock are positive: the earnings beat and PFNA's return to positive volume growth help ease market concerns about slowing growth in the North American food business, while reiterated full-year guidance also improves earnings visibility. However, gross margin pressure, packaging and fuel costs, rising aluminum prices, and commodity volatility caused by the Middle East conflict could still affect profit performance in 4Q26 and 2027.

Risks

• Gross margin pressure: 1Q26 gross margin was 55.1%, down 60 bps YoY and below expectations.
• Commodity and packaging cost risk: packaging, aluminum, resin, and transportation fuel are important cost items, and aluminum costs have already risen.
• Macro and geopolitical risk: the Middle East conflict has created greater uncertainty, and management acknowledged that the future environment is more volatile.
• Limited hedge protection duration: the company has about 6-9 months of raw material hedges, with impacts potentially emerging in 4Q26 and becoming more pronounced in 2027.
• PBNA volume pressure: PBNA volumes declined about 2.0-2.5%, partly due to the transition of the packaged water business to third parties.
• Expense investment pressure: higher advertising and marketing investment may weigh on operating profit in some divisions.

What to watch

• Whether PFNA can sustain +2% volume growth in subsequent quarters and drive improved full-year performance.
• Whether PBNA innovation, Gatorade repositioning, and away-from-home channel expansion can improve volumes and margins.
• The actual impact of aluminum, resin, fuel, and other costs in 4Q26 and 2027.
• Whether productivity savings will be sufficient to offset gross margin and marketing investment pressure.
• Whether 2026 organic sales growth will land in the upper half of the +2-4% guidance range.
• Further commentary from management Q&A and the C-level Fireside Chat on costs, pricing, and the pace of segment recovery.