PepsiCo Sales Grow Again Thanks to Weak Dollar. But There’s More to Worry About.

PepsiCo’s soda sales have weak for years, but now its snack business is being hit. (Gabby Jones/Bloomberg)

PepsiCo stock rose Thursday after the snacks and beverages company reported quarterly earnings that beat analysts’ expectations, and tweaked its full-year outlook.

Shares were up to 6.6% to $144.34 in midmorning trading following the earnings release.

In the second quarter, adjusted earnings per share came in at $2.12 on revenue of $22.7 billion, topping analysts’ expectations of earnings per share, or EPS, of $2.03 on revenue of $22.3 billion, according to FactSet.

Net sales have increased 1% from a year ago, after three consecutive quarters of decline. Momentum in the international business contributed to the stronger-than-expected results, the company said, while a weak dollar further boosted the value of PepsiCo’s sales abroad.

The dollar index , which tracks the performance of the U.S. dollar against a basket of other currencies, is down 9% so far this year. That’s its worst first half of a calendar year since 1973.

“We’re encouraged by the acceleration in our net revenue growth versus the previous quarter with our businesses effectively navigating through a challenging environment,” said CEO Ramon Laguarta in a statement.

Still, PepsiCo reported adjusted EPS that were 5% below the same-period last year on a constant currency basis. Earnings were hit by a $1.86 billion write-down on energy-drink maker Rockstar and Chinese online snack company Be & Cheery. PepsiCo spent $3.85 billion to acquire Rockstar in 2020 and another $700 million on Be & Cheery.

PepsiCo said it now expects adjusted EPS to decline by 1.5% in 2025, better than the 3% decline previously forecasted, as foreign exchange headwinds have moderated. On a constant currency basis, the company expects adjusted EPS to be approximately even year over year.

Still, investors shouldn’t be too optimistic about PepsiCo’s latest results. The company has been struggling with weak sales for both its snacks and beverages in the North America market.

The beverage segment continues to lose share, while its formerly fast-growing snack business is being hit by weak consumer spending amid inflation fears, shifting health priorities, and possibly a backlash against ultra-processed foods.

In the second quarter, organic sales for PepsiCo’s North America food unit—which sells Doritos, Lay’s, and many other snacks—declined 2% from a year ago. While beverage sales increased 1%, most of it was driven by price increases. Beverages sales volume actually shrank 2%.

Laguarta noted that PepsiCo’s North America businesses have improved their execution and competitiveness in the second quarter, and said that the firm will continue to accelerate portfolio innovation and cost optimization to stimulate growth and profitability in the North America market.

For fiscal 2025, PepsiCo expects to deliver low-single-digit organic revenue growth.

Potential tariffs later this year could also drive up freight and packaging costs and squeeze margins. That’s why management in April lowered their guidance for 2025’s adjusted EPS from mid-single-digit growth to flat, barring foreign currency influence.

Coming into Thursday trading, PepsiCo shares have tumbled 26% from their recent high on May 17, 2024, to $135.35 at Wednesday’s close. It badly lags behind soda rival Coca-Cola and the S&P 500 , which are up 10% and 18%, respectively, over the same period.

“Investors will not have an endless reservoir of patience for PepsiCo to ‘right the ship’ in North America as results continue to wane,” wrote BNP Paribas Exane analyst Kevin Grundy in a Wednesday note, “We have considerable respect for leadership, but greater urgency may be called for with everything on the table to unlock value.”

Deutsche Bank analyst Steve Powers has a more optimistic view: “We continue to believe the intrinsic value of PepsiCo exceeds its current trading price,” he wrote in a note last month.

Still, Powers acknowledges that recent consumption trends have broadly disappointed, which puts rising pressure on the bull case and causes investors to increasingly question PepsiCo management’s current strategic priorities, direction, and urgency.

Wall Street analysts polled by FactSet have an average target price of $145 for the stock, just slightly above the shares’ trading price on Thursday.

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