Evercore ISI issued a warning ahead of PepsiCo, Inc.'s second quarter earnings report: weak consumer demand and inflation headwinds may put pressure on profits, maintaining a "keep pace with the market" rating.

Notice that the global food and beverage giant PepsiCo, Inc. (PEP.US) will release its second quarter financial report for 2026 on July 9, but investment bank Evercore ISI has issued an advance warning: due to multiple pressures such as slowing consumer spending, cost inflation, and intensified market competition, PepsiCo, Inc.'s performance in the second quarter will be below market expectations. The bank maintains its "market perform" rating with a latest target price of $170. The Evercore analyst team predicts that PepsiCo, Inc.'s second quarter organic sales will increase by 2.3% year-on-year, lower than the market's general expectation of 2.8%; earnings per share are expected to be $2.18, slightly lower than the market expectation of $2.20. This assessment is mainly based on the rise in gasoline prices since mid-April, increased macroeconomic uncertainty leading to weak consumer demand, and the impact of abnormal weather in North America on retail. Although a judge recently rejected a pilot proposal to restrict SNAP (Supplemental Nutrition Assistance Program) funds from purchasing unhealthy food, easing policy pressure in the short term, applications for exemptions in 23 states could take several months to finalize, creating uncertainty in long-term demand. In terms of business segments, PepsiCo, Inc. is facing structural challenges. In its North America beverage business (PBNA), traditional full-calorie carbonated beverages continue to be under pressure, but flavor innovation and zero-sugar product lines have shown good performance - Gatorade saw a 9% year-on-year increase in quarterly scan sales by June 14 through simplified packaging and promoting hydration benefits; Mtn Dew's flavor extension products have partially offset the decline in core SKUs. However, the recovery of the North America food business (PFNA) is slower than expected; despite launching innovative products such as Doritos NKD and Lay's new packaging, scan data by June 14 still showed a 0.7% year-on-year decline, as consumers become more price-sensitive, prompting PepsiCo, Inc. to narrow the price gap with its own brands and adjust pricing primarily for bulk packaging products. International markets are a few bright spots. The Europe, Middle East, and Africa (EMEA) markets remain stable, with strong demand in India and China; the international beverage business has a profit margin of 37%, significantly higher than the 12% of North America beverages. However, the Latin America market faces pressure from the base effect of a $50 million profit in the same period last year, potentially affecting the profit margin in the third quarter. To address challenges, PepsiCo, Inc. has initiated cost-cutting plans: layoffs, closing three factories, merging production lines, reducing nearly 20% of US SKUs, and improving efficiency through supply chain optimization. The company expects capital spending in 2026 to be less than 5% of net sales and has reaffirmed its $10 billion share buyback plan for 2026, while seeking acquisitions to strengthen its presence in the healthy snack sector. However, these measures might not take effect in the short term. Evercore ISI has lowered its full-year EPS forecast for PepsiCo, Inc. for 2026 from $8.63 to $8.60. Currently, PepsiCo, Inc.'s P/E ratio has fallen to around 16 times, significantly lower than its historical average of about 21.5 times over the past decade. Although valuation is at historic lows, the road to recovery for this beverage giant in the face of high inflation, consumer downgrades, and long-term health trends such as GLP-1 weight loss drugs appears to be longer than expected. For PepsiCo, Inc., July 9th is not just about releasing a second quarter report, but also a stern test for its management to navigate the post-inflation era of significant consumer changes.