PepsiCo (PEP 2.18%) just released its earnings results for the second quarter of 2025. Despite a modest increase in revenue and falling profits, the stock rose by 6% in the following trading session as the company reiterated its outlook and offered more details of a turnaround plan, including a plan to cut costs.
Still, the much more critical question for investors is whether the company can grow its stock more sustainably as costs rise in a low-growth environment. Knowing this, investors need to take a closer look at the state of PepsiCo and its financials before drawing conclusions about the stock.
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The second-quarter results
PepsiCo continues to struggle with growth as its net revenue of $22.7 billion rose by just under 1% year over year. Improvements were negligible in most geographies, and a 7% decline in revenue in its Latin America segment appeared to offset the 8% revenue gain in Europe, the Middle East, and Africa.
Moreover, a 4% increase in the cost of sales also weighed on earnings, though PepsiCo also absorbed a nearly $1.9 billion impairment in its intangible assets. Consequently, the almost $1.3 billion in net income was far below the $3.1 billion profit in the year-ago quarter. Still, investors should keep in mind that profit growth would have been around 1% without the impairment charge.
For the remainder of 2025, the company reiterated its outlook of revenue growth in the low single digits. PepsiCo also put forth a turnaround plan, one that focuses on healthier snacks and lowering costs. It also anticipates returning $8.6 billion to shareholders, with $1 billion allocated to share buybacks and the remaining $7.6 billion covering the cost of the dividend.
PepsiCo is a Dividend King by virtue of its 53 consecutive years of payout hikes. The current dividend, which now pays $5.69 per share annually, returns a dividend yield of 3.8% after the post-earnings surge in the stock.
Where the report leaves investors
Indeed, the dividend makes the stock attractive to income investors, and not just because it is far above the 1.2% average yield of the S&P 500. Like most Dividend Kings, PepsiCo will want to avoid hurting confidence in the stock by slashing the payout, almost ensuring that the payout increases will continue.
Still, those looking for growth might wonder whether the turnaround plan is enough to justify the post-earnings run-up in the stock. Indeed, PepsiCo is more than just its flagship cola. It encompasses beverage and food brands such as Mountain Dew, Gatorade, Lay's, and Quaker, which should presumably serve the stock well.
However, the stagnant revenue growth is nothing new, as revenue growth was negligible in 2024 and declined slightly in Q1. Additionally, the packaged food industry is currently under pressure. Its brands face scrutiny from more health-conscious consumers and a government that is more closely scrutinizing the ingredients in its products. While the company discussed an effort to cut costs in its latest earnings report, using healthier ingredients could raise costs, dampening the impact of cost-cutting efforts.
For example, the news from President Donald Trump that rival Coca-Cola (KO -0.93%) will replace high fructose corn syrup with cane sugar in its sodas could mean PepsiCo follows suit. Perhaps that move could be a positive for sales since consumers have responded positively to its healthier offerings. Still, that could add to costs at a time when the company is looking for ways to lower expenses.
Furthermore, PepsiCo's valuation may not be enough to help. Recently, its P/E ratio was 21, even as the earnings multiple rose above a multiyear low. Although that valuation might draw bargain hunters to many other stocks, it may not be enough to offset PepsiCo's lack of revenue growth. That probably makes the buy case harder to justify for more growth-oriented investors.
Should I buy PepsiCo stock after earnings?
Given the state of PepsiCo, the stock is probably only a buy for income investors.
Admittedly, the company's situation is attractive for those seeking dividend income. At a 3.9% yield, it is far above market averages, and the Dividend King status makes it highly likely that the annual payout hikes will continue.
Unfortunately, the state of its business is more uncertain. The strength of its brands and a pivot to better serving health-conscious consumers should help stave off declines in revenue and maintain the confidence of income investors.
However, PepsiCo does not have a clear plan to drive revenue growth beyond the low single digits, and evolving government guidelines on ingredients could negate the effects of cost-cutting efforts. Under such conditions, it will take more than a 21 P/E ratio to attract the investors who are interested in more than dividend income.
