PEPSICO INC

PepsiCo is a leading global beverage and convenient food company with a complementary portfolio of brands, including Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream, serving customers and consumers in more than 200 countries and territories. The company operates in highly competitive categories and markets, competing against products of international beverage and convenient food companies that operate in multiple geographies, as well as regional, local and private label manufacturers. In many countries, including the United States, The Coca-Cola Company is PepsiCo's primary beverage competitor. Other named competitors include The Campbell's Company, Conagra Brands, Inc., Hormel Foods Corporation, Keurig Dr Pepper Inc., The Kraft Heinz Company, Link Snacks, Inc., Mars, Incorporated, Mondelēz International, Inc., Monster Beverage Corporation, Nestlé S.A., Primo Brands Corporation, Red Bull GmbH and Utz Brands, Inc. In 2025, PepsiCo and The Coca-Cola Company represented approximately 16% and 20%, respectively, of the U.S. liquid refreshment beverage category by estimated retail sales in measured channels, according to Information Resources, Inc.

PepsiCo's competitive advantages are rooted in the strength of its brands, innovation and marketing, coupled with the quality of its products and the flexibility of its distribution network. Many of its convenient food products hold significant leadership positions in the convenient food industry in the United States and worldwide. The company's products compete primarily on the basis of brand recognition and loyalty, taste, price, value, quality, product variety, innovation, distribution, shelf space, advertising, marketing and promotional activity, packaging, convenience, service and the ability to anticipate and effectively respond to consumer preferences and trends. In 2025, sales to Walmart Inc. and its affiliates, including Sam's Club, represented approximately 14% of consolidated net revenue, with sales reported across all segments, including concentrate sales to independent bottlers.

PepsiCo generates revenue through the manufacture, marketing, distribution and sale of a wide variety of beverages and convenient foods. The company's primary performance obligation is satisfied upon the shipment or delivery of products to customers, which is also when control is transferred. Products are brought to market primarily through direct-store-delivery (DSD), customer warehouse and distributor networks, and are also sold directly to consumers through e-commerce platforms and retailers. The company's customer base includes wholesale and other distributors, foodservice customers, grocery stores, drug stores, convenience stores, discount/dollar stores, mass merchandisers, membership stores, hard discounters, e-commerce retailers and authorized independent bottlers. Sales incentives and discounts are primarily accounted for as a reduction of revenue and include payments to customers for performing activities on behalf of the company, such as payments for in-store displays, payments to gain distribution of new products, payments for shelf space and discounts to promote lower retail prices.

PepsiCo is organized into six reportable segments. PepsiCo Foods North America (PFNA) makes, markets, distributes and sells convenient foods including cereals, chips, dips, granola bars, oatmeal, pasta, rice and syrups and mixes under brands including Cheetos, Doritos, Fritos, Lay's, Pearl Milling Company, Quaker, Ruffles and Tostitos. In December 2024, PepsiCo acquired the Strauss Group's 50% ownership in Sabra Dipping Company, LLC, making Sabra a wholly-owned subsidiary that makes, markets, distributes and sells Sabra refrigerated dips and spreads. PepsiCo Beverages North America (PBNA) makes, markets and sells beverage concentrates, fountain syrups and finished goods under brands including Aquafina, Bubly, Diet Mountain Dew, Diet Pepsi, Gatorade, Gatorade Zero, Mountain Dew, Mountain Dew Baja Blast, Pepsi, Pepsi Wild Cherry, Pepsi Zero Sugar and Propel. PBNA also makes, markets, distributes and sells ready-to-drink tea and coffee products through joint ventures with Unilever (under the Lipton brand name) and Starbucks, respectively, and manufactures and distributes certain brands licensed from Keurig Dr Pepper Inc., including Crush, Dr Pepper and Schweppes. PBNA also distributes, in certain channels, brands owned by Celsius Holdings, Inc., including Celsius, Alani Nu and Rockstar. International Beverages Franchise (IB Franchise) makes, markets and sells beverage concentrates to authorized and independent bottlers under brands including 7UP, Aquafina, Gatorade, Mirinda, Mountain Dew, Pepsi, Pepsi Black, Pepsi Zero Sugar, and Sting Energy, and also manufactures and distributes SodaStream sparkling water makers and related products. Europe, Middle East and Africa (EMEA) makes, markets, distributes and sells convenient food brands including Cheetos, Chipsy, Doritos, Lay's, Quaker, Sasko, Spekko, Walkers and White Star, beverage brands including 7UP, Adrenaline Rush, Aquafina, Lubimy, Mirinda, Pepsi and Pepsi Zero Sugar, and dairy products including Agusha, Chudo and Domik v Derevne. Latin America Foods (LatAm Foods) makes, markets, distributes and sells convenient food brands including Cheetos, Doritos, Emperador, Lay's, Marias Gamesa, Quaker, Ruffles, Sabritas, Saladitas Gamesa and Tostitos. Asia Pacific Foods makes, markets, distributes and sells convenient food brands including BaiCaoWei, Cheetos, Doritos, Kurkure, Lay's, Quaker and Smith's.

During the fiscal year, PepsiCo completed several significant operational developments. In December 2024, the company acquired the Strauss Group's 50% ownership in Sabra Dipping Company, LLC, making Sabra a wholly-owned subsidiary. In 2025, PepsiCo acquired poppi for $1.95 billion ¹ and Garza Food Ventures LLC (Siete) for $1.2 billion ². The company also continued its 2019 Multi-Year Productivity Plan, which was expanded and extended through the end of 2030, with expected pre-tax charges of approximately $6.15 billion ³, including cash expenditures of approximately $5.1 billion ⁴. Plan to date through December 27, 2025, the company has incurred pre-tax charges of $3.6 billion ⁵, including cash expenditures of $2.7 billion ⁶. In 2025, the company recorded restructuring and impairment charges of $983 million ⁷ and impairment and other charges of $1,946 million ⁸, including $1,539 million ⁹ related to the Rockstar brand in PBNA. The company also announced a 4% increase in its annualized dividend to $5.92 per share ¹⁰ from $5.69 per share ¹¹, effective with the dividend expected to be paid in June 2026, and a new share repurchase program providing for the repurchase of up to $10 billion ¹² of PepsiCo common stock. In 2025, the company returned a total of $8.6 billion ¹³ to shareholders through dividend payments and share repurchases.

For the fiscal year ended December 27, 2025, PepsiCo reported net revenue of $93,925 million ¹⁴, compared to $91,854 million ¹⁵ in the prior year, representing a 2% increase. Net income attributable to PepsiCo was $8,240 million ¹⁶, compared to $9,578 million ¹⁷ in 2024, a decrease of 14%. Diluted earnings per share were $6.00 ¹⁸, compared to $6.95 ¹⁹ in the prior year. Operating profit was $11,498 million ²⁰, compared to $12,887 million ²¹ in 2024, an 11% decrease. The operating margin was 12.2% ²², compared to 14.0% ²³ in the prior year. The decrease in operating profit was primarily driven by certain operating cost increases, impairment charges related to the Rockstar brand, a decline in organic volume, a 5-percentage-point impact of higher commodity costs and higher acquisition and divestiture-related charges. Net cash provided by operating activities was $12,087 million ²⁴, compared to $12,507 million ²⁵ in the prior year. Free cash flow, a non-GAAP measure, was $8,200 million ²⁶, compared to $7,531 million ²⁷ in the prior year.

PepsiCo expects to incur pre-tax charges of approximately $900 million ²⁸ in 2026 related to the 2019 Multi-Year Productivity Plan, including cash expenditures of approximately $750 million ²⁹. The company expects to incur the majority of the remaining pre-tax charges and cash expenditures through 2027, with the balance to be incurred through 2030. On February 3, 2026, PepsiCo announced a 4% increase in its annualized dividend to $5.92 per share ³⁰ from $5.69 per share ³¹, effective with the dividend expected to be paid in June 2026. The company expects to return a total of approximately $8.9 billion ³² to shareholders in 2026, comprising dividends of approximately $7.9 billion ³³ and share repurchases of approximately $1.0 billion ³⁴.

PepsiCo is focused on reigniting its North America business by combining operations where it makes the most sense and using the savings to support meaningful investments in its brands. The company is also working to increase the size, presence and scale of its International business, with a focus on capturing growth in large and developing markets, and to grow its away-from-home business by expanding availability and extending into new occasions. The company continues to reshape its portfolio, including reducing added sugar, sodium and saturated fat in core brands like Lay's and Gatorade, advancing efforts to remove artificial colors and flavors in brands like Lay's, Cheetos, and Doritos, adding new products with functional benefits, such as Pepsi Prebiotic Cola, and welcoming popular brands like Siete, Sabra and poppi. The company is also expanding its away-from-home business into new occasions, with the Walking Taco platform thriving in stadiums, arenas, and parks across the United States, while the "Food Deserves Pepsi" campaign and the "Pepsi Zero Sugar Taste Challenge" have driven higher brand awareness.

PepsiCo is focused on improving productivity, optimizing operations and harnessing its scale and capabilities across markets. The company is evaluating an integrated model for its food and beverage supply chains, go-to-market, and commercial capabilities in North America, factoring in key components such as return on investment, scale and market share. The company's Global Capability Centers now support multiple functions, enabling centralization of information, reduction of duplicative work, and sharing of best practices across the organization. The company is building smarter systems with technologies like artificial intelligence to better serve customers and consumers, aiming to have the right products, at the right place, at the right price. Through collaborations with cutting-edge technology providers, PepsiCo is using artificial intelligence to reimagine its go-to-market model, enhance customer support, and empower sales teams to focus on strategic growth.

PepsiCo's capital allocation strategy includes returning free cash flow to shareholders primarily through dividends and share repurchases while maintaining Tier 1 commercial paper access. In 2025, the company returned $8.6 billion ³⁵ to shareholders through dividend payments and share repurchases. The company expects to return a total of approximately $8.9 billion ³⁶ to shareholders in 2026, comprising dividends of approximately $7.9 billion ³⁷ and share repurchases of approximately $1.0 billion ³⁸. On February 3, 2026, PepsiCo announced a new share repurchase program providing for the repurchase of up to $10 billion ³⁹ of PepsiCo common stock, which commenced on February 1, 2026 and will expire on February 28, 2030. The company also announced a 4% increase in its annualized dividend to $5.92 per share ⁴⁰ from $5.69 per share ⁴¹, effective with the dividend expected to be paid in June 2026.

PepsiCo faces several headwinds and constraints that management has explicitly flagged. The company continues to experience volatility in commodity, packaging and other input costs that may continue into fiscal 2026. The imposition of tariffs, including U.S. tariffs imposed or threatened to be imposed on China, the European Union, Canada and Mexico and other countries, has impacted and could continue to impact the supply chain, resulting in increased input costs, including the cost of certain raw materials and packaging. The company also faces risks from the imposition of new or increased taxes on the manufacture, distribution or sale of certain of its products as a result of ingredients contained in such products, with Mexico recently enacting an increase to its existing flat tax on all sweetened beverages, effective January 1, 2026, from a rate of approximately $0.09 (1.64 Mexican pesos) to a rate of approximately $0.17 (3.08 Mexican pesos) per liter. Additionally, numerous countries have enacted or are expected to enact legislation incorporating the OECD model rules for a global minimum tax rate of 15% with widespread implementation expected by the end of 2026, which will increase taxes and negatively impact the provision for income taxes.

PepsiCo faces structural headwinds from changing consumer preferences and the retail landscape. Consumer preferences continuously evolve due to factors including changes in consumer demographics, consumption patterns, diet (including increasing use of weight-loss drugs such as GLP-1 medications), and channel preferences (including continued increases in e-commerce and online-to-offline channels). The retail landscape continues to evolve, including continued growth in e-commerce channels and hard discounters, and retailers are shifting traditional value propositions, removing products or otherwise reducing shelf space allocated to PepsiCo's products and focusing on introducing and developing private-label brands. The company also faces risks from geopolitical events and tensions, wars and other military conflicts, including the ongoing conflict in Ukraine, which could result in exchange rate fluctuation, limitations on access to credit markets, volatility in global stock markets and global economic uncertainty.

PepsiCo faces material risks from the imposition of taxes on its products, with Mexico recently enacting an increase to its existing flat tax on all sweetened beverages, effective January 1, 2026, from a rate of approximately $0.09 (1.64 Mexican pesos) to a rate of approximately $0.17 (3.08 Mexican pesos) per liter ⁴². The company also faces risks from the imposition of tariffs, including U.S. tariffs imposed or threatened to be imposed on China, the European Union, Canada and Mexico, which have impacted and could continue to impact the supply chain, resulting in increased input costs. The company's operations in Russia accounted for 5% ⁴³ of consolidated net revenue and 20% ⁴⁴ of consolidated cash and cash equivalents as of December 27, 2025, exposing it to geopolitical and currency risks. The company recognized impairment charges of $1,539 million ⁴⁵ related to the Rockstar brand in 2025, and as of December 27, 2025, the estimated fair value of the SodaStream reporting unit narrowly exceeded its carrying value, indicating risk of further impairment if future sales and operating profit results are not in line with forecasts. The company also faces risks from the OECD model global minimum tax rate of 15% ⁴⁶, with widespread implementation expected by the end of 2026, which will increase taxes and negatively impact the provision for income taxes.

Management's message emphasizes a clear set of strategic priorities: reigniting the North America business by combining operations and using savings to support investments in brands; increasing the size, presence and scale of the International business with a focus on capturing growth in large and developing markets; and growing the away-from-home business by expanding availability and extending into new occasions. Since 2018, the company has made significant investments to adapt to the changing landscape, including increasing investments to strengthen brands, transforming the portfolio through innovation and acquisitions, foundational investments in technology and artificial intelligence, expanding and updating manufacturing footprint, right-sizing and modernizing warehousing and distribution capacity, and transforming the operating model to become more agile, efficient and responsive to the consumer. Management highlights that the company is becoming a more deeply integrated, more productive organization, with a focus on sharing global services, streamlining processes, and launching a new corporate brand identity. In North America, the company is carefully evaluating an integrated model for food and beverage supply chains, go-to-market, and commercial capabilities. The company expects to incur pre-tax charges of approximately $900 million ⁴⁷ in 2026 related to the 2019 Productivity Plan, including cash expenditures of approximately $750 million ⁴⁸. The company also announced a 4% increase in its annualized dividend to $5.92 per share ⁴⁹ from $5.69 per share ⁵⁰, effective with the dividend expected to be paid in June 2026, and expects to return a total of approximately $8.9 billion ⁵¹ to shareholders in 2026.