View the chart data
| Measure | Q3 2025 | Q3 2026 |
|---|---|---|
| Standard accounting (GAAP) | 14.9% | 16.9% |
| Adjusted (core, non-GAAP) | 17.3% | 16.9% |
PepsiCo reported higher sales on October 8, but cut its forecast for earnings growth this year. The snack and drink company is spending more to improve its North American business. For investors, the question is whether those efforts will leave more profit from each sale.
PepsiCo (NASDAQ: PEP) reported third-quarter sales of $25.3 billion, up 5.6% from a year earlier. Its adjusted profit margin fell even though its standard accounting margin rose. A margin measures how much of each dollar of sales remains as profit. [1]
Why the two profit measures tell different stories
PepsiCo's operating margin rose from 14.9% to 16.9% under standard U.S. accounting rules, known as GAAP. Operating profit is what remains after business costs, before interest and taxes. The company's adjusted measure, called core, fell from 17.3% to 16.9%. [1]
The adjusted measure removes selected costs and gains that PepsiCo treats separately. Both measures deserve attention. Standard accounts include items that affect shareholders, while adjustments can help compare the business across periods.
For a simple hypothetical example, a company selling $100 of goods might keep $17 as operating profit. If sales grow but that share falls, profit grows more slowly than sales. A strong sales headline alone cannot explain what the business is worth.
Can North America earn more from its sales?
PepsiCo reported 8% international sales growth after removing currency and acquisition effects, a measure it calls organic growth. Organic sales declined slightly in both North American businesses. Their quarter covers 12 weeks through September 5; international results cover June through August. [2]
“Our business in North America performed below our expectations and represents a meaningful opportunity for improvement.”
Management plans more spending on products and marketing, alongside cost cuts. It expects North American adjusted margins to remain under pressure in the fourth quarter. The quarter also benefited from $178 million in tariff refunds, which investors should not assume will repeat. [2]
Our view is that the spending needs to bring customers back often enough to pay for itself. Discounts may attract shoppers, but they can also leave less profit on each purchase. Cost cuts help only if they preserve the products and service that keep those shoppers coming back.
What does the cash tell us?
In the first 36 weeks of 2026, PepsiCo generated $7.95 billion in cash from its operations. Its free cash flow was $5.86 billion after capital spending and proceeds from property sales. This company-defined measure shows cash left after investment in facilities and equipment. [3]
Cash dividends and share buybacks totaled $6.67 billion, exceeding that free cash flow by $817 million. This partial-year gap does not establish a cash shortage. At September 5, debt obligations totaled about $51.9 billion, excluding leases and other liabilities, against $10.7 billion in cash. [3]
Cash matters because accounting profit does not pay a dividend by itself. Money may be tied up in unsold goods or bills that customers have yet to pay. Investors should follow several periods of cash flow before judging whether payouts and borrowing are sustainable.
Are consumers still spending?
Costco (NASDAQ: COST) reported September sales on October 7, covering five retail weeks through October 4. Sales rose 13.0% to $30.02 billion. Comparable sales, which track existing operations, rose 7.6% after excluding gasoline-price and currency effects. [4]
A later Labor Day helped Costco's growth by a little more than half a percentage point. The figures reflect one retailer and are not adjusted for all inflation. Still, they show why weak results at one brand need not mean shoppers have stopped spending everywhere. [4]
The Labor Department's October 8 report estimated 197,000 new unemployment-benefit claims for the week ended October 3, down 2,000. People continuing to claim benefits rose to 1.716 million for the earlier week ended September 26. These preliminary, seasonally adjusted figures cover different weeks and do not count all unemployed people. [5]
For the wider economy, jobs support household income, while prices affect what that income can buy. These reports give some context for consumer businesses. They cannot establish the economy's growth rate or predict the Federal Reserve's next move.
What should investors watch next?
PepsiCo now forecasts 1%–2% growth in adjusted earnings per share after removing currency effects. Its previous forecast was at the low end of 4%–6%. Earnings per share means profit divided among the company's shares; this forecast remains uncertain. [1]
- Repeat purchases: Are customers buying more without needing deeper discounts?
- Profit from sales: Do higher sales cover the added product, advertising and delivery costs?
- Cash left over: Can the business invest, pay shareholders and manage debt without stretching its finances?
- The share price: Does the price make sense against a realistic range of future profit? Lower expected growth can change that judgment.
The same questions can help SpecStocks research smaller, overlooked consumer businesses. First verify what each company sells and who buys it. Then examine profits, cash, debt and whether issuing more shares could reduce existing owners' stake. Today's evidence offers a research framework; it does not show that PepsiCo, Costco or any supplier is undervalued.