PepsiCo PEP) is scheduled to report second-quarter 2026 results before the market opens on Thursday, July 9, kicking off the earnings season for many consumer staples companies.
Wall Street expects another quarter of modest growth, but investors will be paying closer attention to whether Pepsi’s turnaround efforts in North America are beginning to gain traction after several quarters of sluggish snack demand and shifting consumer preferences.
Meanwhile, rival Coca-Cola KO) will be reporting Q2 results at the end of the month (July 28) and has continued to execute well, consistently delivering stronger organic sales growth and higher operating margins.
With both beverage giants trading at reasonable valuations while offering attractive dividend yields, investors may be wondering which stock deserves a place in their portfolios.
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Pepsi’s Q2 Expectations
PepsiCo is expected to report Q2 earnings of approximately $2.19 per share on revenue of $23.87 billion, representing modest year-over-year increases of 3% and 5%, respectively.
It’s noteworthy that Pepsi’s international operations have remained a bright spot, but North America continues to face softer consumer spending as shoppers increasingly seek value brands and smaller package sizes.
Still, after missing Q1 2025 EPS estimates last year, Pepsi has now exceeded earnings expectations in each of its last four quarterly reports, with an average EPS surprise of 2.69%.
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However, it’s noteworthy that the Zacsk ESP (Expected Surprise Prediction) indicates Pepsi’s streak of exceeding EPS expectations could end.
To that point, the Most Accurate and recent estimate among Wall Street analysts has Q2 EPS slated at $2.18 and slightly beneath the underlying Zacks Consensus (Current Qtr below).
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North America Remains the Biggest Question
Over the last year, Pepsi has struggled to regain momentum in its largest market.
Management has responded by:
- Reducing prices on select snack products
- Increasing promotional activity
- Simplifying its product lineup
- Expanding healthier offerings
- Pursuing productivity initiatives to improve margins
These initiatives were initially well received, but investors are now looking for tangible evidence that volumes are beginning to recover.
If management can show improving trends in Frito-Lay North America while maintaining healthy international growth, the market could view the quarter as confirmation that Pepsi’s turnaround strategy is gaining traction.
Why Coca-Cola Continues to Impress
While Pepsi has been working through operational challenges, Coca-Cola has continued to execute at a high level.
Coca-Cola has benefited from:
- Strong international demand
- Premium pricing power
- Continued growth in Coca-Cola Zero Sugar
- Higher operating margins
- A simpler business model focused primarily on beverages
Although Coca-Cola did post a string of rare revenue misses last year, the company most recently exceeded Q1 top-line estimates and has surpassed earnings expectations for 13 consecutive quarters while delivering positive volume growth across many global markets. Over the last four quarters, Coca-Cola has posted an average EPS surprise of 4.47%.
Coca-Cola’s asset-light franchise model also generates stronger profitability and more consistent free cash flow than Pepsi’s more capital-intensive snack manufacturing business.
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PEP & KO Valuation Comparison
From a valuation standpoint, neither stock appears expensive relative to the broader market.
Pepsi stock does stand out at 16X forward earnings, which is a pleasant discount to the benchmark S&P 500. Coca-Cola, on the other hand, commands a slight premium to the benchmark at 25X forward earnings, reflecting its steadier earnings profile and consistently higher margins.
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PEP & KO Dividend Comparison
Both companies are Dividend Kings with decades of consecutive annual dividend increases, although Pepsi generally offers the higher yield while Coca-Cola provides somewhat stronger earnings consistency.
At the moment, Pepsi stock has a 4.13% annual dividend yield, with Coca-Cola’s at 2.56%, although both impressively top the S&P 500’s average of 1.03%.
Ultimately, investors are deciding between Pepsi’s lower valuation, higher dividend yield, turnaround potential, and greater exposure to snacks as opposed to just beverages or choosing Coca-Cola for its higher profitability, stronger execution, better beverage momentum, and more consistent earnings growth.
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What to Watch During Pepsi’s Earnings Call
Beyond the headline numbers, several topics could determine how Pepsi stock reacts following earnings:
- North American snack volume trends
- Organic revenue growth
- Gross margin performance
- International sales strength
- Pricing versus consumer demand
- Updated full-year outlook
- Management’s comments regarding consumer spending trends
*Options markets have recently implied a 4% move in either direction following the report, highlighting investor uncertainty heading into earnings.
Bottom Line
For investors seeking stability, Coca-Cola still appears to have the edge. Those willing to bet on a recovery may find Pepsi more attractive for greater upside potential if Q2 results confirm that its turnaround efforts are beginning to bear fruit.
That said, Pepsi stock currently carries a Zacks Rank #4 (Sell), reflecting an unfavorable trend in earnings estimate revisions over the past 30 days. Meanwhile, Coca-Cola stock sports a Zacks Rank #2 (Buy), as earnings estimate revisions have remained higher over the last three months.
PEP & KO Valuation Comparison
From a valuation standpoint, neither stock appears expensive relative to the broader market.
Pepsi stock currently trades at 20X forward earnings, which is slightly beneath the benchmark S&P 500. Coca-Cola, on the other hand, commands a slight premium to the benchmark at 25X forward earnings, reflecting its steadier earnings profile and consistently higher margins.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
PepsiCo, Inc. (PEP) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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