PEP Talk with Management – Fireside Recap

Research evidence excerpt

PEP Talk with Management – Fireside Recap

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offerings, but there is still more to do. Our View: The core needs to work for Pepsi Foods to work, *Rev. (MM)

so this is where affordability will determine if there is a price problem or a brand problem.

4. DSD System Stable; Mix Upgrade More Important than Footprint: Snacks DSD remains efficient;

beverages has improved utilization through mix upgrades and capacity is not the constraint.

Our View: We would have expected volume declines to translate to low utilization, driving down

margins...guess not. The issue is portfolio positioning (e.g., underexposure to energy/protein, and

the club channel).

5. Cash Conversion Improving Gradually: Management reaffirmed confidence in ~80% FCF

conversion, driven by better working capital and disciplined capex, but did not provide a timeline to

“best-in-class” levels. Our View: Expect steady improvement, but the priority remains reinvestment

over cash optimization. Once the machine is running, this can be revisited.

6. Estimates: We moderate our assumptions for N. America in 2H, putting more weight on Int'l

and 4Q productivity. We maintain our '26 estimates for ~3% org growth (5.4% all-in) and $8.55 EPS

(+5%). See our adjustments here.

7. Thesis and Valuation: Turnaround story with the prospect of improving fundamentals, but

underwriting success and timing of a turn are difficult to determine. Sentiment will remain low until

N. America accelerates top and bottom lines, with a better line of sight into the long term. Downside

is capped, given the dividend yield (~4%) and Int'l strength. Our $152 PT is based on 16x our '28E

EPS of $9.50. Kaumil Gajrawala * | Equity Analyst

+1 (212) 778-8937 | kgajrawala@jefferies.com

FY (Dec) 2025A 2026E 2027E 2028E Keith Devas * | Equity Analyst