Understanding a company’s earnings release is crucial for any investor. This document contains essential insights on financial health and business outlook. In this guide, we break down the most important elements to look for, using PepsiCo’s third quarter 2025 release as a concrete example.

Structure of an Earnings Release

Financial earnings releases typically follow a standardized format that makes it easier to compare companies and periods. The document begins with a press release summarizing key figures and management messages, followed by detailed financial tables (income statement, balance sheet, cash flow statement), and concludes with explanatory notes and accounting reconciliations.

For PepsiCo, the Q3 2025 release spans multiple pages and presents results for two periods: the isolated quarter (12 weeks ended September 6, 2025) and year-to-date (36 weeks).

Financial Results: GAAP vs Non-GAAP

The first fundamental distinction concerns two types of reported results.

GAAP results (Generally Accepted Accounting Principles) represent official figures according to U.S. accounting standards. These data include all items, including exceptional events, asset impairments, and restructuring charges. For PepsiCo in Q3 2025, net revenue reached $23.937 billion (+2.6% vs Q3 2024), while earnings per share (EPS) stood at $1.90 (-11% vs Q3 2024).

Non-GAAP results, also called "core" or "organic" at PepsiCo, exclude certain exceptional items to provide a clearer view of recurring operational performance. PepsiCo posted organic revenue growth of 1.3% and Core EPS of $2.29 for Q3 2025.

Definition - Revenue/Net Revenue: Total amount of sales of goods and services made by the company over a given period, after deducting returns, discounts, and rebates. It's the indicator of size and commercial growth.

Definition - Earnings Per Share (EPS): Net income attributable to shareholders divided by the average number of shares outstanding. It's the key profitability indicator for investors, representing the profit share that goes to each share held.

Definition - Organic Growth: Revenue growth excluding the effects of acquisitions, divestitures, and foreign exchange fluctuations. It measures the company's "natural" performance by excluding external elements.

Non-GAAP adjustments notably exclude impacts from mark-to-market valuations of commodity derivatives, restructuring charges, asset impairments, and foreign exchange effects. In PepsiCo's case, the company recorded a significant impairment of $1.993 billion over 36 weeks ($133 million in Q3), primarily related to the Rockstar brand.

Definition - Asset Impairment: Accounting recognition of a loss in value of an asset (brand, fixed assets, goodwill) when its market value or future revenue generation potential falls below its book value. This charge reduces net income but doesn't impact cash.

Performance by Geographic Segment

Segment analysis reveals where the company creates value. PepsiCo presents six main operating divisions:

PepsiCo Foods North America (PFNA): Revenue flat at $6.526 billion (0% reported growth), but with organic volume down -4% and effective net pricing of -2.5%. Operating profitability (core constant currency operating profit) declined -3.5%.

PepsiCo Beverages North America (PBNA): Revenue growth of 2% to $7.327 billion, despite organic volume down -3%. Effective net pricing reached +6%. Operating profitability decreased -7% on an adjusted constant currency basis.

International Beverages Franchise (IB Franchise): Revenue flat organically at $1.290 billion, with volume of -1% offset by pricing of +1%.

Europe, Middle East and Africa (EMEA): Remarkable performance with +9% reported growth (+5.5% organic) to $5.022 billion. The region benefited from +6% pricing and -1% volume. Operating profitability increased +1%.

Latin America Foods (LatAm Foods): Growth of 2% reported (+4% organic) to $2.656 billion, supported by strong operating profitability improvement (+9% core constant currency).

Asia Pacific Foods: Progression of 2% reported (+1% organic) to $1.115 billion, with excellent volume dynamics (+3%) but pricing of -3%.

Definition - Operating Segment: A division of a company for which separate financial information is available and regularly reviewed by management. Segments enable analysis of performance by geography, product type, or business line.

Key Volume and Pricing Metrics

Two essential metrics help understand the sources of organic revenue growth.

Organic volume measures the change in physical quantities sold (in tons, liters, units) excluding the impact of acquisitions and divestitures. Overall, PepsiCo recorded a -1% volume decline in Q3 2025, with sharp contrasts: -4% for PFNA, -3% for PBNA and IB Franchise (-1%), but +3% for Asia Pacific Foods (food only).

Effective net pricing (or "price/mix effect") reflects the combined impact of price increases and product mix changes (selling more expensive products or different formats). PepsiCo showed overall progression of +4%, with variations by region: +6% for PBNA and EMEA, -2.5% for PFNA, -3% for Asia Pacific.

Definition - Organic Volume: Change in quantities sold, expressed as a percentage, excluding effects of acquisitions, divestitures, and currency fluctuations. It's the indicator of real demand for the company's products.

Definition - Effective Net Pricing / Price-Mix Effect: Impact on revenue from changes in list prices, promotions, discount structures, and product mix (proportion of premium vs entry-level products). It's the indicator of the company's pricing power.

This combination reveals a pricing power strategy to offset volume weakness, typical of an inflationary environment where consumers reduce purchase volumes but accept moderate price increases.

Operating Profitability

Gross margin stood at 53.6% on a reported basis ($12.824 billion gross profit / $23.937 billion revenue), down from 55.4% last year ($12.923 / $23.319). This -180 basis point compression reflects rising raw material and production costs.

Definition - Gross Margin: (Revenue - Cost of Sales) / Revenue, expressed as a percentage. It measures production efficiency and the impact of direct costs (raw materials, production labor). A high gross margin indicates strong pricing power or efficient production.

Operating margin reached 14.9% on a GAAP basis ($3.569 billion / $23.937 billion), compared to 16.6% last year, impacted notably by asset impairments of $133 million in Q3.

Definition - Operating Margin: (Operating Income / Revenue) × 100. It measures profitability of core activities after all operating expenses (production, marketing, R&D, administrative) but before interest and taxes. It's the key indicator of operational efficiency.

Over 36 weeks, PepsiCo recorded $567 million in cumulative restructuring charges and impairments, weighing on overall profitability.

Definition - Restructuring Charges: Costs related to reorganizing operations (site closures, workforce reductions, supply chain optimization). These charges are often excluded from "core" results as they're considered non-recurring.

Cash Flows

Operating cash flow represents cash generated by the company's current operations. Over nine months of 2025, it amounted to $5.468 billion, down from $6.220 billion in 2024.

Definition - Operating Cash Flow: Cash generated by normal operating activities of the business (sales collected minus purchases and expenses paid), before investments and financing. It's the indicator of the company's ability to generate cash from its operations.

This -$752 million decrease is explained notably by:

• Increase in accounts receivable (cash reduction of -$1.747 billion), meaning customers are paying slower
• Tax payments related to the Tax Cuts and Jobs Act (-$772 million)
• Reduction in accounts payable (cash reduction of -$1.647 billion), meaning PepsiCo is paying suppliers faster

Investments (capex - capital expenditures) reached $2.499 billion over 9 months, while PepsiCo paid $5.692 billion in dividends and repurchased $752 million of its own shares.

Definition - Capex / Capital Expenditures: Investment spending on tangible fixed assets (plants, equipment, technologies) necessary for maintaining and developing operations. High capex can signal future growth or simply the renewal of aging assets.

Definition - Dividends: Distribution of a portion of profits to shareholders, typically quarterly or annually. It's a direct return of value to shareholders.

Definition - Share Repurchase / Buyback: Company's purchase of its own shares on the market, reducing the number of outstanding shares and mechanically increasing EPS. It's an alternative method of returning value to shareholders besides dividends.

Guidance and Outlook

Guidance (company forecasts) represents targets that management commits to achieving for the full fiscal year. PepsiCo maintained its 2025 targets:

• Organic revenue growth: "low-single-digit" (approximately 1-2% per market conventions)
• Core EPS at constant currency: flat compared to 2024 ($5.88 over 9 months 2025 vs target of approximately $8 for the full year)
• Core EPS in reported dollars: expected decline of -0.5% (versus -1.5% projected in initial guidance)
• Effective tax rate: approximately 20%
• Returns to shareholders: $8.6 billion for the full year ($7.6 billion in dividends + $1 billion in share repurchases)

Definition - Guidance: Financial forecasts communicated by company management for the current or future fiscal year. It typically covers revenue, EPS, margins, and cash flows. Guidance serves as a reference for analysts and investors to evaluate performance.

Definition - Effective Tax Rate: (Income Tax Expense / Pre-tax Income) × 100. It differs from the statutory rate as it incorporates tax optimizations, tax credits, and differences in taxation by country. A low effective rate may indicate good tax management or presence in low-tax jurisdictions.

The improvement in Core EPS guidance in dollars (from -1.5% to -0.5%) comes from a less unfavorable currency impact than anticipated, as the dollar appreciated less than expected against other currencies.

Definition - Foreign Exchange Impact: Effect of exchange rate fluctuations on an international company's financial results. A strong dollar penalizes revenues and profits generated abroad when converted to dollars. Companies often report results "at constant currency" to neutralize this effect.

Management Commentary

CEO Ramon Laguarta's statements in the release reveal strategic priorities and management vision. In Q3 2025, he emphasized:

"Our revenue growth has accelerated and reflects the resilience of our international businesses, improved momentum in North America beverages, and benefits from our portfolio transformation actions."

He identified three major future priorities:

1. Accelerate portfolio transformation through a "strong pipeline of innovation" (new product launches, reformulations, targeted acquisitions)
2. Optimize price-pack architecture ("sharpening our price pack architecture") to offer value to consumers amid inflation
3. Aggressively optimize cost structure ("aggressively optimize our cost structure") to fund marketing and innovation investments

This strategy aims to offset volume weakness through better operational efficiency and portfolio premiumization.

Warning Signs and Key Concerns

Several elements warrant particular attention when analyzing an earnings release.

Massive asset impairments: The $1.993 billion impairment over 36 weeks (mostly on the Rockstar brand) raises questions about brand portfolio valuation and past acquisition decisions. A significant impairment can signal initial overvaluation or strategic failure.

Volume pressure: Widespread volume declines (-1% overall, -4% for PFNA, -3% for PBNA) reflect a pressured consumer making trade-off decisions. This trend, if it persists, could limit future pricing power and force the company to lower prices to revive volumes.

Margin compression: Gross margin lost 180 basis points and operating margin declined 170 basis points on a GAAP basis. This erosion reflects temporary inability to fully pass through cost inflation into prices, despite positive effective net pricing.

Debt levels: Although the document doesn't fully detail the balance sheet, long-term debt and leverage ratios must be monitored, especially during periods of high interest rates. High debt can limit financial flexibility to invest or weather a recession.

Definition - Net Debt: Total financial debt (short and long-term) minus cash and equivalents. It's the most commonly used leverage indicator. The Net Debt / EBITDA ratio measures the number of years of cash generation needed to repay debt.

Recurring restructuring charges: The $567 million in restructuring charges over 9 months reflects a productivity plan extended through 2030. Repeated restructuring charges year after year can signal structural difficulties rather than a one-time adjustment.

Balance Sheet and Financial Ratios

Although not detailed in the initial release, the balance sheet presents the company's financial position at a given date.

Definition - Balance Sheet: Snapshot of the company's financial position at a point in time, showing assets (what the company owns), liabilities (what it owes), and shareholders' equity (the difference, belonging to shareholders). The balance sheet enables assessment of financial strength and solvency.

Definition - Assets: All property and rights held by the company: cash, accounts receivable, inventory, fixed assets (plants, equipment), intangible assets (brands, patents, goodwill).

Definition - Liabilities: All debts and obligations of the company: accounts payable, financial debts, provisions, deferred taxes.

Definition - Shareholders' Equity: Difference between assets and liabilities, representing the book value belonging to shareholders. Includes share capital, reserves, and retained earnings.

Definition - Goodwill: Acquisition premium paid when acquiring a company, representing the difference between the price paid and the book value of acquired assets. It reflects intangible elements like reputation, customer portfolio, expected synergies.

Key financial ratios to examine include:

Definition - ROE (Return on Equity): (Net Income / Shareholders' Equity) × 100. Measures profitability of capital invested by shareholders. A high ROE (>15%) indicates efficient value creation.

Definition - ROA (Return on Assets): (Net Income / Total Assets) × 100. Measures the efficiency with which the company uses its assets to generate profit.

Definition - Current Ratio: Current Assets / Current Liabilities. Measures ability to meet short-term obligations. A ratio > 1 indicates good liquidity.

Definition - EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. It's an approximation of operating cash generation, often used to compare companies with different capital structures.

Systematic Reading Methodology

To effectively analyze an earnings release, follow this structured approach:

1. Start with the press release (first page) to grasp key messages, guidance, and management tone (optimistic, cautious, defensive)

2. Analyze segment performance summaries to identify growth drivers and areas of weakness by geography or product category

3. Review the consolidated income statement to understand line-by-line profitability evolution: revenue, gross margin, operating expenses, operating income, net income

4. Check cash flow statements to assess actual cash generation, investment capacity, and shareholder returns (dividends, buybacks)

5. Read GAAP/non-GAAP reconciliation notes to understand adjustments and identify potential "accounting anomalies" or suspicious recurring exceptional charges

6. Compare results to prior guidance and analyst consensus expectations (often mentioned in financial press articles)

7. Assess results quality: Does growth come from volumes (sign of strong demand) or only price increases (less sustainable)? Are margins improving? Does cash flow track net income?

This methodical reading enables assessment of whether the company is creating sustainable value, or if growth is artificial (acquisitions, unsustainable price increases, accounting optimizations).

Pitfalls to Avoid

Don't confuse growth with value creation: A company can show revenue growth while destroying value if margins collapse or growth requires massive unprofitable investments.

Beware of excessive non-GAAP adjustments: Some companies exclude so many items from their "core" results that they lose all meaning. If "exceptional" charges repeat every quarter, they're no longer exceptional.

Ignoring cash flows: A company can show growing net income while destroying cash through poor working capital management (swelling inventory, customers not paying, suppliers paid too quickly).

Neglecting industry and competitive context: Results must always be put in perspective with competitor performance and industry trends. 2% growth can be excellent in a declining sector, or mediocre in a fast-growing one.