PepsiCo's Next Earnings Report on Oct. 8 2026 Could Send the Stock Plunging. Here's Why.

If you're looking for a classic defensive dividend stock, it's hard to find a better choice than PepsiCo (NASDAQ:PEP).

The company has been around for more than 100 years. It's a global giant in its industry and is diversified across both food and beverages, arguably giving it an advantage over rival Coca-Cola(NYSE:KO).

PepsiCo is also a Dividend King, having raised its dividend for 54 straight years. The company now pays a dividend yield of 4.7% as the stock has struggled in recent years. In fact, it's now trading around a 5-year low.

Recently, the company has faced challenges with inflation and pushback from customers and retail partners like Walmart. The company has also noted the threat from GLP-1 drugs, which is part of the reason why it acquired the prebiotic soda brand Poppi for nearly $2 billion last year.

Pepsi will report its third-quarter earnings on Thursday, but I think the stock is more likely to slide again after earnings. Here's why.

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Inflation isn't letting up

Consumers are still getting pinched at the pump, and in the last three months, interest rates have spiked, putting pressure on credit card rates, mortgages, and auto loans, adding to the cost-of-living crisis.

Walmart has pointed to cautiousness in discretionary purchases, as have other brands and retailers. Pepsi is a consumer staples stock, but the company seems to have taken its earlier strategy of raising prices to absorb inflation too far, and is now facing a backlash. Organic revenue at Pepsi Foods North America was down 2% in the second quarter, and beverage volume was down 4%. Its international business has been stronger, but more than half of its revenue comes from North America.

Higher fuel and fertilizer prices also impact Pepsi's bottom line, and if it has pricing power, it may struggle to maintain margins as costs rise.

The dividend could come under pressure

As a Dividend King, most of the investor interest in Pepsi is due to its dividend and defensive positioning. However, as the business has struggled, the dividend has come under pressure. Without improved growth, Pepsi will struggle to increase it, and any further hikes will likely be minimal.

PepsiCo's dividend payout as a percentage of free cash flow is above 80%, meaning the dividend is absorbing most of the company's free cash flow. If Pepsi were a strong business right now, that wouldn't be a problem, but the dividend sucks up cash it could use to help turn around the struggling North American business.

The silver lining

Despite its challenges, PepsiCo is still growing, thanks to its strength in international markets, and the company expects organic revenue to grow 2%-4% this year and for core constant-currency earnings per share to grow 4%-6%.

PepsiCo stock has also gotten cheaper as the price has fallen, now trading at a price-to-earnings ratio of 16. However, with inflationary pressures seemingly strengthening in the third quarter, the business is likely to remain under pressure, as consensus calls for EPS to be flat.

Pepsico should eventually stabilize, but investors should be prepared for things to get worse before they get better.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool has a disclosure policy.