PepsiCo Inc. (NASDAQ:PEP)

The provision for income taxes exhibits fluctuating behavior over the five-year period. Current income tax expense generally increased from 2021 to 2023, while deferred tax expense (benefit) demonstrated significant volatility. Overall, the total provision for income taxes decreased in 2022 before increasing again in 2023 and 2024, then decreasing in 2025.

Current Income Tax Expense

Current income tax expense increased from US$1,701 million in 2021 to US$2,410 million in 2022, representing a substantial rise. This increase continued to US$2,643 million in 2023 and peaked at US$2,694 million in 2024. A notable decrease to US$1,924 million occurred in 2025, suggesting a potential shift in taxable income or applicable tax rates.

Deferred Income Tax Expense (Benefit)

Deferred income tax expense was US$441 million in 2021. In 2022, this shifted to a benefit of US$-683 million, indicating the realization of deferred tax assets or changes in deferred tax liabilities. The deferred tax expense remained a benefit, though lessened, at US$-381 million in 2023 and US$-374 million in 2024. By 2025, the deferred tax item became a small expense of US$25 million, reversing the trend of benefits observed in the prior three years.

Total Provision for Income Taxes

The total provision for income taxes was US$2,142 million in 2021. It decreased to US$1,727 million in 2022, coinciding with the significant deferred tax benefit. An increase to US$2,262 million was observed in 2023, followed by a further increase to US$2,320 million in 2024. Finally, the total provision decreased to US$1,949 million in 2025, driven by the reduction in current income tax expense and the shift in deferred taxes from benefit to expense.

The interplay between current and deferred tax components significantly influences the overall provision for income taxes. The substantial fluctuations in deferred tax expense (benefit) suggest the presence of temporary differences between book and tax accounting, or changes in tax planning strategies. The decrease in the total provision in 2025 warrants further investigation to determine the underlying causes, such as changes in profitability, tax rates, or the utilization of tax credits.

The reported tax rate demonstrates fluctuations over the five-year period. While the U.S. federal statutory tax rate remained constant at 21.00%, the reported tax rate exhibited considerable variability.

Overall Trend

A general decreasing trend in the reported tax rate is observed from 2021 to 2025. The rate began at 21.80% in 2021, decreased significantly to 16.10% in 2022, and then gradually declined to 19.00% in 2025.

Year-over-Year Changes

The most substantial year-over-year change occurred between 2021 and 2022, with a decrease of 5.70 percentage points in the reported tax rate. A subsequent increase of 3.70 percentage points was noted between 2022 and 2023. The changes between 2023 and 2024, and 2024 and 2025 were smaller, at 0.40 and 0.40 percentage points respectively.

Deviation from Statutory Rate

In 2021, the reported tax rate of 21.80% was slightly above the U.S. federal statutory rate of 21.00%. However, in 2022, the reported rate fell considerably below the statutory rate, reaching 16.10%. From 2023 through 2025, the reported tax rate remained above the statutory rate, but consistently below the 2021 level.

The variations in the reported tax rate suggest the influence of factors beyond the standard U.S. corporate tax rate, such as tax credits, deductions, international tax implications, and changes in the geographic mix of earnings. Further investigation would be required to determine the specific drivers of these fluctuations.

The composition of deferred tax assets and liabilities exhibits notable shifts over the five-year period. Gross deferred tax assets increased consistently from $8.15 billion in 2021 to $11.515 billion in 2025, while deferred tax liabilities also increased, though at a slower rate, from -$4.038 billion to -$4.656 billion. The net effect resulted in a transition from net deferred tax liabilities of $516 million in 2021 to net deferred tax assets of $739 million in 2025.

Net Carryforwards

Net carryforwards represent the largest component of gross deferred tax assets, increasing from $4.974 billion in 2021 to $6.849 billion in 2025. While there was a slight dip from 2023 to 2024, the overall trend is upward, suggesting an increasing ability to utilize past losses to offset future taxable income.

Intangible Assets & Lease Liabilities

Intangible assets, excluding nondeductible goodwill, and lease liabilities both contributed significantly to the growth of gross deferred tax assets. Intangible assets increased from $1.111 billion to $1.996 billion, while lease liabilities nearly doubled from $450 million to $819 million. This growth likely reflects ongoing investments in intangible assets and the adoption of lease accounting standards.

Share-Based Compensation & Other Employee Benefits

Share-based compensation and other employee-related benefits consistently contributed to deferred tax assets, with share-based compensation increasing from $98 million to $141 million and other employee benefits fluctuating around $375 million. These increases are likely tied to compensation strategies and benefit plan adjustments.

Capitalized Research and Development

Capitalized research and development expenses began to be recognized as a component of deferred tax assets in 2022, growing substantially from $150 million to $256 million before decreasing to $134 million in 2025. This suggests changes in the timing of research and development expense recognition.

Valuation Allowance

The valuation allowance against deferred tax assets increased consistently from $4.628 billion in 2021 to $6.478 billion in 2023, before decreasing slightly to $6.120 billion in 2025. This indicates ongoing uncertainty regarding the realization of a portion of the deferred tax assets, despite the overall increase in gross deferred tax assets. The decrease in the valuation allowance in the later years suggests increased confidence in future tax benefits.

Deferred Tax Liabilities

Property, plant, and equipment consistently represent the largest component of deferred tax liabilities, decreasing gradually from -$2.036 billion to -$2.047 billion. Right-of-use assets also contribute significantly, mirroring the increase in lease liabilities, moving from -$450 million to -$819 million. The debt guarantee of a wholly-owned subsidiary remained constant at -$578 million throughout the period. Recapture of net operating losses also remained relatively stable. Pension liabilities decreased from -$216 million to -$112 million before increasing to -$238 million in 2025.

The overall trend demonstrates a strengthening net deferred tax asset position, driven by growth in net carryforwards, intangible assets, and lease liabilities. The consistent valuation allowance suggests a cautious approach to recognizing the full benefit of deferred tax assets, while the composition of deferred tax liabilities remains relatively stable, primarily influenced by property, plant, and equipment and right-of-use assets.

Over the five-year period examined, both deferred tax assets and deferred tax liabilities exhibited fluctuations. Deferred tax assets remained relatively stable, while deferred tax liabilities demonstrated a consistent downward trend, followed by a slight increase in the most recent year.

Deferred Tax Assets

Deferred tax assets began at US$4,310 million in 2021 and decreased to US$4,204 million in 2022. A subsequent increase was observed in 2023, reaching US$4,474 million. This value decreased slightly to US$4,362 million in 2024 before rising again to US$4,541 million in 2025. Overall, the movement in deferred tax assets was contained within a relatively narrow range.

Deferred Tax Liabilities

Deferred tax liabilities started at US$4,826 million in 2021 and decreased substantially to US$4,133 million in 2022. This downward trend continued through 2023 and 2024, with values of US$3,895 million and US$3,484 million, respectively. In 2025, deferred tax liabilities increased to US$3,802 million, representing a reversal of the prior year’s decline, though remaining below levels seen in earlier periods.

The net deferred tax liability (liabilities less assets) decreased from US$516 million in 2021 to US$318 million in 2022, then to US$23 million in 2023, a net asset of US$122 million in 2024, and finally to a net asset of US$739 million in 2025. This indicates a shift from a net liability position to a net asset position regarding deferred taxes over the period.

The differing trends in deferred tax assets and liabilities suggest changes in the underlying temporary differences giving rise to these items. The decrease in deferred tax liabilities could be attributable to the realization of taxable temporary differences, while fluctuations in deferred tax assets may reflect changes in deductible temporary differences or adjustments to valuation allowances.

The information presents a five-year trend of reported and adjusted financial statement items. The adjustments appear to relate to the removal of deferred tax assets and liabilities, resulting in alterations to reported asset, liability, and equity figures, as well as net income. A consistent pattern emerges where adjusted figures differ from reported figures across all presented items.

Total Assets

Reported total assets increased from $92,377 million in 2021 to $100,495 million in 2023, then decreased slightly to $99,467 million in 2024, and increased again to $107,399 million in 2025. The adjusted total assets follow a similar trend, consistently lower than the reported values, moving from $88,067 million in 2021 to $102,858 million in 2025. The difference between reported and adjusted assets remains relatively stable in absolute terms, fluctuating between approximately $4,300 million and $7,600 million annually.

Total Liabilities

Reported total liabilities exhibited a decrease from $76,226 million in 2021 to $74,914 million in 2022, followed by an increase to $86,852 million in 2025. Adjusted total liabilities mirrored this pattern, consistently lower than reported liabilities, ranging from $70,781 million to $83,050 million over the period. The gap between reported and adjusted liabilities also remained relatively consistent, generally between $5,400 million and $6,800 million.

Total Shareholders’ Equity

Reported total shareholders’ equity increased from $16,043 million in 2021 to $20,406 million in 2025, with fluctuations in the intervening years. Adjusted shareholders’ equity also increased over the period, from $16,559 million to $19,667 million. Notably, the adjusted equity is consistently *higher* than the reported equity, unlike the asset and liability adjustments. The difference between reported and adjusted equity varied between approximately $500 million and $700 million.

Net Income

Reported net income attributable to the company increased from $7,618 million in 2021 to $9,578 million in 2024, before decreasing to $8,240 million in 2025. Adjusted net income also increased from $8,059 million to $9,204 million, and then decreased to $8,265 million. The adjusted net income is consistently higher than the reported net income, with the difference ranging from approximately $400 million to $1,300 million annually. The largest difference occurred in 2024.

The consistent adjustments to assets and liabilities, resulting in lower figures, coupled with higher adjusted net income, suggest a systematic removal of deferred tax items. The impact on shareholders’ equity is reversed, with adjusted equity being higher than reported equity. This indicates the deferred tax adjustments are increasing reported equity, and the removal of these adjustments results in a lower, but potentially more representative, equity value. The magnitude of the adjustments remained relatively stable over the five-year period.

The financial performance metrics exhibit nuanced shifts when deferred tax impacts are removed, resulting in adjusted ratios. Generally, the adjustments lead to a smoothing of volatility observed in the reported figures, though the direction of change varies by ratio. A consistent pattern of adjustment is not evident across all metrics; some ratios are increased, while others are decreased by removing deferred tax effects.

Profitability

Reported net profit margin initially increased from 9.59% in 2021 to 10.31% in 2022, before declining to 9.92% in 2023 and rebounding to 10.43% in 2024. A decrease to 8.77% is observed in the most recent year. The adjusted net profit margin shows an inverse trend, beginning at 10.14% in 2021, decreasing to 9.52% in 2022, remaining relatively stable through 2023, increasing to 10.02% in 2024, and then decreasing to 8.80% in 2025. The adjustments appear to moderate the fluctuations in profitability.

Asset Efficiency

Reported total asset turnover increased from 0.86 in 2021 to 0.94 in 2022, then decreased slightly to 0.91 in 2023 and remained at 0.92 in 2024, before decreasing to 0.87 in 2025. The adjusted total asset turnover mirrors this trend, starting at 0.90 in 2021, peaking at 0.98 in 2022, and then following a similar downward trajectory to 0.91 in 2025. The adjustments consistently result in a slightly higher asset turnover ratio, suggesting a more efficient use of assets when deferred taxes are excluded.

Financial Leverage

Reported financial leverage decreased from 5.76 in 2021 to 5.38 in 2022, increased to 5.43 in 2023 and 5.51 in 2024, and then decreased to 5.26 in 2025. The adjusted financial leverage exhibits a similar pattern, though the magnitudes of the changes are smaller. Removing deferred tax effects generally lowers the reported leverage ratio, indicating a slightly less capital-intensive structure when considering the adjustments.

Return on Equity (ROE)

Reported ROE increased from 47.48% in 2021 to 51.96% in 2022, decreased to 49.04% in 2023, increased to 53.09% in 2024, and then decreased significantly to 40.38% in 2025. The adjusted ROE shows a similar trend, but with less pronounced fluctuations, starting at 48.67% in 2021, decreasing to 48.17% in 2022, remaining relatively stable through 2023, increasing to 53.63% in 2024, and decreasing to 42.02% in 2025. The adjustments appear to dampen the volatility in ROE.

Return on Assets (ROA)

Reported ROA increased from 8.25% in 2021 to 9.67% in 2022, decreased to 9.03% in 2023, increased to 9.63% in 2024, and then decreased to 7.67% in 2025. The adjusted ROA follows a similar pattern, beginning at 9.15% in 2021, peaking at 9.35% in 2022, and then decreasing to 8.04% in 2025. The adjustments consistently result in a slightly higher ROA, suggesting a more efficient use of assets when deferred taxes are excluded.

In summary, the removal of deferred tax effects generally moderates the fluctuations observed in the reported financial ratios. While the direction of the adjustment varies, the adjusted ratios provide an alternative perspective on the underlying performance, potentially offering a clearer view of operational efficiency and profitability.

The period under review demonstrates fluctuations in both reported and adjusted net income, consequently impacting associated profit margins. While reported net income generally increased from 2021 to 2023, it experienced a decline in 2025. Adjusted net income followed a similar pattern, with a peak in 2023 and a subsequent decrease in 2025, though the decrease was less pronounced than that of reported net income.

Reported Net Profit Margin

Reported net profit margin exhibited an initial increase from 9.59% in 2021 to 10.43% in 2024. However, a notable decrease to 8.77% was observed in 2025. This suggests a diminishing ability to translate revenue into profit during the final year of the analyzed period.

Adjusted Net Profit Margin

Adjusted net profit margin showed a more volatile pattern. It began at 10.14% in 2021, decreased to 9.52% in 2022, remained relatively stable at 9.50% in 2023, increased to 10.02% in 2024, and then decreased to 8.80% in 2025. The adjusted margin consistently remained above the reported margin throughout the period, indicating that adjustments positively influence profitability metrics. The 2025 decrease, while present in both margins, was less severe for the adjusted figure.

The divergence between reported and adjusted net income and their respective margins suggests the presence of non-recurring items or accounting adjustments that significantly impact the reported financial performance. The consistent difference highlights the importance of considering adjusted figures when evaluating the underlying profitability of the business. The declines observed in both margins during 2025 warrant further investigation to determine the underlying causes and potential implications for future performance.

Margin Relationship

The consistent difference between the reported and adjusted net profit margins, ranging from approximately 0.62% to 1.31% over the period, indicates a recurring impact from the adjustments made to net income. This suggests that the adjustments are not isolated incidents but rather represent regular components of the company’s financial results.

The information presents a five-year trend of reported and adjusted total assets, alongside their corresponding turnover ratios. A general observation is that adjusted total asset turnover consistently exceeds reported total asset turnover across the period.

Reported Total Assets

Reported total assets experienced a slight decrease from 2021 to 2022, followed by a substantial increase in 2023. This increase was partially offset by a decrease in 2024, with a further increase observed in 2025, resulting in a net increase over the five-year period. The magnitude of the increase from 2023 to 2025 is notable.

Adjusted Total Assets

Adjusted total assets mirrored the trend of reported total assets, exhibiting a minor decline from 2021 to 2022, a significant rise in 2023, a subsequent decrease in 2024, and a final increase in 2025. The adjusted asset values are consistently lower than the reported values, suggesting adjustments are being made to reduce the asset base for analytical purposes.

Reported Total Asset Turnover

Reported total asset turnover showed an initial increase from 2021 to 2022, followed by a slight decrease in 2023 and relative stability in 2024. A decrease is observed in 2025, returning the ratio closer to the 2021 level. The ratio fluctuates within a narrow range between 0.86 and 0.94.

Adjusted Total Asset Turnover

Adjusted total asset turnover generally trends upward from 2021 to 2024, peaking at 0.98 in 2024. A slight decrease is then observed in 2025, though the ratio remains above the 2021 level. The adjusted turnover consistently demonstrates a higher value than the reported turnover, indicating greater efficiency in asset utilization when considering the adjusted asset base. The increase from 0.90 in 2021 to 0.97 in 2024 suggests improving efficiency in converting assets into sales.

The consistent difference between reported and adjusted total asset turnover suggests the adjustments made to total assets have a meaningful impact on the assessment of asset utilization efficiency. The slight decline in both reported and adjusted turnover in the final year warrants further investigation to determine the underlying causes.

An examination of the financial information reveals trends in both reported and adjusted asset and equity figures, impacting calculated financial leverage ratios over the five-year period. Total assets experienced fluctuations, while equity demonstrated a generally increasing pattern. The adjusted figures, which presumably account for specific items, show similar directional movements but with differing magnitudes.

Total Assets

Reported total assets decreased slightly from 2021 to 2022, then increased substantially in 2023, followed by a minor decrease in 2024, and a further increase in 2025. The adjusted total assets mirrored this pattern, though the absolute values were consistently lower than the reported figures. The largest year-over-year increase in both reported and adjusted assets occurred between 2024 and 2025.

Total Shareholders’ Equity

Reported total PepsiCo common shareholders’ equity exhibited a consistent upward trend throughout the period, increasing from US$16,043 million in 2021 to US$20,406 million in 2025. Adjusted total PepsiCo common shareholders’ equity also increased over the same timeframe, showing a similar trajectory, but with higher values in 2021 and 2022 and lower values in 2024. The difference between reported and adjusted equity narrowed in 2025.

Reported Financial Leverage

Reported financial leverage decreased from 5.76 in 2021 to 5.38 in 2022, then increased to 5.43 in 2023 and 5.51 in 2024, before decreasing slightly to 5.26 in 2025. This indicates a fluctuating relationship between total assets and shareholders’ equity, with periods of increasing and decreasing leverage.

Adjusted Financial Leverage

Adjusted financial leverage followed a similar pattern to the reported leverage, decreasing from 5.32 in 2021 to 5.15 in 2022, increasing to 5.36 in 2023 and 5.54 in 2024, and then decreasing to 5.23 in 2025. The adjusted leverage ratios were consistently lower than the reported ratios, suggesting that the adjustments to assets and equity resulted in a more conservative leverage position. The peak in adjusted leverage also occurred in 2024.

In summary, both reported and adjusted financial leverage experienced fluctuations over the period, with a general trend towards stabilization in the final year. The adjustments to assets and equity consistently resulted in lower leverage ratios, indicating a potentially more conservative financial structure when considering these adjustments.

Over the five-year period, both reported and adjusted net income attributable to PepsiCo demonstrated fluctuations. Reported net income increased from US$7,618 million in 2021 to US$8,910 million in 2022, then plateaued around the US$9 billion mark for 2022 and 2023 before rising to US$9,578 million in 2024, and declining to US$8,240 million in 2025. Adjusted net income followed a similar pattern, exhibiting a more moderate increase from US$8,059 million in 2021 to US$8,693 million in 2023, peaking at US$9,204 million in 2024, and then decreasing to US$8,265 million in 2025. Total common shareholders’ equity, both reported and adjusted, generally increased over the period, with a slight dip in reported equity in 2024. Adjusted equity increased steadily from US$16,559 million in 2021 to US$19,667 million in 2025.

Reported Return on Equity (ROE)

Reported ROE showed an initial increase from 47.48% in 2021 to 51.96% in 2022, followed by a slight decrease to 49.04% in 2023. A subsequent rise to 53.09% was observed in 2024, before a notable decline to 40.38% in 2025. This fluctuation appears to be influenced by both changes in net income and shareholders’ equity.

Adjusted Return on Equity (ROE)

Adjusted ROE exhibited a more stable trend compared to its reported counterpart. It began at 48.67% in 2021, decreased to 48.17% in 2022, and then increased to 48.50% in 2023. A peak of 53.63% was reached in 2024, followed by a decrease to 42.02% in 2025. The adjusted ROE generally remained within a narrower range than the reported ROE throughout the period.

The difference between reported and adjusted ROE remained relatively small across all years, suggesting that the adjustments made to net income and shareholders’ equity had a limited impact on the overall profitability metric. The decline in both reported and adjusted ROE in 2025 warrants further investigation, as it coincides with a decrease in net income despite continued growth in shareholders’ equity. The increase in ROE in 2024, for both reported and adjusted figures, suggests improved profitability relative to equity during that year.

The period between 2021 and 2025 demonstrates fluctuating, yet generally stable, performance in reported and adjusted return on assets. Reported net income attributable to PepsiCo increased from US$7,618 million in 2021 to US$9,578 million in 2024, before decreasing to US$8,240 million in 2025. Total assets, both reported and adjusted, generally increased over the five-year period, with a notable rise between 2022 and 2023, followed by a slight decrease in 2024, and then a further increase in 2025. The adjusted figures consistently show a different picture than the reported figures, suggesting the impact of specific adjustments to net income and total assets.

Reported Return on Assets (ROA)

Reported ROA initially increased from 8.25% in 2021 to 9.67% in 2022, then decreased to 9.03% in 2023. A subsequent increase to 9.63% was observed in 2024, followed by a decline to 7.67% in 2025. This fluctuation appears to correlate with the changes in reported net income, indicating a sensitivity to profitability. The decrease in 2025 is the most pronounced, coinciding with the reduction in reported net income.

Adjusted Return on Assets (ROA)

Adjusted ROA exhibited a more moderate trend. It rose from 9.15% in 2021 to 9.35% in 2022, remained relatively stable at 9.05% in 2023, increased to 9.68% in 2024, and then decreased to 8.04% in 2025. The adjusted ROA consistently exceeded the reported ROA throughout the period, suggesting that the adjustments made positively impact the return generated from the asset base. The decline in 2025, while present, is less severe than that observed in the reported ROA.

Relationship between Reported and Adjusted ROA

The difference between reported and adjusted ROA remained relatively consistent across the years, typically ranging between 0.5% and 1.0%. This suggests that the nature of the adjustments applied is stable and has a predictable effect on the overall return on assets. The adjustments appear to consistently enhance the perceived profitability of the asset base.

Asset Trends

Reported total assets increased from US$92,377 million in 2021 to US$107,399 million in 2025. Adjusted total assets followed a similar pattern, increasing from US$88,067 million to US$102,858 million over the same period. The consistent increase in both reported and adjusted assets suggests ongoing investment and expansion. The difference between reported and adjusted assets also remained relatively stable, indicating a consistent approach to asset valuation.

In summary, while both reported and adjusted ROA experienced fluctuations, the adjusted ROA consistently presented a more favorable picture. The observed trends suggest that profitability, as reflected in net income, is a primary driver of ROA. The consistent difference between reported and adjusted figures highlights the significance of the applied adjustments in assessing the company’s underlying financial performance.