Pepsi Shows Robust Pricing Power in Third Quarter Despite Weak Macro Climate; Shares Fairly Valued

Wide-moat PepsiCo displayed its brand strength in the third quarter, chalking up impressive marks. Organic revenue popped 16% (17% from higher prices and favorable mix, slightly offset by a 0.8% drawdown in volume), while core constant-currency EPS grew 14%. We think the profit gains are quite notable as the company faced mammoth inflationary headwinds, which management thinks will result in a high-teens negative hit in fiscal 2022. We don’t think Pepsi is relying only on pricing for these gains; it also remains committed to unearthing cost savings to offset the cost pressures it is facing.