PepsiCo Earnings: Innovation and Marketing to Drive Volume Expansion, but Pricing Should Normalize

We plan to trim our $180 fair value estimate for wide-moat PepsiCo by a low-single-digit percentage after absorbing its mixed 2023 results and a cautious 2024 outlook. Sales were up 6%, missing our 8% estimate on Quaker recalls and currency headwinds in the fourth quarter, but adjusted EPS expansion (12%) was head of our assumption (11%) on higher-than-expected productivity savings of $1 billion. For 2024, we now expect a lower growth trajectory as we factor in a normalized price increases of 2%-3% in beverages and snacks, modest volume expansion on product launches and refreshes, and ongoing high investment needs in marketing and innovation to assert Pepsi's value-proposition amid a softening consumer backdrop. Our 10-year forecasts for 5% sales CAGR and 16% average operating margins remain in place, and we view shares as slightly undervalued.