Inflationary Challenges Fail to Cease Wide-Moat Pepsi’s Growth Momentum; Shares Rich

We think wide-moat Pepsi’s pricing power combined with the benefits of its scale and diverse portfolio were on display in the second quarter. The firm delivered 13% organic revenue growth, which strikes us as impressive when lapping 12.8% organic revenue growth in the same period a year ago. Further, although pricing was up 12.1%, aggregate volumes ticked up at a low-single-digit rate, evidencing the stout brand intangible assets Pepsi boasts. However, this strength was concentrated in the firm’s international arms, which clocked 7%-14% volume gains, in contrast to nearly no volume gains in its home turf. We attribute this languished unit growth in North American segments to the rash of cost pressures facing consumers at the pump and throughout the grocery store, trends we don’t perceive abating in the near term. However, we posit that Pepsi’s unwavering commitment to invest in research and development as well as marketing (which we model at around 6.5% and 1% of sales by 2026, respectively) should serve to buoy its competitive prowess over time.