We are downgrading Pepsi to EW on: 1) weak US share trends despite higher ad spend,2) Pepsi’s skew toward the US, where macros remain pressured, and 3) our slightly belowconsensusoutlook in 2H11 and 2012. We see a few key negative factors limiting near-termresults: 1) US market share trends remain weak in beverages, as well as snacks, and a recentacceleration in US ad spend is not driving the sales payback that underpinned our previouslymore constructive view. 2) PEP’s skew to the US vs. large cap staples peers is unfavorable, givenexpected weak consumer spending. 3) We are slightly below consensus by 2% in 2H11 and 1%in 2012. We think consensus assumes an unrealistic acceleration in profit growth in 2H11 vs. 1H.
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