PEP - Earnings call 2 2023

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Operator

Good morning, and welcome to PepsiCo's 2023 Second Quarter Earnings Question-and-Answer session. [Operator Instructions] Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. begin. may you Pamnani,

Ravi Pamnani

on and chance everyone. our this remarks, are and operator, has press hope had prepared available which of a morning both website. good you, I morning, everyone release our Thank to review

our Before may statement. call, about make note and plans today's We our on cautionary business we statements updated take begin, including please of forward-looking XXXX guidance.

July When no risks and refer measures, our our to second our from of results. our forward-looking today, a results reflect discussion obligation we definitions Form for and uncertainties view differ under XXXX quarter reconciliations could Please to are update. only of involve XX, of materially and factors results, quarter inherently to we statements which discussing including items Forward-looking results, that and XXXX cause regarding exclude refer release second to and non-GAAP actual statements. available from as information non-GAAP certain pepsico.com and XX-Q on measures earnings reported additional

Joining PepsiCo's Chairman [Operator Ramon first and that, Vice for CEO, me over the today PepsiCo's I operator CFO, Johnston. with And to Instructions]. the are turn Laguarta; Chairman it Hugh question. and will and

Operator

Bryan [Operator comes Our question America. with from first of Bank Instructions] Spillane

Bryan Spillane

my Ramon, So I in picture just bigger of kind kind macro you're related is guess, question looking more how of the specifically. at the consumer

response, of seeing consumer was that we're elasticity expectation a an guess, would the we there there'd as year, think and be this globally. I more into went to really increase inflation I all

effectively in first volumes expected. been it have better like guess than seems the I So half,

next maybe may with give a seeing thinking what differed from what some into into that the the half in year? were have what expectations forward just the -- how you of the seeing consumer, were little or going bit looking start kind year of of back And we us your just kind are? we're what you're as you guess, how and into even can I of of insight year, So the

Ramon Laguarta

Yes, Brian.

I'll One market, which of are -- you better. helped general, things X that very at We're materials carefully. on and give to flow is a supply much us better much suppliers. run X labor company. from side, areas in So seeing, better seen become better there has the We've we're looking like

area So that's one at carefully. we're very looking

During costs COVID, it are not better, and that and you into how bottom line. see was we're our down perfect. better why of some becoming performing It's flowing net will revenue the the that's

data well, elasticities -- markets consumer majority were developing on the markets. planning and the better seeing more we And developed front both we're in elasticities. we're we of operate, of On as year seeing where the historical with the in

staying respect it's within few teams have to our what the minimize last is -- In And optimizing our investing for it been doing be of years. remarkable But even during majority that year, budgets. consumers has staying we're consumers strategizing to income their the first lower the have half seeing around, we what are teams though the some obviously, elasticities. our seeing brands we're been marketing and within continued of categories, commercial

brands Our our within And consumers than products of perceived we've are obviously, brands. better our able and stay raise The value is stronger. prices to it been was.

in seeing We're more some we're consumers They're deals. better adjustments. seeing looking Now making shopping than consumers for stores before.

perceived in better or or mass They're buying more dollar more for look optimization. they're to going channels in value. buying There starting stores are to They're that have clubs. in

very economies, world. markets, about think positive. of developing segment And In Overall, we're the to also developed all think I seeing low. the if consumer unemployment of making most we're very Unemployment So every is markets. seeing levels the do the has but it with adjustments. that is of you around

well. record Mexico, low like So markets some Asia as unemployment, in markets

behavior, consumer of refers raised And good very top first on to the why our because guidance our raised factor, overall especially seeing well. line second line. that's guidance the And we're categories. when on bottom on the as we we it So --

Operator

comes Dara Mohsenian question Stanley. with Our Morgan from next

Dara Mohsenian

extend just in question of could distinct But within maybe in on countries some you what and mentioned the international thoughts also then seeing just bit? Obviously, update sort high-level a period you the heading regions around of about particularly the I'm as in tougher came lot comps? the the when drops little general we International world businesses. very the an of drove strength, Mexico. of forward on quarter. side theory, tougher of in the thinking we're we pricing a state just cycle competitive these You internationally, not have pricing consumer And the off that So give into and things. can strong that Obviously, us internationally. but you're in going strength two globally, a different cycling comps environment

Ramon Laguarta

there, the And Thank situations. adjust have Turkey, obviously world the about from are Argentina. Egypt, And are talking Yes. currency that Dara. to suffering around you, some I'm we Pakistan, reality. to markets There

I specifically very we're But seeing of way. beyond consumers markets overall, those earlier, would rule, positive those the behave and we're seeing in what I continue was to low, So saying global unemployment think a not levels we're and because in markets. markets where apply a it's -- there's subsegment being I acting very

most treat markets continue in we relatively still markets. of is those and penetrations in category low, an Our be to those affordable

within and of make repertoire they So they can be part the our continue to that products stay trade-offs to our category. afford,

seeing we're a in positive very that So way.

what what snacks and the balance of half I competitive wise, first observe that's we're what both can in rational year. assuming I the competition the in year, in Now there's our from the world our very And beverage business. think of we the across -- from

Operator

comes Barclays. from Our next question Lauren with Lieberman

Lauren Lieberman

around get have guys innovation I more have to little that the activity a specific [indiscernible]. bit you

Ramon Laguarta

very hear we well. cannot Lauren, you

don't You're it's I -- our be seems now know if breaking to up. it's or phone it okay.

Lauren Lieberman

little? a better it Is

Ramon Laguarta

back. call can Maybe better. you little A

Lauren Lieberman

up I call and hang will back.

Operator

comes Goldman Herzog question next with from Our Bonnie Sachs.

Bonnie Herzog

a your had just circle All it. wanted guidance. question I back on on right. I to

leverage. guess, implies, guidance new in doesn't I the Your bottom imply second algo but growth half, I line much guess it really above

some to stepping there if Or incremental be level conservatism your might if are should be in? Or understand wanted planning if headwinds baked half? we up second I of? there aware So the reinvestments any on in you're of

Hugh Johnston

Great Bonnie. question, It's Hugh. Yes.

are X are Number our You're right guidance the we right the implied look actually continued commodities in And strong pricing is if that other. in with of line where EPS, the one, margins and the balance year-to-date, in our the at you in productivity. things. on revenue, are X.X each year -- is, X.X squeeze or the the What balance of year. balance effect, that's the yes,

reflective leveraging margin digitalization automation and that the that XXX XX So improvement net bps and driven productivity, over the saw is how the quarter, made we've we in which the then investments things you couple is services in on by on standardize last to like and global of in productivity of gross business years entirely operate.

I actually and of And pivot where that's this in beyond not the back actually pivot this see of into that improvement these And we're year. you'll think kind just ongoing 'XX year, margins obviously, out invest. productivity that That's a of margin of and second XX by initiatives. a driven see it but and but getting productivity. been A&M investing the half good year-to-date, accelerate marketing, If was anything, the to bps improvement. quite continuing We're productivity you'll entirely In in we will in back level quarter. advertising are up to continue half, the are

us You're to invest going to see A&M. continue in

they the oriented tend to going than a going investment be how to us our invest continue cycles to is You're to more year to see when oriented turn in are as back-half we out. have And capabilities. front-half sense

in of the effects you're it's being that a than the is on 'XX not so the reflection So and that's productivity year. with that momentum some seeing to diminish, pricing year, implied continue of in the balance guidance It's the in anything back that what pricing. is of not It's of the beyond. going other we really overlap the that the into productivity strong half reinvested the going of

Operator

TD question next Vivien with Our from Azer Cowen. comes

Vivien Azer

hoping you Bonnie's specifically? reiterated just segment on confidence headwinds a question, drill expanding quarter but in In of actually I a full remarks, year-over-year. the was what some down your that saw bit margins to on on looking up little for your prepared margins, the PBNA was you to follow confidence you expand down on gives the year in the could outlook just I full and you basis. margin year on

Hugh Johnston

an Vivien, way Yes. down big XXX for second 'XX. Hugh. XXXX. the margins points. the up and PBNA We're in in see you'll PBNA, in basis healthy transaction of year was transaction quarter. it's asset had in The the cycling a on that We on over gain And full north margins a in

Operator

with Your comes from Lieberman next Lauren Barclays. question

Lauren Lieberman

hopefully? Is this better,

Hugh Johnston

better. Much

Ramon Laguarta

is. It

Hugh Johnston

better. Much

Lauren Lieberman

place. same the in sitting still I'm

Okay. I ask I'm Gatorade. really Sorry about going to was that. about

it. guys much Gatorade Nielsen, you the We're that. But have tons it talked seeing release, digits activity, at it innovation the of about double look significantly So And when being something you very shows quarter. in up trails the in that we in talked about marketplace.

and of curious, you're has much the do distribution breadth was I space performance been? the innovation some so on I with mix about of there shelf given just maybe guess, And new activity -- how of product incremental and track, to seeing of has

Ramon Laguarta

compared and on to Yes, couple our think has are when when DSD Lauren, GX timing a I a meaningful on -- previous years. consumer The reflect I actually factors. the of think sales buys the there impact we

of So some categories some -- terms feel on has within even in substantially, and it that month we're given have on. June We But continues else. to implications sports the country for much cold penetration so in general, metrics healthy and been the have category the reduced our everything usage of and DSD the and about of has cycle readings. might model parts the in good though the

importantly very and Fit, very, innovation going long for well. term, G most tablets our Gatorlyte Our and is us, powders

to to in with G category. those which attract the consumers So believe new we to Zero subsegments, continues develop continue along

all So execution we the good. seeing We're metrics improving. for feel Gatorade

bit due were to the So service display, handicapped to past issues. inventory little supply chain customers, our in levels which on a

had at They've the category that some good seeing but that younger been new affecting entrants level. affecting that there have in been and some of the we're of audiences. space, that are brands kind they've more Gatorade, is the the like It profile. other brand So Prime health category the pretty of been some true especially category in a with taking

back feel how Gatorade substantially summer good So so in and the We to feel increased We've and execution. continue the do about the we'll we year. performing. about brand good is of advertising the end against the

we I is the in opportunities GX to marketplace think us give structural going DSD to respond and will feel changes forward. execution good going better the be and that Gatorade. capacity a So move weather about And to

Operator

Our with next question JPMorgan. comes from Andrea Teixeira

Andrea Teixeira

or some lapping you're -- still is on the high the bit price question for top more expecting, year. half of still expecting you're you seems Spain in second pricing of to it's say Because a that the XX%, my have of flattish France it and Obviously, math And perhaps Russia, balance last would negative? single get and I more So from lagged but most to you're digits with U.K. the strong volumes. lapping increases and the the line. are volumes

volumes. So better to with I'm trying reconcile X.X-ish organic the implied

So the are pricing, in at seeing some happening? to discounters kind comment as improvement resolves be for room Or thinking of interview? you we pricing some a mentioned, of but other words, lesser How you still consumer? that to CNBC extent, for continued there are Ramon's should seeing and the you as on

Hugh Johnston

Ramon. ahead, Go

Ramon Laguarta

have can interview. continue we No, the Yes. Hugh CNBC

Hugh Johnston

carryover Andrea, ] I flattish see the year. balance anything be don't than we'll is is of balance the squeeze we're year. normal on so cycles do the volumes different Obviously, I of think the to think for sort going pricing. balance will the What pricing of range year in still the in X.X%. our And there's [ revenue,

guidance, sets that as the it back about the tend think in I obviously, fourth which lot now is to see have And go the forecast You little beverage not I balance up think mean implication for of ahead kind of to back how pricing. Frito of the 'XX. right quarter. of we a bit the we'll see ways normal is but forward. TBD. carry of the plays us in tends the momentum that's more relatively long-term out. that in pricing to is our a to our in the But We'll that the year half the year, year business

Operator

Wells with Fargo question Our next Carey comes Chris from Securities.

Christopher Carey

Hugh, gross on just the follow-up one quick margin.

and XXX tailwinds the a from tell XXX year-to-date You basis said I line said that are inflation. benefit pricing point or I is inflation. headwind I basically about offsetting if from in pricing see couldn't guess basis you commodity what commodity inflation. point

you a mix. tracking is we So a when that in it inflation there can seems like tailwind was So mix or you're well? see comment, is actually what maybe But comment as price total that made below actually ahead. price

I offsets, wrong? it that. that invest? Am connected guess expansion That's just So allow see clarify to some I'm you context full unless just you reading some offsets notable I of there is there's to for could to the about? And gross I some year Or full in seems thinking going wanted the not are year. margin, like

Hugh Johnston

Yes. Chris, it's Hugh.

So said inflation. in exactly what up with was commodity I had pricing was our line

are both teens the the basically numbers and are So identical. in

each are is those obviously because driving that So essentially offsetting X not margin improvement other.

be were to last we ahead we'd have where of We're previously at In we equal communicated, clearly last we with were of now least terms the year going where year. year. of be the balance margins,

improve we had is equal productivity. at communicated. the year behind margins of will to opposed that And course, So least as previously driver, this the that

talking pivot that driven basis. that sustained operation. think, We've productivity, about Ramon that's numbers in of a investments automation. services think I been happening building made that a business it I And be our by you for these the And things in margins I've that those out will and about has while, been improve, is see will out now, inside been in buckets. of investments productivity the right investing digitalization. made and talking these come We've X will on global And we've a the

X quarter thing. X a is this or think don't I So

I going coming to improve the to and continue margins you're this years. into steadily think see year

Operator

Our next Peter UBS. question with from comes Grom

Peter Grom

share hoping agreement over to But the the on and that the has I growth learned kind of was this given for better-than-expected the for whether PepsiCo growth as do and outsized right is then thoughts Bang the several to previously months. So view your having looking longer thoughts get has And structure updated this you've updated some shifted whether the been ahead? impact CELSIUS Obviously, just or term? as news, of kind past you any have how Bang and distributed could trajectory growth Monster what performance to tremendous. CELSIUS

Ramon Laguarta

Yes.

But see distribution numerical think quality And in machine number I that our of couple there's the a system, the very increase power powerful. this. execution. obviously, is realizations you DSD is one distribution our in on of can by of the the the U.S. and

feel that's strong very our U.S. element about one in So makes the us capabilities that Beverages.

we're category especially international from so in taking far. we not brand CELSIUS our the that is a expand CELSIUS energy additional positive. Second, that that that's Those to in category working expanding, are where we're I the more whether think can is consumers or a relationship elements. for conclusions the portfolio. were the with that is And capturing consumers the and to other or is some together keeps bit many The in That see brand new energy image flavor other some drinks X a markets, developed consuming reasons opportunities, developed. category, glad markets we're more past, our

Hugh Johnston

the we've we and Right. the we're only we I'd add And with very with thing very that are company now. is where investment right comfortable made, feel happy

I think benefiting each we're capabilities. both other's from

Operator

with Our next Robert Ottenstein Evercore question from ISI. comes

Robert Ottenstein

that there extremely and for structural pricing. And whether pricing doing Europe. parse deflationary had in business maybe the snacks in so dynamics very wondering are comps. then doing beverages. environment out know talking can long-term Congratulations I'm on that on but are the little the spent the that think here was maybe a that perhaps business about and there of tough could And structural lot go there another Europe how terrific you us talk focus persists, well, that retail. sure if mix past changes bit are a well, And in I remind air, between that about in haven't years, and Europe for relatively us, is we easy much Europe? really in significant many is I'm time changes clues mean, forward? we you quarter. but that's very I

Ramon Laguarta

Yes, in that half. the European the expecting of couple A the first diagnostic, you. that has and year, we're of terrific second Yes. elements. Thank business half continue had a clearly fact good our to

have portfolio on I robust we quite snack is that a side. think the

good very the in markets market more in growing And have have positions and and propositions We of snacks. market good we Europe. Zero our are some taking Europe share challenging positions in in beverages very fast, affluent in they're

mix and by focus team the portfolio. portfolio on So good growing good that

and in courageous to solutions in you pricing with As little able customers to find been And been bit a 'XX. has 'XX. said, late our year, has were team the last win-win we

you as the about but everything through the saying see businesses some of remarkable that been what pricing business team is the digitalization to essential is of numbers, from in executing simplification automation So efficiently. and that can good effectively, the levels, Hugh points that we moving and has Europe also more very the more service productivity service also levels else and was

work So in good by and European on portfolio productivity. then team, managed both simplification driving the

So good about Europe. we feel

We the have are growing strong and a of Europe, Europe economy in faster. parts very business Eastern Central both that

the good going about portfolio So business we composition forward. feel and the

Operator

next Our Deutsche Stephen with comes from Powers Bank. question

Stephen Robert Powers

a does heard now on the first final a original you you Hugh, guess, I realization is better volumes top some or growth more I Because combination? with volume better driven in that into by coming second little in and whether How outlook half. or X% I see line Bryan's to whether that date, bow flattish the whether the implied putting is back, forecast it's correctly, question. reported to so upside really cadence price mix the of driven of kind sense half greater-than-expected around get or upside a earlier, maybe results that of the X Hugh, down February your just based I'm compare year? versus points by guess, you in trying if the stepping organic

Hugh Johnston

combination. and Steve, little are realization certainly Volumes as a we expected expected well. than a better it's bit price is a than better we

combo. It's not dominant the So a or it's other. one

Ramon Laguarta

Yes. a I elasticity. teams And done minimizing would commercial in the great job have say

a we on elasticity year, more that course, levels. historical So level assuming the into was based were going of of

expansion, been of in been the we've think the I the I strength the investment of the brands we've some And of surprised innovation, obviously, consequence around the said volume executed we tactics drive But multiple and the markets. executed use elasticities the positively have minimize teams well have been way store as and on executed. earlier, displays some range normally to really making. have

to I in being sense, better company having execution link digitalization think having we as a a as data, more and well it intelligent broader better capabilities.

So performed the in all good yes, we we how versus feel that connected. is planned. respect And initially about business what had it

Operator

Our question Filippo next Citi. Falorni from comes with

Filippo Falorni

very But we Clearly, America. the a weeks, North Frito-Lay over channels. slowdown a of in track results have on in strong the couple question quick seen last A of quarter. bit

question driving sense are untracked general standpoint. is why business? price obviously do realization, you also a channels volume then first also that you recent in what just the Partly seeing but is, the on think slowdown? what it's high cycling And seeing So you're from

Ramon Laguarta

a of the consumption tremendous The impulse top driven of business not programs. programs it's about very reports normally year Yes, seen. by away-from-home independent by store what again is strong having that small and reflected is probably really said I a a very Frito-Lay and brand well, earlier lot commercial 'XX. there large to business the you've performing lot is linking good very And been of brands our a on where

there. very weeks price in be the But increase a few the in is seeing -- move versus did PX the last this we're people year. the in last And summer, thing more. relevant So as only lapping we're Frito-Lay is seeing that obviously, might gap we [ around the ]

we're So better Everything supply that's chain. seeing the else, much only element. a

a our and first much little a portfolio. lot. we service year this That's year. news good So the because our last broader were We're is half customers to improving bit levels in handicapped of key seeing

we in drive that some frequency the sub-consumers. -- drive drive penetration smaller SKUs and they know So they

So trends, some we're positive of a of seeing innovation. lot our

or nuts along the of seeds, If new or think minis our you our really brands. well jerky like some think about product the our with of and doing you very relaunch they're if about big permissible the portfolio, launches

feel almost. of executional So capabilities the availability Frito we and to universally about continued good composition drive portfolio the

So the about we're business. feeling good

Operator

last Wedbush comes with Securities. from Our question Pascarelli Gerald

Gerald Pascarelli

also is regarding energy Mine on near-term distribution opportunities. drinks, specifically

products took great back products, year? over something measured incremental these specifically you should of the an to and do energy You've color example? about XXXX how the the obviously effect more their that is been opportunity which this food expect to distribution legacy I to then some the of potential forward, be channels of in service, been And is products scratch halo channels. you of have in has partner penetrate any a think that campuses comprehensive for rollout that half related But since could CELSIUS Or college opportunity? you surface, of timing portfolio non-measured looking we apparent as your helpful? readily the a the on of could CELSIUS yet have would on guess provide like

Ramon Laguarta

you of like right? makes Listen, you college see the for see universities, would very take large Yes. will when rest with right? will mentioning CELSIUS, of go channels coffee some where it channels our campus, along you normal portfolio our ROCKSTAR, So see business. execution, a they energy you're products the you to sense, So the we energy our are a

see energy Fast the will You new Gatorade Twitch.

these see are will all consumers to that there. you we be looking are tend energy, there for So executions. Wherever

any opportunities holding we're this not at brands. our point of maximize So the to on reach

speak. Great. we don't executing 'XX, no, for So we're wait as

the and you in confidence safe your much. the Thank We Thank this us for you placed of conversation. healthy. stay end you you've all you you. especially that for that hope with think joining summer, I us very Thank and great investments. and the a all is So of today have

Operator

presentation. gentlemen, and conclude this Ladies does today's

a have disconnect, now wonderful may day. and You

PepsiCo (PEP) 13 Jul 232023 Q2 Earnings call transcript