PepsiCo (PEP) 25 Apr 232023 Q1 Earnings call transcript

Good morning, and welcome to PepsiCo's 2023 First 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,

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

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

discussing and reported Forward-looking our certain to of today, as statements our reflect view obligation to refer involve inherently we items no XX, results, risks we XXXX, non-GAAP only update. exclude under and When results. uncertainties and which are April measures, from

Please of refer definitions Form and quarter that results actual factors results, additional differ earnings for XX-Q non-GAAP of release our measures and could forward-looking cause to and our materially statements. first reconciliations information to pepsico.com discussion available from a on regarding XXXX including

question. CEO, Joining Laguarta; yourself Johnston. ask me that Ramon you CFO, and PepsiCo's one Chairman are limit Hugh PepsiCo's Chairman and We today please and Vice to

turn the And I over operator question. first with will for the that, it to

[Operator Instructions].

question from with Mohsenian comes Dara Morgan Stanley. first Our

a volume And as back pricing, the the is pricing as look obviously, terms segments to of increases to Can you back continuing. geographies, forward price levels environment just if you basis? up the seeing So XX%. levels? quarter on normalized if that in going at quarters do next normalized environment an And just how of that key think picking the give in but recover and dissipates of us your strong also business the promotion more impressive mix favorable update in you're levels ability year-over-year price going result both on very forward, of few that's you just competitive about and very that and to more

Yes. Thank Dara. you,

Hugh are in sure to and in then our those some of a brands competitive competitive We're a environment. the that We're add participating protect that categories then all Let me make trying way. comments. seeing and health can cover the categories

value We ways, in sizing in mostly. investing in in different in our obviously investing are pricing, investing innovation, our brands,

So the we developing the we markets environment in earlier we're comes pricing, year a needed taken have we cover of increases. as in inflation. in also deceleration reduction this we seeing across already a We're to good mostly world. where point. our February, Europe, positive When in to a and said competitive but it And our consistently seeing U.S., of not cost inflation, pricing at that for of is this stand cost, that a the deceleration

pricing should pricing. of the taken the around our Obviously, world, where inflationary most markets to have world some there take around additional markets, with that we've that think highly already the we might business that And be we sufficient. are

the already you are the but is think about Egypt though markets where suffering, If of those pricing currencies done. our of Argentina, kind Turkey, majority

And the to we thing know add tend that, to only X a to you commodities months Yes. out. I'd reminder, XX Dara, buy as

going decrease to rate of of to of deflation, by decreases, slowly that's of course stretch inflation, the degree it a any not the happen 'XX. the that be will rate So the and imagination in very over inflation

that's more think happens I the degree thing even then. 'XX it of a to

Teixeira comes JPMorgan. Andrea Our next from question with

that earlier remarks you every promotional still acceleration. seen to only the the reacceleration months back that region high the LatAm, more were need the look an like you've seen context I you interview in fact a seeing an the X X inflation other not what environment, also bit for to you're a the think here. seeing it haven't that of and that And in of you doesn't spoke little has that but on in that you're you're happened go and is region, Hugh to it's wanted what prepared -- gave, seeing I you throughout you

I'm weakness. point of the a of And talking rather point strength -- asking I'm than of I'm more -- question this seeing

really the like hard Of course, not numbers it's to here.

of think about out more getting to thinking it's it the or Just how how to to comparison snacks saw and think about the parse you volume tougher? of decline in

things. Yes, Andrea. A couple of

Just the beverages for community Pioneer a or of a products. grid South Ex-Pioneer And of small was was the flat up with There big volume, food volume a clarity, quarter. Pioneer terms food amount down obviously driver in for heavy Snacks was in of lot quarter Africa. snack makes and challenges basically power for that. are the obviously, the the

businesses. quite we're consumer of well continuing the facing are you that the In From pricing inflation terms the our growth to across a rate into. And more the by I of the all standpoint, still generally of products. up of despite buy most holding fact then that of revenue globe. of speaking, think taking driven we're the broadly sort see Elasticities

whether the place, of the into terms be that the more a productivity global chain digitalization think of or In in operating put you're performance, is across we've I leveraging we're services. supply business reflection what than automation they initiatives company, anything seeing

about it's responding an brand the advertising to in consumer performance, the we're doing. a productivity that we're talk driving. acceleration to income sort the in that's we when So that, And operating of I addition think

question Kevin next comes Grundy from Our Jefferies. with

Great.

the think juncture commentary but the it to guidance historically at which this on And been raise good, you're prior maintain has just up because year, noteworthy there. decision aware, picking to historically, to been the some the your the of EPS as against edge tax is I then Just it has higher. delivery moves on quite company's guidance and the of well year as

good juncture for quarter market Was and so and to of recession would relative raise noteworthy this think, I just be the the helpful. in was better? around results, potential much some around quarter to context historical that the the year, maybe at volatility first that relative within your Because some the expectations, here. just it first I that of context it's context came all just it So the -- prognostication

Kevin. Yes,

I think you're right.

better both planning seeing We're were the the worst-case right. than of teams productivity. we some And better scenarios is elasticities delivering for. we're seeing also, assessment Your

the of of company giving getting all making terms you somehow in materials, thought. operations which better, it seeing in that's elements the the the faster is of opportunity improve of than we're if suboptimal transportation, in general, call were availability So a metrics, operating just that metrics us us to some the flow labor, -- to we those what our

on cost an it's and improvement better So elasticity. productivity both the in side

were strong. think I commercial programs the

You A&M the think saw we've quarter. And the very commercial increased strong. plan, again first in are the innovation plans I that

line even guys bottom feel a before give point and raise the in even comfortable at a you guidance. -- we -- and this give year, comfortable always a that play that estimates. we our We out of scenarios So can feel line we early we top lot

question with Goldman comes Bonnie next from Sachs. Our Herzog

I question organic growth PBNA. had a on revenue at

slightly your Your impressive, were price mix down was again. in but volumes incredibly the quarter

primarily bit touch then beverages to may So by you're [Technical pressure. where to harder it and what the could that Difficulty] from incremental promotional maybe be on you're pricing seeing this in increase you levels Also, need come year. a And seems consumer. may

Pepsi or of for around key well that that as PBNA is rebranding new key you one identity your touch initiatives, or stabilize the visual to initiatives your on and your trends the logo turn instance? brand, So those as volume maybe -- could for

seeing category, -- of seeing in quite very the in-home very strong. from We're the we we're seeing very strong convenience channel, channels and momentum don't see see Thank you, actually, strong, of strong. terms the in demand. We beverage home, away We're Bonnie. most also the

-- is there environment that that worse don't system a because that we're inventory is system overall getting feel we the moving the competitive impacting warehouse There's transition, beverages. we're there DSD reduction a some So Gatorade QX. in you to in as a is that know, in some one-off first system is quarter and from in

anything But that the environment U.S. in is we we to don't getting and that think need do beverages the in competitive special. worse

very commercial a programs. both program, innovation, strong brands, and have customer commercial execution We

in market. So be to way that continue planning we're will vigorously the compete the to

question Lieberman comes Barclays. next with Lauren from Our

Great.

mechanically was and at how not the about assumptions was. our set you across the sort the one guidance anyway. prior second in of half So had hard you've asked given of year, to, already been But the would strong the of of raising year it outlook be in early your coverage the environment the around what we for thought baked macro least more quarter conservative

to you're terms curious I raise anything the outlook your that's recently Or outlook consumer tied has more if you was informing just optimistic that of on seeing momentum ability in just own to guidance? so really business? is your more the more in market Anything And that macro trajectory. or broader it the

that One we on complex year of have things consumer fact mostly Lauren, we're our is we're is that and the There everything the costs concerned be else related second passed, about. it's a year. already is are Yes, where information the in still better and few X/X of operating. the going to half to

to scenarios. continue have be We -- multiple

And have some best, the scenarios continue scenarios. more of to some various and we optimistic, are

The are one, be second I developing to and know cautious financial the in also options. we sure of that there business, therefore, And want one, that as as geopolitics some there impact in and we earlier, emerging the and might third well. some mentioned to will scenarios markets half want have those the the those of don't around go where some right And markets the we that year. we make second currencies

could define business goes. where the are that So those three the variables

better. is seeing better suppliers As availability, getting better I Transportation are the better. earlier, business flow is labor materials, We're getting of well. as said operationally, better obviously

place XXXX. business in is operationally, So the a in was it than better

America. Next Bank question comes with of Spillane Bryan from

Hugh, I wanted to ask payable. accounts about

there's more seasonal the to last shift quarter year-over-year. it $X I Just first billion versus I it. But a meaningful understand up a it's think a pretty sequential was year. or than piece

distribution payables tied such that else is a to meaningful just change? the with going DSD that don't change? I there is on something accounts So if Or is Gatorade know, driving

a two build is thing, really things. it's Bryan, One mentioned. on as Gatorade Yes. the you inventory seasonal

in got what equipment that second of significant are timing we've The capital capital a number the on projects flight number. of that now right and payables is the drove the is,

by when change a of So quarter the the it ended. a I take any imagination. would as in not stretch one-off one-off, just It's a trend

Our Carey Fargo. with question next from comes Wells Chris

touch priorities you in just maybe and on Can how will XXXX. investment evolve

double-digit SG&A takeaways from out one increases marketing of XXXX between think key shipping, a but of activity handling distribution with I'm was spending of into merchandising I the costs added of QX. was and conscious key driver inflation, gates the

be course of So certain put and the context, and how an overall others. spending you the frame easing SG&A inflation on maybe in some to over in maybe year more investment can just ability will this evolving buckets

environment. the of that sure And make our consumers' #X our mean Yes, Chris. choices in minds in Listen, I in those investment a think very what remain to is do priority categories the is we categories. visible to well brands us similar complex We past. framework expressed in for consumer highly

that's continue that with our number consumers. one, preferred brand sure a priority So make we to be

productivity the strategy Second, that we continue That of and of in We've business. data systems. to on all that an of have the strategy business, invest while. for center be the a the at the been in quite to transformation we enabler investing continues digitalization

And the to world, and big across good invest continue to we in growth to brands those There our priority projects, the many that to grow. capacity. continues a is around volume are of be enabling two the continue in markets

those anything else. Hugh, don't there's I So principles. are if the know,

those the No, I where as of cost thing going think I question financial well. goods. in I Chris, impact with only is -- less the see perspective from think you'll his of of and SG&A more significantly selling think that's investments the Chris

you're out, all it a the you'll referenced that place where SG&A be will see is modeling Ramon So hitting. as items

from UBS. Grom comes with question Peter next Our

the the it performance I So quarter. in this, I it but you gained hoping more But color I think out the I China. know prepared and maybe remarks a the quarter. don't called market maybe specifically when on share, was in was international mentioned is in in growth to get discussing where missed was

of evolved maybe progressing the share see So environment how here? on view that and quarter that how China kind can through a from you in you the current

the in optimism -- the in customers quite consumers seen especially and snacks. pandemic across business. driving share, we're through in has us Yes, very across well, well optimism beverages to The as and and organic And and outgrow our in the beverage seeing, we're the Snacks category. been our continues sports Colas volume for obviously, food and competing in a Yes. well both China, that's hydration. in performing

is progresses this going tailwind for obviously, both year a us in-home consumption. So away yes, to the in home from be and as

Our next Evercore question Robert comes Ottenstein from with ISI.

Great.

that thought that I over the start question. you're in strong your the is, the a the and categories And Given longer-term year, as you to I'd confidence at time in, year ask in part either or opportunities bit expanded or reasons outside the countries certain just an scale as maybe and what snacks acquisition. little a of for that's of beverages was of past, in you've growth available look

next, do advances you believe the logistics, areas. call that expand that X do in or the algorithm? Or opportunity IT categories some right so, the given a greater to you're years even the Over and and need made do the or in And desirability your perhaps next to see in you've it, you than that's adjacent drive potentially past?

a question. we a globally. very are It's large at great fast categories X% pace, Listen, our around and believe growing

when focus think be that consumers, into here evolves moves like to the We're super portfolio Mac moves, and sure is some brands where making into Cheetos want And Cheese. and example, is expanding we're to I make going the We're small responsibility maintain relevant. efforts. in going that the our main U.S., for innovation to continue brands. you alcohol saw, low the making our with the as we small

So we sense we're consumer very our large, from and responsibility into categories healthy, to our our growing healthy the we -- organically expanding is make that of that give some them are some view believe point new of spaces global, fast. and brands

Our with next Vivien from Cowen. question comes Azer

international beverages? organization target Zero the some how possibly wanted XXXX XX, perspective expectations? you ESG towards distribution. relative you to lower about your volumes given that's tracking us reformulation offer drive broad-based on Pepsi Sugar and well, sugar from XX% I as update could performing And to ask added the of the on is to how Can

low obviously, size of case us. The that received a is for Great little it's XX%, it's brand it's the essential velocity. formula remember the growing for the and correctly, to drive relaunch scale been of very I very question. first if our new of very us transformation. and -- of brand consumers and as data is driven a quarter, continue products the repeats on with nonsugar mostly preferences. by early well And based that's to kind in strategy, by given but sugar The relevant In and Pepsi, Pepsi bit portfolio our the distribution, in is U.S.

X, category in they of the -- that segment also and the coming average are consumers we the we the growth big some Globally, along of the competitors. nonsugar clearly, in And like to with of driving the product the So back see product. markets. category they're of our Xx, growth are key the most

keeping continue nonsugar I think We'll it's category a strategy that consumers. our is working for of very invest in as driver and the for brands. to it's a relevant growth

comes Our next Gerald with Pascarelli from Wedbush. question

U.S. seen to if gains patterns past category you've a thoughts of relative seen maybe for performance ago? Frito products there consumer few has overall as would measured this was But broad now. near-term share In changes, some we've months very well, gained purchase with just snacks, which the curious months I tandem helpful. the have salty for Any obviously label seen be in private is great. category in any for share market few This channels and strong

some general, In private juices we Yes. salty we used categories seeing that to snacks the where label participate as in as mentioned. in especially well participate, you we're of some growth categories waters, in

a the in -- if we've you share of brand work but fastest the and As terms the consequence mostly execution, recall, is it's is in Frito-Lay growing I I great last, of seen at market pace years, XX innovation of will team that think building. doing say, the maybe as

loyalty, for expand But see we most base although low -- consumer business. label to in subsegments their snacks. a think preferred salty private importantly brands that from snacks in private seeing is continue and label of segment. some we're us, base increasing, and gain slowly as our But I both low in yes, So from a increasing very, in said, very be base salty I the very

question comes Edge. next Consumer Our Brett with Cooper from

Mountain operation about in think here? of you your dew, year then some the the a could And learnings? view from any was and to of proceeding you date, Hard brand the performance on how hoping color of about With provide I and

with Yes. also distributing happy we this consumers in loyalty, new create system in to operation learnings just we're and through Listen, with in is to which brands. we're few how version for partners find we tea demand weeks. consumer FIFCO launched a We continue taking, both going the category, Company. and solutions our next a to the a new tea consumer which They and of hard that the us start Lipton developed and to product, we're version, our with great create

Dew summer and X Dew to going Mountain products, Hard the main into with we're So Mountain Lipton. -- Hard go

consumers our and and on is to capabilities to consumer build give then a rushing. complex not our I strategic going our with with We're all it to a that leverage partners at few focus we portfolio, propositions. margins business a right the good solid journey. to right the products is As we of and developed intention large make That's speed said, distribution across this and country. learn portfolio brands but the We're not

Our from Falorni Citi. Filippo next comes with question

Question America Logo launch, investments. on a the clearly Pepsi and Pepsi Zero expansion lot the of Sugar It this lot making Beverage of you're of Pepsi North a Dew. Starry with The Hard launches, other Mountain year, change, business. seems

you the kind to making would for you of Just of bigger business? a with balance secondly, consider investments target these your you're picture, what then the are margin year? for And your do back standpoint success market a mid-teens a business? in this that expectations from share What how getting

to margins pace category well or X Yes. mentioned that expressed years. want levels have as that above and in X have and to past. we've mid-teens the this We the I the its in expand the to we grows mean business next a

this intent So business. the is strategic that for

is we well. full is share team executing LRB. the think The very measure I way our

in category. business. think for segments about margins obviously, target full it's the that we're I the So expansion portfolio, for whilst small the we progressing also good set And the the that brands against expanding of just our growth have this feel within the not We year, well margin year.

Our from Redburn. Charlie last Higgs comes with question

I Lays, versus the any single-serve more the progressing a on America very pack could and QX Frito-Lay the there give you And Is growth the How wondering bit would useful. how then North can talk there. you perform? see about did be margin you was if strong in volume little Doritos, throughout color multi-packs? Cheetos growth division a year just just

is earlier, Listen, Great. said the doing think, also if but in doing building the extremely same brands. business not well. Doritos, peripheral brands, we globally as the Cheetos. team I Yes. you Tostitos, U.S., and I And with Frito-Lay, But job U.S. cover at I large big brands as on the growing that spaces the fantastic focus is the Ruffles, a that time, some it's think mentioned, we're whole the covering -- Lays, snack

[indiscernible]. Let's need different covers call a it, that way. cohorts and PopCorners portfolio brands a or stays different really We're building of unique in SunChips

We're formats. also new innovating in

us been Minis, for which ago, great terms innovation. of personalization. multipack, has also mentioned empowering But a in months an a launched incredible few which You for is hit variety consumers year, this and we

our brands it convenient in gives additional the occasions that about -- the for think set business. you convenience new a of If whole best and format opens consumers the putting

occasions very new we and keep the how innovation brands. feel good our capturing strategy we into So about

as becoming is As getting availability the better. supply is materials of better, earlier, the operationally labor think better getting I I said is business

it because QX the the intent business. we was although what overall margin and for Frito-Lay you're that's The in elevated. metrics bit at high margins PepsiCo strategic and So growing seeing the little those very levels keeping accretive see is margins, a super very, fast the with should that's improving, operational

Okay.

this I is the think question. last

So this today and Thank investments really company company. have the in joining for confidence you, conversation morning, great in the day. a you're very our especially placed thank and much, you the and you're for appreciate all everyone, and making that our

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

now may have day. and You wonderful disconnect, a