Q4 2019 Earnings Call
Good morning, and welcome to Pepsico's fourth quarter 2019 earnings Conference call.
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Today's call is being recorded and will be archived at www Dot Pepsico Dot com.
It is now my pleasure to introduce Mr., Robbie Palm Nani Senior Vice President of Investor Relations Mr. Prime Nani you may begin.
Thank you operator, and good morning, everyone.
I'm joined this morning by Pepsico's, Chairman and CEO, Ramon Laguardia, and Pepsico's, Vice Chairman and CFO few Johnston.
We will begin with some brief prepared comments from Ramon and Hugh and then open up the call to your questions. Before we begin please take note of our cautionary statement, we will make forward looking statements on today's call, including about our business plans in 2020 guidance.
Forward looking statements inherently involve risks and uncertainties and reflect our view as of today and we're under no obligation to update.
When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.
Please refer to today's earnings release, and 10-K available on Pepsico dotcom for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward looking statements.
And finally as disclosed in our earnings release. This morning, we are now reporting for international divisions versus pre three previously.
This reflects changes made to our management reporting structure. Therefore, certain international Division results have been restated for the full years 2017, 2018, and 2019, specifically our former our former Europe Sub Sahara Africa Division has been reclassified as Europe.
And we'll no longer includes sub Sahara Africa.
And our former Asia Middle East North Africa Division has been reclassified into two divisions Africa, Middle East, South Asia, or a MISA and Asia Pacific, Australia, New Zealand, China or APAC. There are no changes to the remaining divisions or our consolidated results.
And now it's my pleasure to introduce our chairman and CEO Ramon Laguardia.
Thank you Ravi and good morning, everybody.
Approximately about a year ago.
We embarked on a plan to make Pepsi go faster stronger and better.
We've made very good progress against these initiatives.
I'm pleased to report that we met or exceeded each of the full year financial targets that we communicated to you about a year ago.
Most notably organic revenue growth accelerated to 4.5% in 2019.
Our fastest rate of growth since 2015.
Organic revenue growth was very broad based across all divisions with frito lays delivering these fastest rate of growth since 2013.
MPV M&A delivered his fastest rate of growth since 2015.
Our developing and emerging markets also delivered high single digit growth, despite ongoing volatility and uncertainty in certain parts of the world.
We invested in becoming faster by increasing our global advertising and marketing spending by more than 12% for the full year.
Reflecting investment across Maxim beverages.
And in both our large and established brands and our emerging brands.
Especially in our market presence by increase in route capacity, adding merchandise indirects and coolers.
Advancing this acknowledges that we deployed to drive greater and more precise execution.
And investing in additional manufacturing capacity to remove bottlenecks and increased growth capacity for our products.
This includes investments in new plants, new lines and added distribution infrastructure.
While we intend to continue to invest back into our business, we know that sustained and higher growth.
I would require building stronger capabilities.
Ones, which will be difficult to match by our competitors.
During 2090 and that will enhance our consumer and customer facing capabilities.
Strengthened our organizational culture and transformed our cost management.
Specifically.
We invested in data analytics and other information technology to build consumer intimacy and achieve precision at scale.
By capturing and analyzing more granular consumer level data.
We can understand the consumer in a more individualized way.
To both customize communication and executing every store with precisely the right products, placing the right location and at the right price.
We strengthened our omnichannel capabilities, particularly in E commerce.
But our retail sales were nearly $2 billion in 2019.
To meet the growing need across channels for greater customization and foster innovation, we're investing in an end to end jive value chain that can deliver more precision and variety to enable us to win in the marketplace.
We migrated our organizational structure closer to the market.
In order to improve speed increased accountability and become more locally focused.
And we evolved our ways our values in ways of working.
First our culture, where employees accolades like owners with a greater sense of empowerment and accountability.
Recall these that Pepsico way.
Which includes a set of seven leadership behaviors that have been rapidly embraced by our organization.
And we took a completely holistic approach to cost management, wanting which we manage all costs as an investment.
In doing so we challenged the entire cost structure.
To evaluate costs and benefits of our spending.
In 2019, we delivered in excess of a billion dollars in productivity savings.
I'm glad to deliver this amount annually through 2023.
Finally before.
Becoming better reflects our aspiration to continually integrate verbose into our business strategy and brands.
As mortgage suspected of corporations wide society.
We prioritized and embraced a set of focus initiatives to help build a more sustainable food system.
These include.
Advancing benefits to farmers and communities through more sustainable agriculture.
We intend to a 200% sustainably farmers source or we go through a raw materials by the end of 220, which includes potatoes hold corn oats and oranges.
Improving water stewardship.
We're striving to improve water use efficiency and aiming to replenish 100% of the water we consume for manufacturing in high water risk areas by 2025.
Circle our packaging.
By 2025, we intend to increase recycled content in our plastics packaging to 25%.
Reduce 35% of Virgin plastic content across all our beverage portfolio.
Improving choices across our portfolio by reducing outage shugars sodium and saturated fats.
Mitigating the impact of climate change by reducing absolute greenhouse gas emissions, our gross pepsico's value chain by 20% by 2030.
And finally advancing to respect for human rights promoting a diverse on inclusive workplace and increase the earnings potential earnings potential of women to drive economic growth and increased food security.
Our commitment to becoming better was most notably demonstrated by appointing our first ever achieve sustainability officer.
And by a green bond offering that generated almost $1 billion in net proceeds to advance our sustainability agenda.
To complement our faster stronger and better initiatives. We also made investments to fortify our portfolio for future growth specifically.
We invested we invested in our saw the stream business, which grew net revenue more than 20% last year.
In order to capture an incremental growth opportunity.
We announced our intend to acquire via of why brands that makers with a fast growing bump corners brand, which will enhance our premium snack portfolio.
We're in the process of acquiring pioneer foods, which will build the foundation for future growth on a scale in Africa.
Emerging market, what our growth opportunities remain static.
And we acquired sito support their makers of muscle milk.
Which expands our presence in sports nutrition provided opportunities for additional growth and category expansion.
I will use as we aspire to be the global leader in convenience foods and beverages by winning with purpose. We believe these investments will solution as well to winning the marketplace.
Now, let me discuss our operating results.
As I noted earlier organic revenue growth accelerated to 4.5% for the full year 2019.
Versus 3.7% in 2018 exceeding the initial target we set a year ago.
While our divisions contributed to these growth, including a 3% increase in developed markets.
And an 8% increase in developing and emerging markets.
Frito lay North America had a very strong year with a 4.5% increase inorganic revenue.
Along with an acceleration of volume growth in this second half of that year.
The business gained value share in both salty and savory snacks in 19 and improved his customer service levels.
Peter for results were driven by the investments we've made in innovation marketing and consumer insights supply chain in manufacturing and go to market capacity.
This included a double digit increase in advertising and marketing spend additional plan to warehouse and distribution center capacity and additional routes racks and setting resources.
Peter that leave our net revenue growth in all of its large mainstream brands like lays doritos, those tito's cheetos Raffles on fritos.
Im double digit growth in emerging premium brands, such as bear an update and back.
Our multifamily offerings also delivered very good growth as we have continuously expanded a variety of brand and flavor combinations.
The breadth of our growth was also evident across every key retail channel. We increased net revenue growth in grocery mass club convenience with service and E Commerce and Frito lay was once again the number one contributor to us food and beverage retail sales growth.
In 2019.
With respect to the fourth quarter.
We delivered 3% organic revenue growth driven by 2% volume growth on a 1% net price realization.
The deceleration in net price realization was largely that largely a function of the timing of pricing.
Pricing actions taken in 2018.
We expect our net price realization trends to improve over the coming months and have a strong innovation our merchandising plans in place with the business to deliver very good growth in 2020.
Let's see cold beverages, North America delivered 3% organic net revenue growth in 2019.
With that sequential acceleration in the fourth quarter, which represented his fastest rate of organic revenue growth in four years.
The business benefited from improved local market focus and execution driven by our new field structure increased go to market capacity.
Significantly stepped up advertising support innovation and additional setting resources.
We also invested improving our presence in the away from home channel are becoming the preferred beverage partner for jet Blue Carnival cruise lines, and Regal cinemas with Abbas here.
Investing in our brands has been a big focus area for vpns advertising or marketing spend increasing double digit for rage for both at fourth quarter and full year.
With increases in our large brands such as Betsy Gatorade Msds.
Great Mark Betsy posted six consecutive quarter of net revenue growth.
With strong double digit growth in our Pepsi zero sugar product.
Gatorade Ics generated as the year progressed and ended the year on our very strong note with high single digit growth in the fourth quarter led by Gatorade zero, which deliver more than $600 million in measure retail sales in 2019.
Innovation played a very important role at VPN Eightys year, we the Gatorade zero bubbly and mountain Dew game fuel.
Having cumulatively deliver more than a billion dollars in measure retail sales.
Other brands, including propel alive water delivered strong double digit net revenue growth, what pure leaf and Starbucks deliver high single digit growth in 2019.
Finally, we have plans in place to be on our recent innovations successes, we will invest in ball 24.
A functional beverage we launched last year Thats reports athletes around the clock by providing an advance all day hydration.
We recently introduced Cedar sugar variance of months in view on mountain Dew again fuel, which offer the same boldfaced because the originals, we saw the sugar.
And we will we will roll down rollout Pepsico affair coffee infused color beverage there will be available for a limited time offering in the USA stores as of April.
Rounding out our North America performance Quaker foods deliver at 1% organic revenue growth for the full year.
With double digit net revenue growth in our light snacks business and come as a cookies a mid single digit growth at aunt Jemima and Ronnie.
I want to conclude our discussion on North America by acknowledging the refi work of our customer can supply chain teams have done.
Specifically Pepsico was awarded the number one ranking in the 2019 cancer power ranking survey the fourth consecutive year Weve claimed the top spot.
And the tough to rankings in 2019 use advantage survey core food multichannel report.
These surveys Republic reflect our customers view of Pepsico as a valued partner and demonstrate the benefits of investing with our customers to help drive growth.
Now moving on to international markets each of our international divisions delivered strong organic revenue growth in 19.
These results include some performance that grows our developing and emerging markets.
With high single digit organic revenue growth for both the fourth quarter and this will be and the full year.
We continue to have a long runway for growth in many international markets.
And our results reflect the benefits of our increased investments.
As we continue to leverage our global capabilities to drive higher per capita consumption and improved market share while executing in locally relevant ways.
In Latin America, we grew organic revenue growth, we grew organic revenue, 7% for the full year with growth in both snacks and beverages, despite ongoing macroeconomic volatility of political uncertainty in certain markets.
Mexico, our largest market delivered.
High single digit growth for both the quarter on the full year.
Our next largest market, Brazil deliver mid single digit growth for the full year with an acceleration in the fourth quarter two high single digit growth.
In Europe, we grew organic revenue, 5.5% for the full year with with very good growth both in snacks and beverages.
Our largest market, Russia deliver mid single digit growth for the fourth quarter and the full year.
The United Kingdom delivered low single digit growth for the full year, but very encouraged to incrementally Ics exited the year with mid single digit growth in the fourth quarter.
Other highlights include double digit growth in Turkey, and high single digit growth in volume for the full year.
Moving to our Asia Middle East Africa regions during the fourth quarter, we took the opportunity to think more strategically about this part of the world, We decided to split the organizational structure of our prior Amena division into a missile.
Which includes Africa Middle East and South is South Asia, and APAC, which includes Asia Pacific, Australia, New Zealand and China.
By creating one operating sector centered on the Asian consumer on another center on the Middle Eastern South Asia, and Africa, and consumer we believe we can enhance our focus on accelerating topline growth.
Amongst other lever a 6% organic revenue growth for the full year. This includes double digit growth in Pakistan, and Egypt, and mid single digit growth in India, and Saudi Arabia.
APEC delever, 9% organic revenue growth for the full year led by strong double digit growth in China, Vietnam, I cut high single digit growth in Taylor in Thailand, the Philippines.
To conclude our priorities for 2020 remain consistent with our discussions today.
With respect to deliver 4% organic revenue growth.
7% core constant currency earnings per share growth in 2020.
And we will continue to invest back into the business.
To evolve our portfolio answers from our value chain.
We'll next generation capabilities, particularly leveraging technology to enhance our insights speed and precision.
Grow our talent and simplifying our organization to be more consumer and customer centric.
Investing our brands, both large and emerging.
Good reviews, our cost structure to free up resources to fund our investments.
These priorities will always be executed with an eye towards enhancing our marketplace competitiveness on delivery of course and long term value creation.
With that let me now turn the call over to you for.
Great. Thank you Ramon and good morning, everyone.
As Ramon noted for 2020, we'd expect to deliver 4% organic revenue growth and 7% core constant currency earnings per share growth.
We expect foreign exchange to have an approximately negative one percentage point impact on net revenue and core EPS growth and therefore expect our core us dollar EPS to be $5, an 88 cents in 2020.
For 2020, we also expect our core annual core effective tax rate to be approximately 21%.
Free cash flow of approximately $6 billion, reflecting capex of approximately $5 billion.
The higher rate of capital spending is associated with accelerating progress on our strategic growth priorities as most remote laid out earlier.
We expect our capital spending to remain at or around these levels for the next few years and now expected to moderate the 5% of sales by 2023.
We expect total cash returns to shareholders of approximately $7.5 billion in 2020 comprised of dividends of five and a half billion dollars and share repurchases of $2 billion.
The expected cash returns reflect a 7% increase in the annualized dividend per share effective with the dividend expected to be paid in June twentytwenty.
This will represent the Companys 48 consecutive annual dividend per share increase.
With respect to your models. Please keep in mind. The following in the first quarter of 2020, we faced a difficult comparison for both organic revenue and core constant currency operating profit growth at Frito lay North America, and our international divisions.
With that now we'll open up for your questions. Operator, we'll take the first question. Thank you once again in order to ask a question I'll make a comment. Please press star followed by one on your Touchtone phone at any time. Your first question comes from the line of Bryan Spillane of Bank of America.
Hey, good morning, everyone.
Morning.
So I guess I got a few questions. This morning about Frito and you know the the kind of the deceleration there in this quarter and I guess, what's implied in the first quarter.
Commentary now so maybe remote can you talk a little bit about.
The dynamics, there I guess lapping some price increases.
And then kind of what gives you confidence that.
That can can re accelerate as we move through 2020.
Yes, good morning, Brian, Yes that is and we feel very good about Frito unit performance in 19, we accelerated.
As level I think in the last seven years, so overall, a very good year.
Volume went up and volume across all our brands that big brands and also the new brands and we're trying to build for the future. Some very positive performance and also as I said first of all channels are very very holiday stay very good performance I would say.
Deceleration in Q4 as I said on this statement is based on.
The pricing distribution in 2018, we to pricing due for.
This year, we then take any pricing Q4 will it be more via pricing decisions now in Q1 second half of the Q1. So that's the main difference we feel good about especially the added volume acceleration the fact that hour.
Pounds went up almost 1%.
These year versus last year, it is a pretty positive.
To assist them in that that our investments are working and driving.
Per capita consumption, which at the end is the in the long term driver of the business.
Your next question comes from the line of Steve powers of Deutsche Bank.
Yes, hey, thanks.
A question actually on on PBM may, but do you think about the fourth quarter performance across the division and the acceleration you saw.
I guess, which brands are businesses perform best versus your expectations in the quarter and as you look forward to 2020.
Do you think about the trajectory there just balancing the current momentum against what will be difficult lapse and Gatorade, a bubbly, especially.
Specialty amidst lots of competition and the expansion on the shelf and in the cooler of an energy category in which are still.
Underrepresented. Thank you.
That's good good question.
Additionally, we feel immediate users any division that we feel very strong.
The turnaround this year is BBN eight right we feel good about.
They were exiting the.
Market and a year and and also how we've driven that performance. So you think about our innovation has been very very strong across the year and as you mentioned some on the successes so Gatorade clearly.
Driving sustainable growth by innovating in in a new space like like zero zero has driven a lot of new consumers into the.
As sports category in China is not a like a summer related growth of Gator. It is a.
Which had a structural.
More penetration of the brand into consumers are we're not consuming gatorade. So we'll see that answers to that will actually you'd accelerated during during Q4.
We see Pepsi as I said with sustainable growth. So that makes us feel good that's also driven by.
New new variants like zero smaller packages that are driving consumption. So we see Pepsi as well.
You know driving sustainable growth, we continue to see very strong performance in our coffee business and our partnership with Starbucks is us in a more robust than ever I seem to kind of innovation, we're bringing to the market on how we're moving in that category also into new premium spaces with innovation is is very powerful very strong performance.
Across the year, including Q4 this same with.
With our tea categories pure lease continues to drive a lot of growth and develop the category you mentioned badly I think Bob leaves us scratching the surface as a brand is still very Underpenetrated is a brand that I think in spades wise also has a lot of opportunities. So.
I think a lot of people don't even know about the brand or haven't tried the brand so on its already.
Pretty meaningful size brand so.
We feel bottled between very strong about they were driving growth for PV M&A is not.
Short term bodies really develop into different segments of the category, where we participate expanding those categories, meaning more consumers into the space Theres another lever I thing of of.
Sustainable girls for PBM, which is driven by better execution and these better execution. Obviously comes from in a more focus on execution, but I'd seen the organizational change we've made to the business.
Where we have decision, making closer to their consumer and to the to the market is making as a better execution company in DNA I've seen that is again is not a one year event is a multi year opportunities that we're going to get better with better tools a metaphor goes so we feel strong.
About where we finished we feel strongly about you know the drivers of that growth not being one off by being very sustainable drivers of growth.
Your next question comes from the line Ali Dibadj, Jeff Bernstein.
Hey, guys just want to go back to fall in a for a second.
I get the price increases in 2018, but even a stacked basis. It looks like there's been some challenges I think as you can imagine or you've probably seen on almost all of us and written about Apple inane concerns about it.
And I get run on that you said that you're going to see some price realization improving through 2020, but I wonder with all the consumer work that you guys do if you see anything at all that that that gives you pause from a structural perspective. So so are you seeing any changes driven by the consumers in particular on health and wellness that are accelerating.
Or.
Do you see anything from a competitive perspective as well, we're all going to date Cagney next week and everything companies going to stay there snack company.
I mean like your margins any like your growth. So so how does how are you seeing anything there at all and how does that play into if at all what seems to be a little bit more I guess subdued guidance as the company.
The lower end of your long term plan, especially after a heavy up year like you just had.
Yeah, Hi, Ali and good morning, this and.
With the question and I think.
Obviously, we're looking at a long term trends off the consumer and trying to a adjusted portfolio to those trends.
If you if you look at their way, we're driving the growth in.
19 on their way, we've seen will drive the growth in the next year is being across all although all brands. So we've seen the consumer continue to.
Go back to our classics and delays in Doritos on cheetos until season, the truth is that where we're trying to.
Improve their way we market those brands.
The way we are personalizing the message is there way, we're creating unique content for the friend.
I've just consumers and they were innovating against those large brands at the same time are kind of more per miscible portfolio on premium portfolio that segment of our of our range is growing about two times. The average of the companies have you think about of the Tim five there seem.
Really Kumar Foods, I mean, all those brands that you would say they are probably.
Refer bye bye bye some type of consumers that refer more permissible snacks. They are they're growing two times, but the beauty of our Omar Frito lay portfolio on the same would apply to our PPSA portfolios that were trying to grow both our classic brands large brands that are well established trying to modernize and keep them.
Yeah.
Attractive to the consumers and then innovating to future spaces, where the consumer my move at a different speed in different parts of the country.
As they as they decide to change that consumer habits are nowhere evolve into portfolio. Some of the acquisitions. We've made also would help us in that respect that were also we're innovating in those spaces ourselves have eaten by these are great example, they seem to be portfolios are great. Examples that is giving US you know very high penetration in those consumers that you referred to.
What we're seeing enacting we talked about his last time is there is a at trend toward smaller packages and that might be a way that consumers and also approaching snacking categories dinner with portion controlled being a key driver off of our off of the location. So we see.
Small backs and the fact that we're moving a lot of capacity into a smaller banks I think we'll continue to give us good growth in that space with more permissible snacking either by portion control will buy buy new brands from products that are.
Referred by those consumers, we don't see a deceleration of the category and that's that's why you mentioned, there's a lot of.
You know new players that want to participate in these snacking train, which I think it's.
It's true and he's going to be here for for lunch time that that was make us feel very positive about frito because there are a lot of tailwinds to the snacking category.
Your next question comes from the line of Dara Mohsenian of Morgan Stanley.
Hey, guys.
So just following up on some of the questions I was hoping you could review a bit your visibility around the 4% corporate organic sales growth topline target for 2020, you're obviously coming off a solid years, we'll have a tough comparison there is some global volatility. So just wanted to get your perspective on the level of visibility into corporate level.
And obviously, we just covered Frito lay north American TBN, a but perhaps you could also review what drove the strong momentum in DNA markets in 2019 and sustainability as we look out to 2020. Thanks.
Hey, good morning, Dario too.
I would say, we have a goodwill level of visibility into a into the revenue guidance.
You know historically, we've been pretty accurate on that and I would expect that to continue to be the case, you know that that said as you sort of slightly noted the world is certainly a volatile place lots of events going on in a in a lot of areas of the world we've been.
As noted a bit with some of the news this morning.
That said, we we take the effects that we have and we always try to plan for at least some level of volatility is as a part of developing our expectations for the year because history tells us most years, we'll have some volatility. So I I think generally speaking we have good visibility regarding develop.
I think in emerging markets at 8%.
That's really a continuation I think of what we've seen over over a number of years.
You know the per capita consumption opportunities in those markets are quite large and I think we're doing a very good job, but where we're also barely scratching the surface relative to what the ultimate opportunity could be a it's one of the reasons, where we're investing in growth because.
We think by virtue of realizing those those per cap opportunities and driving growth will be able to sustain this this algorithm for a very very long period of time.
Our next question comes from the line of Andrea Teixeira with Jpmorgan.
Hi, Good morning. Thank you. So I was just hoping that you can elaborate more on the topline guidance.
Being as you I just had before on the land and anything bad Youre on comments about itself with some growth investment <unk>.
In Cdnineteen, how do you think you reach the normalized level now and what is the growth you marketing investment that even assuming for 20 Twain embedded in your guidance and if you can kind of compare that with a 1 billion cost themes that you know many have anything can update us on that on that metric as well. Thank you.
Yeah, Hey, good morning Andrea.
In terms of the guidance actually the guidance that we're giving this year is exactly the same as we gave a 12 months ago. So.
Obviously, we saw a world where the investments that we were making.
Paid off.
A little bit better than we expected it as a result, we got a result certain growth that were there were higher than that regarding whether weve leveled off.
I don't think you'll see the same level of of growth in advertising and marketing this year it'll still growth.
It.
Might even grow a little bit in excess of the rate of sales growth.
To a great degree, it's going to depend on the opportunities that we see in front of us.
We certainly funded or our advertising line well going into the year, but frankly, if if we see innovation taking off or if we see an opportunity in the marketplace.
To accelerate investment in order to capture even more growth, we're not going to be shy about doing that and we've put room into into the way that we guide to give us the ability to take advantage of those opportunities as I mentioned, we think we're in great categories, and we think right now there is theres lots of opportunities to grow to grow faster. So.
We're going to continue to do that at the same time, we're going to continue to.
Invest in the stronger capabilities that allow us to sustain performance for a longer period of time.
And today, if I may add their way we're.
We are approaching in every market the opportunity I mean for 22 any we we have I think very strong plans well funded mode on customer on consumer ideas, we're investing in additional capacity across the world.
So our purpose here is to gain market share in every market. When we compete we've been we've been doing that India. Entering 2019 will continue to do that into any Tony the compensation in the company is very good year to topline their market share growth. So thats the way, we're starting the year our guidance as few said.
It includes the possibility of events during the year that in my maestro prices on the negative front, but you know I've seen the guidance reflects that.
But you do attitude towards market share and then.
And some uncertainty.
Mhm, India in the overall number.
Your next question comes from the line of Lauren Lieberman of Barclays.
Thanks, Good morning.
I wanted to get maybe a little bit as an update on progress.
Ending and the Youre can you put them classic brand on in snacking internationally as I understand it well model one of your key priorities are you thought there was sort of really untapped opportunity, but getting you know just you begin to read out was in and she doesn't mean classic brand into international in emerging markets have you could speak.
Lastly, you what's been done this year, how much that's definitely my 2020 plant at the it'd be really interesting. Thanks.
Yeah.
Good morning, and we have a.
Good playbook on especially in the snack business on how that we developed a category and what are the leverage that we play in every market.
To that lever you know the per caps growth that we we normally the lever in their markets.
Anders there's obviously innovation during brand building, there's disability there's value there's many levers that we probably in that playbook.
So to your point on brands brands are part of that have that playbook.
We have doritos I would say in I don't know, 75% of our international markets. Maybe that's the number we have cheetos, probably 90% of our market.
Ladies obviously the brand that we normally tend to lead.
And braunfels that potato business, because that's where I think we'd have more more differentiation for submitted with our I'm gonna programs in our flavor programs. So that doesn't take it as a brand exclusive.
For capital development opportunity, but is a very holistic development opportunity that includes brands innovation, and we're getting better at least and shift or at least 10 adapt as we call. It taking successful product from one market and rolling them out globally, but theres a lot of work in our playbook in how we develop the point of sale and we'd be they.
Everywhere and also how we understand consumers in their pocket money and their affordability and then how do we adopt in every market price levels to the pocket money of the consumer and it's working very well I mean, the truth is that these snacks category, it's growing consistently at a very high level internationally and I am.
We don't see any reason why wouldn't do that in 2020.
Your next question comes from the line of Laurent Grandet at the time.
Hey, good morning, Roma and good morning, you and congratulate run on a very strong first full year as a CEO.
I'd like to focus on the leap tonnage opportunity in two weeks ago, you need or a CEO said the company was beginning a strategic review of the coffee tea business as we've been saying for quite some time now we believe the acquisition of the benefits of Georgiev JV. We thought you never we'd be a net positive for Pepsico Tees, one of the fastest growing thing.
Globally, one way you have in market share leadership, so the acquisition would make a strategic sense, but those will finish from one because you are you we'd be capturing 1% of the profit rather than just half. So could you comment on diesel part D and the rule of the T. segment for Pepsico in general only especially as you all know facing im not renewed competition, we skews.
Mussina in Europe, It took suite into international markets. Thank you.
Very good morning, Laura Thanks for the question.
A couple of comments on that the number one we launched the t. venture with Unilever, a couple of decades ago and they've been a terrific partner over over the course of the last couple of decades, we've built a a nice ready to drink feed business.
Both in the U.S. end internationally. So we certainly feel good about that.
As regards the JV, we really like where we sit very much right now we think.
The Jvs Guy got good balance and I think Oh, we find the ready to drink aspect of key to be attractive. So we like where we sit obviously the announcement.
They may have some ramifications for for Unilever, but we think we think it shouldn't have substantive remicade ramifications for us going forward.
Our next question a lot of we continue to do very well into tea business and.
It's a category that we see growing internationally is growing very fast in developed markets and our Nols are developing to your point on Europe. We continued to be leaders, we could be innovating there.
Purely brand is doing very well the lead some brownies continues to expand we like the Scott Eagle, we like what we're saying skew said.
We'll.
Wait for four events from Unilever.
Your next question comes from Rob Ottenstein of Evercore.
Great. Thank you very much you announced you know some some interesting changes I guess in the a in the way you're managing the international business.
To to capture more the opportunities in Asia in Africa.
Just wondering if you could give us a little bit more granularity in terms of how the strategy may change any changes in tactics a investment.
You know that you see putting behind those changes going forward. Thank you.
Yeah, that's good yes so.
There there were a couple of.
Reasons, why we made this change in the organization one is.
To manage a huge geography.
Like from Africa older way to Australia from one location as were doing from Dubai was and I was a big birthing on our our and our people in our Sixtyv. So that that was not the ideal.
Fundamentally more than that which which is also important is that they're clearly different consumption patterns in different trends you from food cultures and between him I would say that the group of countries centered around China and the group of contact center around around the middle East.
Africa so.
We think that by making this change we're going to be innovating with more local relevance, we're going to be activating our brands with more local relevance who want to be able to have resource is close to the market plays in the critical differentiator is like R&D like.
Sales execution that will.
Help us to perform better India in their market one of the critical opportunities for Pepsico is to develop international business and I think Asia remains by far our number one opportunity and and China of course is a huge market where you know we have a good business is growing very well as I said in my role.
In my remarks by the opportunities much much higher so that's how we're thinking about you know these new organization, enabling pay more sustainable and focus growth in those two parts of the <unk> Africa is another big opportunity for as we're hopefully where we're almost.
Very close to.
Including the a pioneer.
Acquisition that will give us a lot of scan in Africa, which is serves also more focus on what we had in that fashion. We're also allocating additional resources to Africa, which will help us expanding that you know that content, which obviously has a huge opportunity for our products.
Your next question comes from the line, it's Kevin Grundy of Jefferies.
Great Good morning, everyone.
Ramon can we come back to the energy drink category and trying to get a more that update on the company strategy. It's not a nailing. It Pepsico has participated in a meaningful way companies had a partnership with rock Star, which is a brand which is last year over time mountain Dew Kickstart hasn't really gained any traction in the category and your key competitor of course has been more aggressive.
Historically, both with the investment in Monster now the extension the co brand so that.
Question is is this an area of emphasis for pepsico, either organically or through M&A or are you reasonably find playing on the periphery. Thanks.
Thank you good question listen obviously, we.
That consumers are looking for more caffeine right I mean, it's clear that this is a kind of opportunity that they're looking for as a day is becoming longer and be computing is longer I mean, theres a lot of tailwinds to the use of caffeine. They would have been approach in these opportunities as as we sit in the past from mall.
People.
But as I mentioned, so we're playing in in energy with Rock Star.
It's a brand that we've seen we have the opportunity to a two working together with the Rockstar owners to to develop and to revise and I think we can do a better job there or what else, especially working in those spaces from the coffee category and I seen our partnership with Starbucks has has been a grade tripled shot.
Starbucks this year is being a massive innovation and it's nothing money.
A very good way to consume caffeine as well, we're looking at participate in lower caffeine levels from and we just announced some innovation in our Bob rebrand some innovation in our both 24 brands. So we plan to.
Participating in the caffeine space from multiple dimensions, including a you know doing doing a better job with rock star and our partners who their brands like a mountain view kick start on mountain view game fuel.
Are good innovation from our own branch into that space a bit more focus on particular opportunities one of the morning occasional one on the gaming location. They are getting good traction for us as well and so that's where we're thinking more thinking now 40 submitting and what is that what is as you said, a a large opportunity and I'm quite profitable.
Your next question comes from the line up sell Chappell Suntrust.
Thanks, Good morning.
He just going back to Steve powers kind of questions on a fee in a can you quantify a little bit more what gives you confidence on I guess, specifically Pepsi in North America and kind of the momentum. This year, maybe what stage. We are in different pack sizes were innovation on the on the horizon or something.
Just the gets you because the comps don't get any easier and certainly there are other products out there you know love to hear what what you what you're seeing or quantify what you're seeing to get you excited.
Yeah, I mean, what we're excited.
We have six quarters off grows for Ah.
Let's see continuously and we're seeing the brown equity going up how should we invest more in the brand as as our advertising gets better.
And were able to talk to consumers in different segments with the from messages and natural working very well from the product point of view where.
You know, we're seeing high growth as I said last time in smaller backs. So that's continued to to help penetration households that had a stop buying a C. As these now they're going back with a smaller bags. So that's great zero. He is he's a very fast growth.
In brand and four as it is a great brand internationally, we're trying to.
Develop it faster into you as you saw our you know our focus in the Super Bowl. Our execution is quite focused on Honda MCC ROE and then Pepsi regular is growing back again.
Again, I think there is more our execution and the fact that we're able to to execute with more granularity embedded precision that's helping the the Pepsi brand along with yet with the brand equity development. So that's what makes us feel very strong about that's you couldn't FC continued to grow 2020 anything coming years, we'll keep.
The innovating, we were giving innovating Pepsi flavors would you be innovating with Pepsi Cafe, So we'll keep bringing some news for the brand to continue the.
The consumer engagement with our with our Brown our products.
Yeah. That's good okay. Thank you I think that concludes the acuity.
Thank you for your time on your participation in this morning's call. We're very pleased with the progress we've made to date and we're executing well against our key priorities.
We look forward to updating you again on our progress throughout the year and we thank you very much for the confidence you've placed with us and with your investment. Thank you [noise].
Thank you for participating Pepsico's fourth quarter 2019 earnings Conference call you may now disconnect.
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