Q4 2021 PepsiCo Inc Earnings Call

Speaker 1: Please press star followed by one on your touchstone tele...

Star followed by one on your Touchstone telephone you may remove yourself from the queue by pressing the pound key today's call is being recorded and will be archived at www Dot Pepsico Dot com. It is now my pleasure to introduce Mr. Ravi <unk> Senior Vice President of Investor Relations. Mr. <unk> you may begin.

Speaker 1: You may remove yourself from the queue by pressing the pound key. 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. Ravi Pamnani may...

Thank you operator, and good morning, everyone I Hope I hope everyone has had a chance. This morning to review our press release and prepared remarks, both of which are available on our website before we begin. Please take note of our cautionary statement. We may make forward looking statements on today's call, including about our business plans 2022 guidance.

Speaker 2: Thank you, operator, and good morning, everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, 2022 guidance and long-term financial targets, and the potential impact of the COVID-19 pandemic on our business.

And long term financial targets and the potential impact of the COVID-19 pandemic on our business.

Forward looking statements inherently involve risks and uncertainties and only reflect our view as of today February 10, 2022, and we are under no obligation to update when discussing our results we refer to non-GAAP measures, which exclude certain items from reported results.

Speaker 2: Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 10, 2022, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Speaker 2: Please refer to our fourth quarter and full year 2021 earnings release and 2021 form 10K available on pepsico.com 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.

Please refer to our fourth quarter and full year 2021 earnings release, and 2021 Form 10-K available on Pepsico Dot com 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.

Joining me today are pepsico's, chairman and CEO , Ramon Laguardia, and Pepsico's, Vice Chairman and CFO Hugh Johnston.

Speaker 2: Joining me today are PepsiCo's Chairman and CEO Ramon LaGuardia and PepsiCo's Vice Chairman and CFO Hugh Johnston. We ask that you please limit yourself to one question. And with that, I will turn it over to the operator for the first question.

Ask that you please limit yourself to one question and with that I will turn it over to the operator for the first question.

Thank you once again in order to ask a question to make a comment. Please press star followed by one on your Touchtone phone at any time. Our first question comes from Dara <unk> with Morgan Stanley .

Speaker 1: Thank you. Once again, in order to ask a question or make a comment, please press star followed by one on your touchtone phone at any time. Our first question comes from Dara Mosadian with Morgan Stanley .

Hey, good morning, guys.

Good morning there.

Speaker 3: I wanted to focus on the 2022 top-line guidance, obviously very strong Q4 results.

I wanted to focus on the 2022 top line guidance, obviously very strong Q4 results.

Speaker 3: But look, you're guiding towards the higher end of the long-term range in terms of 6% organic sales growth in 2022, despite a really tough comparison if we look at 2021. So I just wanted to understand the key drivers for 2022 top line, particularly price mix versus volume and any thoughts on demand elasticity.

But look youre guiding towards the higher end of the long term range in terms of 6% organic sales growth in 2022, despite a really tough comparison, if we look at 2021. So I just wanted to understand the key drivers for 2022 topline, particularly price mix versus volume.

Any thoughts on demand elasticity and then also just from a broader long term perspective as you look out beyond 2022 are you more confident youre strategies are sustainably paying low off could topline growth be more at the higher end of that mid single digit long term top line range. How do you think about the long term beyond two.

Speaker 3: And then also just from a broader long term perspective as you look out beyond 2022, are you more confident your strategies are sustainably paying off?

Speaker 3: Could top-line growth be more at the higher end of that mid-single-digit long-term top-line range? How do you think about the long-term beyond 2022, given what's expected to be pretty robust growth despite the tough comp?

<unk> thousand 22, given whats expected to be pretty robust growth despite the tough comp.

Yes.

Yes.

Speaker 4: Yeah, let me start and maybe Hugh can add.

To start and maybe okay great.

Yes.

We see our categories very healthy moving into 'twenty.

Speaker 4: We see our category as very healthy, moving into 22 and long-term, both are convenient foods and beverages, so that makes us feel very comfortable. The investments that we have made over the last three years in brands, in more capable go-to-market systems.

<unk> 22, and long term, both our convenient foods and beverages. So.

That makes us feel very comfortable.

The investments that we've made over the last three years.

Brands and more capable go to market systems.

More in size better execution that is clearly paying off in the form of share of market gains in across multiple develop developed markets snacks and beverages. We feel good about our ability to continue to grow ahead of our categories.

Speaker 4: more insights, better execution, that's clearly paying off in the form of share of market gains across multiple developing markets, snacks and beverages. So we feel good about our.

Speaker 4: ability to continue to grow ahead of our categories in 22 and beyond. And obviously we are big players in those categories, so we carry the responsibility to make this category.

In 'twenty two and beyond.

Obviously, we are big players in those categories, we carry their responsibility to make this category stay healthy and safe.

Speaker 4: stay healthy and stay growing faster than food overall. So that's how we see our long-term. And yes, we obviously, if you think about next year, yes, we're at the top end of our long-term guidance.

<unk>.

Growing faster than food overall, so that's how we see our our long term.

Yes.

Obviously, if you think about next year is we're at the top end of our long term guidance. This year, obviously, we draw I mean last year, we obviously cross that long term guidance. So you see compounded yes, we're at the high end of our of our.

Speaker 4: This year, obviously, we crossed, I mean last year, we obviously crossed that long-term guidance. So you see compounded, yes, we're at the high end of our four to 6%.

46% and obviously weak.

Speaker 4: That's the objective of the whole organization, to stay within that guidance.

The objective of the whole organization to stay within DM.

That guidance and beat it.

Good years.

Speaker 3: Yeah, the only thing I'll add there in terms of some of the financial pieces of it, you saw in Q4, we had about five points of volume and about seven points of price mix.

Yes, the only thing I'll add there in terms of some of the financial pieces that you saw in Q4, we had about five points of volume at about seven points of price mix.

Speaker 3: Obviously, as our hedges roll off and we move into a new round of commodities, we're going to price in a way that allows us, at least for the full year, to try to keep our margins pretty well intact.

Obviously, we are as well.

Our hedges roll off and we move into a new round of commodities.

We're going to price in a way that allows us at least for the full year to try to keep our margins pretty well intact, which means that seven pricing will probably be around there, maybe even a little bit stronger for the year.

Speaker 3: which means that that seven pricing will probably be around there, maybe even a little bit stronger for the year. We'll see how it plays out and react to what happens with the facts in the marketplace. But it's going to be a pretty healthy pricing year to accommodate the cost increase.

We'll see how it plays out.

And react to what happens with the facts in the marketplace, but it is going to be a pretty healthy pricing year to accommodate the cost increases.

And if I can follow up or what are you assuming in terms of demand elasticity.

Speaker 3: And if I can follow up, what are you assuming in terms of demand, elasticity and

Speaker 3: What's been the experience so far you've seen in terms of consumer demand elasticity to pricing? It seemed like there clearly wasn't a lot in Q4, but what are you assuming for 2022? Thanks. Yeah. So, I mean, for 22, Dara, you're right. Obviously, there wasn't a lot in Q4, but that's a relatively short period of time. Right now, we've built multiple scenarios around elasticity. And.

What's been the experience so far you've seen in terms of consumer demand elasticity of the pricing.

Seem like they are clearly wasn't a lot in Q4, but what are you assuming for 2022, yes. So.

For 'twenty two there you're right obviously, there wasn't a lot in Q4, but thats a relatively short period of time.

Right now we built multiple scenarios around elasticity and we have plans to react to any of them. So.

Speaker 3: where we have plans to react to any of them. So, frankly, we're going to have to be very agile this year in the way that we plan, but you know that our history on guidance is we tend to have multiple ways to get there and we'll react to what the marketplace gives us.

Frankly, we'll we're going to have to be very agile this year and the way that we we.

We plan, but you know that our history on guidance is.

We tend to have multiple ways to get there and we will react to what the what the marketplace gives us.

Thanks.

Speaker 4: If you think about all the investments we've made in the last few years, both in the brand strength or some of our net revenue capabilities, even our execution capabilities, the granularity that we can execute in the stores, that's clearly given us a lot of, I would say, tools to play the marketplace and to manage the price increases in better ways than we used to in the past.

Think there if you think about all the investments we've made in the last few years.

In the brand's trends or some of our net revenue capabilities.

Even our execution capabilities the granularity that we can execute in the stores.

Thats clearly, giving us a lot of I would say.

Tools to play.

Play.

The marketplace and to manage the price increases and better ways that we used to in the past. So we're also contemplating that as a factor as we are.

Speaker 4: We're also contemplating that as a factor as we're building our 22 scenarios.

Building, our 'twenty two scenarios.

Great that's helpful. Thanks.

Our next question comes from Bonnie Herzog with Goldman Sachs.

Alright, Thank you good morning.

Akshay.

Speaker 5: I actually had a question on your A&M spend in the quarter. I guess on a dollar basis, it seemed to have almost doubled in the quarter versus Q3 and then came in at maybe a record as a percentage of sales at almost 8% in the quarter versus your typical, call it 6.5%.

Question on your spend in the quarter I guess on a dollar basis.

To have almost doubled in the quarter versus Q3 and then.

And it may be a record as a percentage of sales at almost 8% in the quarter versus your typical call. It six 5%.

Speaker 5: So I just was hoping you guys could give us a little more color on where you stepped up to spending in the quarter and then how much you think that did contribute to your robust top line growth in Q4. And then, you know, in thinking about it, typically there is a lag with spending. So I'm also wondering if this is partly what you expect to drive your top line guidance at the high end of your long-term growth outgoes.

So I just was hoping you guys could give us a little more color on where you stepped up the spending in the quarter and then how much do you think that did contribute tier robust top line growth in Q4 and then.

And you bought it typically the lag with spending.

So wondering if this is partly what you expect to drive your top line guidance at the high powered.

Gov.

Yeah, Hi, Bob it's Hugh.

Speaker 3: Yeah, hi, Bonnie, it's you. A couple things on that. One, A&M for the year was up 11. For the quarter, it was up 15%. But remember, when you're dealing with the quarter, that's not necessarily what's in the marketplace. That's sort of, you know, the A&M curve, and we book A&M on the revenue curve.

A couple of things on that one and for the year was up 11%.

For the quarter it was up 15%.

But remember when youre dealing with the quarter, that's not necessarily what's in the marketplace, that's sort of the A&M curve and we book A&M.

On the revenue curve.

Speaker 3: In terms of spend, spend was up in the quarter for sure. I don't know that it was disproportionately up relative to the rest of the year. And in terms of go forward, you know, I expect our A&M, as it generally has, will probably be in or around the same level of growth as the sales growth number is.

In terms of spend spend was up in the quarter for sure I don't know that it was.

Disproportionately up relative to the rest of the year.

In terms of go forward.

I expect our A&M as it generally has will probably be in or around the same level of growth as the sales growth number is.

Speaker 3: Obviously, we feel terrific about the advertising we're doing. We think it's having the right impact.

Obviously, we feel terrific about the advertising we're doing we think it's having the right impact.

Speaker 3: But we clearly were the beneficiaries of, in North America, some reduction, and we think that's also played well. We generally are spending at a competitive level, and we're trying to compete on quality of the A&M, not necessarily the quantity of the A&M.

But we clearly were the beneficiaries of it.

In North America some reduction.

We think Thats also played well.

We generally are spending at a competitive level and we're trying to compete on quality of the A&M not not necessarily the quantity of Diana.

Yeah, Bonnie one of the things, where I think we're getting better at measuring our return on investment on our marketing.

Speaker 4: Yeah, Bonnie, one of the things I think we're getting better at is measuring our return on investment on our marketing. The more data we have, and obviously we're becoming a better data company, we're able to put better numbers to those investments and have the marketing teams and the commercial teams overall choosing different levers.

The more data we have and obviously, we are becoming a better data company.

We're able to put better numbers to those investments have the marketing teams and the commercial teams overall are choosing different levers that give us the best return overall and that's playing very well. It's obviously one of the reasons why we're gaining market share across many categories.

Speaker 4: that give us the best return overall, and that's playing very well. It's obviously one of the reasons why we're getting market share across many categories.

Digitally we want to continue with this kind of.

Speaker 4: We want to continue with this kind of investment, being very rational in the way we invest A&M, but understanding that a company like ours, you know, the core competence is building brands, and that's what gives us, in situations like we're having this year, where we have two prides, we have consumers following us in spite of higher prices. So I think, statistically, it's a very important element in our overall growth strategy. Okay, helpful, seems to be.

Investments being very rational in the way, we invest A&M, but understanding that a company like ours.

The guards confidence is building brands and Thats, what gave us in situations like we're having this year, where we have to price we have consumers. Following us in spite of higher prices. So I think strategically is a very important.

Our overall growth strategy.

Okay helpful. It seems to be working thank you.

Our next question comes from Lauren Lieberman with Barclays.

Speaker 1: Our next question comes from Lauren Lieberman with Barclays.

Speaker 6: Great, thanks, good morning. Wanted to just talk about PBNA volumes because, you know, accelerated sequentially and on a two-year basis, so now putting up growth on growth. And I was just curious, you know, how you might kind of.

Great. Thanks, good morning.

Wanted to just talk about <unk> volume, because accelerated sequentially and on a two year basis, and now putting up growth on growth.

And I was just curious how you might kind of.

Speaker 6: bucket the drivers of that, and I'm going to guess part of it you're going to say, oh, it's a little bit of everything. But, you know, zeros have been in the market, I think arguably all year. You know, I thought maybe there's something to be said for the reorganization of the markets, and that may be starting to click in in a different way. So, just curious on any perspective on the accelerating trends in PB&A. That would be great. Thanks. Yeah. Lauren, the

Bucket the drivers of that and I guess part of it youre going to say Oh, it's a little bit of everything but.

Zero would have been in the market I think arguably all year.

I thought maybe there is something to be said for the reorganization of the markets and that may be starting to click in in a different way. So just curious on any perspective on the accelerating trends in <unk>.

That would be great. Thanks.

Yeah.

Lauren.

I would say if you take the bigger picture I think.

Speaker 4: that there is a elevated in-home consumption that has stayed like that. I think home as a hub is a clear trend, and we're seeing, we're capturing.

There is a elevated in home consumption that has state like that.

Homeless a half is a clear trend and we're seeing we're recapturing pretty good that consumption at home and obviously during the quarter.

Speaker 4: pretty good net consumption at home and obviously during the quarter, there's been more mobility across the multiple markets in the U.S., obviously.

Theres been more mobility across the.

The multiple markets in the U S. Obviously.

Speaker 4: but globally, I would say. And then some of the away from home business has accelerated as well. So what you see there is a combination of all these channels.

Globally, I would say and then at some of the away from home business has.

Has accelerated as well so what you see there is a combination of all of these channels I think playing out at very high level.

Speaker 4: I think, playing at a very high level, then if you go into our own business, I would say it's a combination.

Then if you go into our own business.

I would say, it's a combination of branding better execution and the truth is that in Q4, we've seen an improvement sequentially of our supply chain and some of our large brands.

Speaker 4: branding, better execution. And the truth is that in Q4, we've seen an improvement sequentially of our supply chain and some of our large brands, and I would name Gatorade, for example, clearly has improved substantially in its running rates and fill rates.

I would name Gatorade for example, clearly has.

Improved substantially and its surrounding rates on fill rates in the last part of the quarter. So that is reflected as well in a better.

Speaker 4: in the last part of the quarter. So that's reflected as well in a better, you know, overall performance for the business. But we're very pleased in general with the way the North America business is performing in beverages. And it's nice as well. And both the margin expansion, the top line, the fact that it grew with the...

Overall performance for the business that we're very pleased in general with the way the North America business is performing in beverages and snacks as well.

Both the margin expansion the top line. The fact that it grew with the.

Speaker 4: with the market a bit faster than the market in a very challenging year with a lot of.

With the market a bit faster than the market in a very challenging year with a lot of supply chain complexities and bottlenecks for several reasons.

Speaker 4: supply chain complexities and bottlenecks for several reasons. So, we're very pleased, we're feeling comfortable as well for 22, it's very strong commercial programs, very strong brand programs, and as you were saying, probably a better execution machine for many reasons, data and intelligence, but also more empowered organization that makes more local decisions.

We're very pleased.

We're.

We're feeling comfortable as well for 'twenty two is very strong commercial programs very strong brand programs and as you were saying probably a better execution machine for many reasons data and intelligence, but also more empowered organization that makes more local decisions and that's obviously reflected in.

Speaker 4: And that's obviously reflected in the performance of the business.

And the performance of the business.

Thank you. Our next question comes from Andrew <unk> with Jpmorgan.

Speaker 7: Thank you. Good morning. I have a question on sports drinks and then a clarification on the pricing. First on Gatorade, it was a brand that obviously was pressured in 2021 from supply chain challenges and competition and as you go into 2022, can you talk about the supply dynamics there and inventory for the brand? And then on the pricing, I think embedded in your guidance, I understand that it's assuming only the pricing that is already in the market and therefore, I wanted to see if we can bridge from huge comments and seeing the visibility of the gross margin curve potentially recovered by the end of the year and potentially being up year over year for the full year. Thank you.

Thank you good morning, I have a question on sports drinks and then a clarification on the pricing first on Gatorade.

It was a brand obviously was pressured in 2021 of our supply chain challenges and competition and as you go into 'twenty. Two can you talk about the supply dynamics that any of them toy for the brand.

And then on the pricing I think embedded in your guidance I understand that it's assuming only the pricing that is already in the market.

And therefore I wanted to just see if we can bridge from hughs comments seem to visibility off the gross margin curve potentially be covered by the end of the year and potentially being up year over year for the full year. Thank you.

Yes.

Speaker 4: Yeah, let me talk to you about the Gatorade and then Hugh can talk more about the pricing. We are, we're very optimistic with this Bors.

Let me.

Talk to you about the Gatorade and then Hugh can talk more about the enterprise.

Yes, we are.

We're very optimistic with the spores.

Drinks category.

Speaker 4: category but you know we think of it broadly than just hydration we think about overall nutrition and

Think of it broadly than just hydration, we think about overall nutrition.

Speaker 4: and the way Gator is playing that space along with some other brands like Propel, Muscle Milk, Evolv and some other.

Gatorade explain that space, along with some other brands like propel muscle.

<unk> and some other some other assets that we have in that space. It is growing very fast we see continued.

Speaker 4: other assets that we have in that space. It is growing very fast. We see continued consumer adoption of this category. Consumers are exercising more, and we think that's a very positive trend for the segment.

Consumer adoption of these category consumers had exercised two more within that as a very positive trend for us for the for the segment when it comes to Gatorade the brand equity is stronger than ever.

Speaker 4: The brand equity is stronger than ever and the innovation that we've done this year and you will see more next year, be it Xero, be it GhettoLite, be it some of the more science related with the sweat pads and how we can be much more customized for the...

And the innovation that always then this year and you will see more next year the zero B <unk> b.

Be it some of the more science related with a sweat patch and how we can be a much more customized for the.

For the consumer based on their hydration profile. So there is there is a lot of positive value that we can create and higher and higher parts of the of the category with Gatorade and some of the other brands. So we feel good about the demand momentum on the supply obviously we.

Speaker 4: for the consumer based on their hydration profile. So there's a lot of positive value that I think we can create in higher parts of the category with Gatorade and some of the other brands. So we feel good about the demand momentum. On the supply, obviously, you know, we have reacted to the situation and we've expanded capacity, both ourselves and some of our co-packers, and we're ready for a...

Have reacted to this situation and we've expanded capacity.

Our sales in some of our co Packers and we are ready for a <unk>.

Speaker 4: for what we think will be another year of successful growth for Gatorade and continue to build a brand in spaces that will be hard to match by competitors. So that's how we are approaching Gatorade and the full category.

For what we think will be another year of successful growth for Gatorade and continue to build the brand in spaces that.

We will be hard to match by competitors. So that's how we are approaching gain rate and the full the full category next year, yes.

Speaker 3: Yeah, how are you? I'll I'll expand on the your question on the other side. Our assumptions on the guidance are based on the pricing that we have in the marketplace right now. And that pricing is based on the visibility that we have into both the productivity and the cost structure and commodities.

I'll expand on the.

Your question on the other side.

Our assumptions on the guidance are based on the pricing that we have in the marketplace right now.

And that pricing is based on the visibility that we have into.

Both the productivity and the cost structure.

Commodities, which we have pretty good visibility into on the commodities out about eight nine months of the year as you would expect based on some of the things I've communicated in the past.

Speaker 3: which we have pretty good visibility into on the commodities about eight, nine months of the year as you would expect based on some of the things I've communicated in the past.

Speaker 3: Q4 is still a bit open, but there are obviously pricing windows as we get into the fourth quarter as well. So as those facts become more known, we'll make decisions on that front.

Q4 is that.

Still a bit open.

But there are obviously pricing windows as we get into the fourth quarter as well so as those facts become more known we will make decisions on that front.

Speaker 3: Regarding your question on margins, obviously we don't give...

Regarding your question on margins, obviously, we don't give.

Speaker 3: uh... guidance on margins but i think given the combination of what we know about cost and what we know about pricing we ought to be able to get through the year

Guidance on margins, but I think given the combination of what we know about cost and what we know about pricing, we ought to be able to get through the year pretty well intact on margins.

Speaker 3: pretty well intact on margins, acknowledging the fact that earlier in the year, the cost pressure's a little bit higher than it is later in the year.

Acknowledging the fact that earlier in the year of the cost pressures a little bit higher than than it is later in the year.

Thank you. Our next question comes from Bryan Spillane with Bank of America.

Hey, good morning, all.

Speaker 2: Hey, good morning, maybe just two follow-ups, one is just to hear your answer, response to Andrea's question, when you're saying margins, are you talking about EBIT margins or gross margins?

Just to maybe just two follow ups.

One is just.

<unk> you.

The answer response to Andrea's question.

When youre seeing margins Youre talking about EBIT margins or gross margins.

Both actually okay. Okay.

Speaker 2: Both, actually. Okay. Okay. And then, you know, my question is about just the, you know, share repurchases coming back in this year. Hugh, can you talk a little bit about where we stand now in terms of cash return to shareholders? I think part of the motivation to maybe pull back on repurchases at the beginning of 21 was...

And then.

My question is about the share repurchases coming back in this year.

Can you talk a little bit about where we stand now in terms of cash returned to shareholders. I think part of the motivation to maybe pull back on repurchases at the beginning of 'twenty one was.

Speaker 2: CapEx is going to be elevated for a while, and I know you're watching the credit rating. Now there's more comfort with being able to return more cash to shareholders.

Your capex is going to be elevated for a while and I know you were watching the leverage.

The credit ratings so.

This is just a you know there's more comfort with being able to return more cash to shareholders or is.

Speaker 2: Is it a change in CapEx outlook? Just trying to understand if we can, you know, how you're thinking about that.

Is it a change in Capex outlook, just trying to understand if we can how youre thinking about that.

Speaker 3: Yeah, I mean, obviously, we made the decision not just based on what we see this year, but what we see over the next couple of years. Number one, we really had a pretty good year on cash generation last year, which gave us a little bit of extra room. In addition to that, obviously, we had the Tropicana transaction, which bought us some room as well, and we just really closed that over the course of the last week or so.

Yes, I mean, obviously, we made the decision not just based on what we see this year, but we see over the next couple of years.

Number one we really had a pretty good year on cash generation last year, which gave us a little bit of extra room. In addition to that obviously, we have the tropicana transaction, which which bought us some room as well.

We just really closed that over the course of the last week or so.

Speaker 3: So the combination of those two factors led us to the decision. As I mentioned last year, CapEx will be elevated for another year or two, but frankly I think that's well within the sort of overall envelope that we're working on and we got comfortable with going back to share or purchase.

So the combination of those two factors led us to the decision as I mentioned last year Capex will be elevated for another year or two but.

Frankly, I think thats well within the sort of overall.

Envelope that we're working on and we got comfortable with.

Going back to share repurchase.

Obviously, it's.

Speaker 3: Obviously, it's one of the levers we use to help drive company performance and shareholder returns.

<unk>.

One of the levers we use to.

<unk> helped drive the.

Drive.

Company performance.

Shareholder a shareholder returns.

Thank you. Our next question comes from Laurent <unk> with Guggenheim.

Speaker 8: Hey, good morning Raman, you well, I do, I'd like to focus this morning on on the energy platform. So it has been about two years since the acquisition of Rockstar that unlocked the energy platform.

Hey, good morning around on you.

Well I do I'd like to focus this morning on the Energi platform. So it has been almost two years since the acquisition of Rux style of unlocked DNS your platform.

Speaker 8: An advantage PepsiCo has over your competitor that is limited because of its contract with Monster. So, could you please update us on where you are seeing, where you're heading? Because the beginning has been a bit more challenged than expected with the difficulty with bank management.

And then the voltage Mexico has over your competitor that is limited because of its contract with monster. So could you. Please update us on where you are seeing your where you're heading.

Because at the beginning has not been.

That's been a bit more challenged unexpected with the <unk> Bank management.

Speaker 8: Mountain Dew rise, name change, and Rockstar taking a bit more time to stabilize, so that is a high growth, high profitability segment of the business. It doesn't impact on PB&N, the rest of the business. So could you please update us on what you are seeing and where you're heading?

And do rise name change and Workstyle ticking a bit more <unk>, so at least the high growth high profitability.

Segment of the <unk>.

Business it doesn't impact on <unk> and the rest of the business. So could you. Please update us on what Youre, seeing and where where you were heading.

Okay.

Speaker 4: Thank you, Laurent. Good to talk to you. Listen, we're executing the playbook, as we told you, we've been quite consistent.

Good to talk to you.

We're executing that playbook as we as we told you.

Quite consistent on.

The last few calls and.

Speaker 4: the last few calls, and we're quite pleased with what we're seeing. Obviously, Rockstar, we always said it was the most complex transformation. We repositioned the brand, we changed packaging. We're seeing growth in Rockstar, both in the areas where it's more developed, areas of the country where it's more developed, and new areas, obviously, where the distribution system...

We're quite pleased with what we're seeing.

Obviously, Rockstar, we always said it was the most complex.

Transformation, we're repositioning the brand we changed packaging.

<unk> seen growth in Rockstar, both in the areas, where it's more developed areas of the country was more developed.

New areas, obviously, where the distribution system is making a difference and we're seeing especially very good performance in new innovation segments like no sugar and some more.

Speaker 4: it's making a difference. We're seeing especially very good performance in new innovation segments like no sugar and some more Hispanic focused innovation. So we're hopeful on Rockstar and we're seeing the metrics that we set for ourselves are becoming reality. Then on Mountain View Energy.

Hispanic focused innovation, so we're hopeful on Rockstar and we're seeing the metrics that we set for ourselves are.

Becoming a reality then on mountain Dew energy.

Speaker 4: You know, we had this legal situation, which we moved very quickly. Super agile, actually. The teams did a great job turning that in six.

We had this legal situation, which we moved very quickly as Super agile actually the teams did a great job turning that in six weeks and it is in the market and it's gone back to the platform exactly where it was so clearly there is a consumer that likes the product.

Speaker 4: And it's in the market, and it's gone back to the platform exactly where it was. So clearly, there is a consumer that likes the product, and we're ready to now invest, obviously this year, in building that platform under the Mountain View energy branding. And that's a pretty good position, even though we had that legal situation.

Ready to now invest.

Obviously this year in building that platform.

Under the mantra of new.

Energy branding.

Pretty good pretty good position, even though we had that legal.

Okay.

<unk>.

Which was the other part of the.

Speaker 4: which was the other part of the strategy. After that initial hiccup, I think we're actually doing a pretty good job as a distributor of the brand, and the brand is more points of sale than it used to be.

Strategy.

After that initial hiccup I think we're actually we're doing pretty good job as a distributor of the brand and the brand is.

More points of sale that it used to be and we continue to focus on driving that performance.

Speaker 4: and we continue to focus on driving that performance.

Speaker 4: you know, during the length of the contract. And then, but the other one that we're very pleased is the Starbucks relationship. That is, you know, that JV relationship is.

We're in the length of the contract.

The other one that we're very pleased is the Starbucks relationship that is.

That JV relationship is better than ever I would say and both double shot triple shot is growing at a very high levels and I don't know if youre aware, we just launched.

Speaker 4: better than ever, I would say. And both double shot, triple shot is growing at a very high levels. And I don't know if you're aware, we just launched Baya Energy, which is a full natural energy brand, new brand to the system.

Yeah energy, which is a full natural energy brand new brands through the system.

Speaker 4: It's the first time we launched it both in retail and in Starbucks outlets.

<unk> is the first time, we launch it both in retail and in Starbucks outlets.

Great product.

Speaker 4: Great product, good levels of caffeine coming from natural source. We're very optimistic on that platform. It's very incremental if you see the full portfolio of brands that we have on energy. So Vaya will be.

No.

Good good levels of caffeine coming from natural source, we're very optimistic on that platform is very incrementally. If you see the full portfolio of brands that we have on energy. So yes, it will be.

Speaker 4: a positive addition incremental. So I think the machine is firing in a lot of cylinders. It's always, you know, it is an area of focus. You need to test and learn, and adjust and tweak your execution. I'm pleased with what I'm seeing.

A positive addition, incremental so I think the machine is firing in a lot of cylinders.

As always.

It is.

An area of <expletive> goes you need to test and learn.

And adjust and tweak your execution.

I am pleased with what im seeing the other element with him talk so much about Rockstar is that this year is going to be <unk> 17 international markets.

Speaker 4: The other element that we don't talk so much about Rockstar is that this year is going to be in 17 international markets.

Speaker 4: and it was in 10 markets. We expanded in 21 to, I think it was 22, 23 markets. Now next year, this year, 22 will be in 70 markets. So clearly another part of the growth story of Rockstar as we acquired the business. So we'll keep updating you in our regular calls, but we're positive on how the full energy strategy is working.

It was in 10 markets, we expanded in 'twenty, one too I think it was $22 23 market now next year. These year 'twenty two we'll be in 70 markets. So clearly another part of the growth story of Rockstar.

As we acquired the business.

We will keep updating you.

In our regular calls, but we're positive on how the full energy strategy is working.

Thank you. Our next question comes from Vivien <unk> with Cowen.

Hi, good morning, Thank you.

Speaker 6: Hi, good morning. Thank you. I wanted to follow up, please, on Dara's question on price elasticities. Hugh, I appreciated your comment that you guys are looking at multiple scenarios and clearly do have a lot of levers at your disposal. But I was hoping you could dive a little bit more, please, on Pepsi beverages, North America, and specifically how you think about cross-category elasticities across your U.S. beverage business. And as a quick follow-up to that, to the extent that consumers' ability to absorb pricing were to diminish at all, are there certain categories you'd be watching more closely as a leading indicator of that? Thank you.

Follow up please on Jamie's question on price elasticity, you I appreciated your comment that you guys are looking at.

Multiple scenarios and clearly do have a lot of levers at your disposal, but I was hoping you could dive a little bit more please on Pepsi beverages America, and specifically, how you think about mass category elasticities across our U S beverage business and as a quick follow up to that.

The consumers ability to absorb pricing were to diminish at all like are there certain categories you'd be watching more closely as a leading indicator of that thank you.

Yes happy to go there a bit and as I said.

Speaker 3: Yeah, happy to go there a bit. And as I said, you know, elasticities to me are basically a portfolio of risks that we try to manage rather than kind of zeroing in on a single number, right? And a portfolio as complex as this.

Elasticity to mirror, our basically our portfolio of risks that we try to manage rather than kind of zeroing in on a single number I had in our portfolio as complex as this.

It's hard to have that conversation.

Speaker 3: it's hard to have that conversation. What I would tell you, Vivian, that we've seen over the last couple of years is in the North America beverage business.

I would tell you that we've seen over the last couple of years is in the North American beverage business.

Speaker 3: category elasticities are relatively low. I think the reason for that is, particularly in the multi-SERB area.

Category Elasticities are relatively low I think the reason for that is particularly in the multibank multi serve area prices are pretty remarkably low right whether youre looking at two leaders are 12 packs and if you compare those prices to elsewhere in the world.

Speaker 3: Prices are pretty remarkably low, right? Whether you're looking at two liters or 12 packs, and if you compare those prices to elsewhere in the world.

Speaker 3: uh... the prices in this market are are actually quite low it's it's a tremendous value for consumers so uh... as as we sort of move into uh... you know a world of higher inflation i do expect you know that the category prices probably will go up uh... and at least today we we haven't seen

Prices in this market are actually quite low it's a tremendous value for consumers. So.

As as we sort of move into.

A world of higher inflation I do expect the <unk>.

<unk> prices, probably will go up.

And at least to date, we haven't seen much in the way of elasticity as you might imagine I can't point to any one I think we sort of watch elasticities on every.

Speaker 3: much in the way of elasticity. As you might imagine, I can't point to any one. I think we sort of watch elasticities on everything, both the value packages and the premium packages. And the good news is our system's agile enough to react to it. But right now, the elasticities are in line with our expectations, and frankly, that's what gives us confidence in the guide for the year.

Thing.

Both the value packages and the premium packages and the good news is our systems agile enough to react to it but right now the elasticities are in line with our expectations and frankly, that's what gives us confidence in the guide for the year.

Thank you. Our next question comes from Kevin Grundy with Jefferies.

Great. Thanks, Good morning, everyone. Thanks for the question.

Speaker 3: Great, thanks. Morning, everyone. Thanks for the question. First, just a clarification on Lorentz, a line of questioning around energy. Ramon, can you just comment? You mentioned firing on all cylinders, and you're pleased with energy. Would you rule out M&A? So if you could just comment on that, that'd be helpful. My broader strategic question is really on the business venture with Boston Beer regarding hard Mountain Dew. Can you just update us on how that partnership has progressed, and importantly, as you spend more time...

Just a clarification on the rents.

Your line of questioning around energy remote can you just comment you mentioned firing on all cylinders and Youre pleased with with energy would you rule out M&A. So if you could just comment on that that'd be helpful. My broader strategic question is really on the business venture with Boston Beer regarding hard mountain Dew can you just update us on how that partnership.

Has progressed and importantly, as you spend more time studying the alcohol space can you provide some updated thoughts on broader ambitions to play not only as it pertains to new product innovation, but also the potential to distribute non pepsico alcohol products through your distribution. So thanks for that.

Speaker 3: studying the alcohol space. Can you provide some updated thoughts on broader ambitions to play, not only as it pertains to new product innovation, but also the potential to distribute non-PepsiCo alcohol products through your distribution. So thanks for that.

Yes, Kevin.

Speaker 4: Yeah, Kevin, on M&A, I think we have sufficient brands to play in that space, so we're not thinking about any M&A in the energy space.

Sure.

M&A I think we have sufficient brands right to play in that space.

We're not thinking about any M&A into your into your space at this point.

Speaker 4: Now, with regards to alcohol, great question and I think it's a very interesting development for...

Now with regards to alcohol great Great question I think.

It's a very interesting development for.

For the LRB category and for the alcoholic category.

Speaker 4: the LRB category and for the alcohol category, so really consumers are choosing.

Clearly consumers are choosing to converge.

Speaker 4: to converge in a way. And so we see that space as a.

And so we see that space is a strategically very very incremental.

Speaker 4: It's statistically very incremental, it's sizable, and it's profitable. So obviously we would like to participate in a consistent and structural way for us. Obviously we will play from the brand point of view on innovation, licensing our brands to a...

Sizable and it's profitable so obviously, we would like to participate in.

In a consistent and structural way forward for us.

Obviously, we will play from the brand point of view on innovation licensing our brands to two.

Speaker 4: to be manufacturers that can help us with the manufacturing. We don't have the technologies to make some of these products, but we're creating strong partnerships, you know, you mentioned one. And I think we have brands that can extend into those spaces. So that will be one way how we do it. On the other hand, I think there is a very interesting play for us.

Two.

Beer manufacturers that can help us with the manufacturer and we don't have the technologies to make some of these products.

Ratings from partnerships.

You mentioned, one and I think we have brands that can extend into those spaces. So that will be one way how we do it on the other hand I think there is a very interesting play for us to leverage some of our distribution assets too.

Speaker 4: to leverage some of our distribution assets to...

Speaker 4: you know, to provide capital distribution and consistent execution across the country. And we are...

To provide capital distribution and consistent execution across the country.

And where we are.

We're working on that solution.

Speaker 4: We're working on that solution. We have obviously some market tests undergoing and we will continue to roll out that potential distribution opportunity. I think it could be an advantage for us.

We have obviously some market test undergoing and we will we will continue to.

We're all out those that potential distribution opportunity I think it could be an advantage for us.

Speaker 4: if we do it well, and that's what we're planning to do. So we see us participating from the consumer point of view and also from the infrastructure and execution and granularity of execution point of view as well. Those two areas could create value for PepsiCo long term.

We do it well and that's where we're planning to do so we see us participate in from the consumer point of view and also from the infrastructure and execution and granularity of execution point of view as well those two areas.

Could create value for Pepsico long term.

Thank you. Our next question comes from Rob <unk> with Evercore.

Great. Thank you very much we focus mostly on the U S. Today I was wondering if you could talk a little bit about.

Speaker 9: Great. Thank you very much. We focused mostly on the U.S. today. I was wondering if you could talk a little bit about

Speaker 9: uh... how you're viewing your global footprint

How youre viewing your global footprint.

Speaker 9: In the past, for instance, the company has made acquisitions to expand the offerings in Russia and South Africa. Any thoughts along those lines in other geographies?

In the past for instance, the company has made acquisitions to expand the offerings and in Russia, and South Africa, any any thoughts along those lines in other geographies.

Speaker 9: uh... many things that is going on the international side that that we should be aware of uh... in terms of strategic direction or or changes of how you're looking at the business

Any things that are going on in the international side that we should be aware of.

In terms of strategic direction or changes of how youre looking at the business and then just a quick follow up on the hedging and the commodities it would be I think it would be helpful.

Speaker 9: uh... and then just a quick follow-up on the uh... the hedging in the commodities if it'd be i think it'd be helpful if if to the extent you can that talk about some of the uh... the key commodities and what percentage of your cost structure they represent

If to the extent you can kind of talk about some of the key commodities and what percentage of your cost structure. They represent thank you.

Speaker 4: Great. Robert, I'll talk about international a bit and then you can talk about the commodities and, you know, we're quite limited on what we say about our...

Great.

Robert I'll talk about international a bit and that Hugh can talk about the commodities.

We're quite limited on what we'd say about our detailed P&L.

Speaker 4: tell P&L. On international, I've always said and continue to say, this is probably the largest growth opportunity we have in PepsiCo. I think we have strong market positions in snacks and pretty good in beverages in many markets. Some others a bit more challenging positions, but we're working to strengthen those.

On international.

We continue to say this is by the largest.

<unk> growth opportunity, we have and Pepsico.

I think where we have a strong market positions in snacks and pretty good in beverages in many markets. Some others have a more challenging positions that we're working to strengthen those.

Speaker 4: I think we have a portfolio of brands and we have a portfolio of assets and the team's in place to continue to work on that opportunity.

I think we have that portfolio of brands and we have the portfolio of assets and the teams in place to continue to work on that opportunity.

Speaker 4: you know, last year we grew a double-digit internationally pretty much across the board from Asia to Middle East, Africa, Europe was very close to double-digit full year if I recall and then Latin America beat double-digit. So, you know, pretty good performance and if I look at the top 15 markets for the company, we are gaining share in most of those markets which is to me the key indicator of.

Last year, we grew double digit internationally pretty much across the board from Asia to Middle East Africa, Europe was already close to double digit full year, if I recall, and then Latin America double digit so.

Pretty good performance and.

If I look at the top 15 markets for the company, we are gaining share in most of those markets, which is to me the key indicator of <unk>.

Speaker 4: you know, progress in the system. Obviously, as we scale up those markets, profitability gets much better, and that's the model we're applying to, we're trying to play. For next year, we, you know, we see good signs. Obviously, you know, the geopolitics in some parts of the world are complex. We hope that that will not materialize.

Progress in the system, obviously as we scale out of those markets profitability get so much better and that's the model. We're applying to we're trying to play for next year, we will see good signs obviously.

The geopolitics in some parts of the World are complex we.

We hope that that will not materialize in anything that will impact our system and we see inflation.

Speaker 4: in anything that will impact our system. And we see inflation going up everywhere.

Going up everywhere.

Speaker 4: You know, we have the brands and we have, again, the capabilities to prize, that's what we're doing in majority of the market.

We have the brands and we have again the capabilities to apprise as what we're doing in majority of the market. We feel good about the elasticity as we discussed earlier, both develop the end markets and emerging.

Speaker 4: We feel good about the elasticities as we discussed earlier, both developing markets and emerging. I'm a bit more cautious on emerging markets. I want to see a few more months to understand how the consumer is absorbing all these high costs in multiple parts of their budget, household budget.

A bit more cautious on emerging markets I wanted to see a few more months to understand how the consumer is.

Kind of absorbing all these high cost in multiple parts of there.

Budget.

This whole budgets.

Speaker 4: But we're feeling good about how consumers are staying loyal to our brands in spite of some of our pricing decisions. So yeah, that's what we've covered internationally. Yeah. Yeah. So in terms of commodities, just a couple of facts for you. Number one, the overall commodity basket is a...

We're feeling good about how consumers are staying loyal to our brands in spite of.

Some of our pricing decisions so yes.

Recovery internationally.

Yes, yes.

Terms of commodities, just a couple of effects.

Number one the overall commodity basket as well.

Speaker 1: uh... about sixteen seventeen billion dollars uh... it's a super broad basket

Oh, but $16 $17 billion.

A super broad basket.

Speaker 1: uh... net there's not a single commodity that even accounts for ten percent of the overall spend so uh... fairly good diverse basket but that said uh... clearly uh... commodities are inflationary pretty well across the board and that's what we're dealing with

There's not a single commodity that even accounts for 10% of the overall spend so far.

Fairly diverse basket, but that said.

Clearly.

Models are inflationary pretty well across the board and Thats what were dealing with.

Thank you our last question comes from Chris Carey with Wells Fargo.

Hey, good morning. Thanks, so much just on that last line of questioning there on commodities you expect pricing to offset commodities just in the context of your comments on full year margins in the night.

Speaker 10: Hey, good morning. Thanks so much. Just on that last line of questioning there on commodities, do you expect pricing to offset commodities just in the context of your comments on, you know, full-year margins?

Speaker 10: You know, on North America, there was a comment in the prepared remarks just around.

On North America, there was a comment in the prepared remarks just around.

Speaker 10: expectations for PB&A margins to expand next year. I think the margin drivers of this business have obviously evolved with product mix and pricing and I wonder if you could just comment on how you see the drivers of that business go forward in the context of some evolution of the business. Thanks so much.

Expectations for <unk> margins to expand next year I think.

The margin drivers of this business.

Obviously evolved with product mix and pricing and I Wonder if you could just comment on how you see the drivers of that business go forward in the context of some evolution of the business. Thanks, so much.

Speaker 1: Sure. In terms of commodities.

Sure.

In terms of commodities.

Commodities and the way we approach it from a pricing perspective, obviously, we always try to do what we can in terms of productivity.

Speaker 1: and the way we approach it from a pricing perspective. Obviously, we always try to do what we can in terms of productivity.

Speaker 1: to manage an inflationary environment, but obviously when inflation is this high, we need to take some pricing in general and develop markets. We do price through the commodity increases.

To manage.

An inflationary environment, but obviously when inflation is this high.

We need to take some pricing in general in developed markets.

We do price through the commodity increases and developing and emerging we have the variable to consider of.

Speaker 1: In developing and emerging, we have the variable to consider of affordability and consumer reaction to it, and our history has been.

Portability and consumer reaction to it and our history has been it.

Speaker 1: It will initially price through two-thirds to three-quarters and then go back and get the rest of it later. That said, overall, as I mentioned early in the call, I think the combination of our productivity and our pricing should put us in a position where we ought to be able to keep margins pretty well intact for the year.

We will initially priced through two thirds to three quarters, and then go back and get the rest of it later.

That said overall as I mentioned earlier in the call.

The combination of our productivity and our pricing should put us in a position, where we haven't been able to keep margins pretty well intact for the year.

Speaker 1: So that's kind of where I think we land on that. And in terms of PB&A, we do expect margins to continue to improve as...

So thats kind of where where I think we land on that in terms of <unk>. We do expect margins to continue to improve as as we've talked about in the past.

Speaker 1: as we've talked about in the past. Drivers are generally the same ones that we've talked about. It's a combination of some pricing, some product mixes, as the energy category is more successful for us.

Drivers are generally the same ones that we've talked about it it's a combination of some pricing some product mix as the energy category is more successful for us.

Speaker 1: some level of productivity as we get returns on the investments we've made in capacity and digitalization and the like. And we continue to use global business services as a mechanism to drive G&A productivity as well. So it's a broad bucket of actions that over the course of several years will get PB&A margins closer and closer to the company average.

Some level of productivity as we get returns on the investments we've made in capacity and digitalization and the like.

And we continue to use global business services as a mechanism to drive G&A productivity as well. So it's a broad bucket of actions that over the course of several years, we'll get PBA margins closer and closer to the company average.

Great. Thanks.

Speaker 4: Great, I think this is the last question. So I just would like to say thank you for everyone that joined us today and for the confidence you've played in PepsiCo and in all of us with your investment. And we hope that you guys stay safe and healthy. So thank you very much. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. Speakers, please stand by.

The last question. So just would like to say thank you for everyone that joined us today and for the confidence you've placed.

<unk> gone and all of US with your investment and we hope that you guys stay safe and healthy. So thank you very much.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day speakers soft speakers. Please standby.