Q4 2023 Pepsico Inc Earnings Call

February 9, 2024

Operator: The Bulletproof Executive 2013 Good morning, and welcome to PepsiCo's 2023 4th Quarter Earnings Question and Answer Session. Your lines have been placed on listen only until it's your turn to ask a question.

Okay.

Speaker Change: Good morning, and bucket, perhaps across 2023 fourth quarter earnings question and answer session. Your lines have been placed on listen only until it's your turn to ask a question today's call is being recorded and will be archived at www Dot Pepsico Dot com.

Operator: 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. Pamnani, you may begin. Thank you, operator. Good morning, everyone.

Speaker Change: Now my pleasure to introduce Mr. Ravi <unk> senior Vice President of Investor Relations. Mr. Pam you may begin.

Ravi: 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.

Ravi Pamnani: 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, guidance, and outlook. Such forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 9, 2024, and we are under no obligation to update them. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Ravi: 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 guidance and outlook forward looking statements inherently involve risks and uncertainties and only reflect our view as of today February nine 2024, and we are under no obligation to update when does.

<unk> our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Ravi Pamnani: Please refer to our fourth quarter 2023 earnings release and 2023 Form 10-K, 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. As a reminder, our reported fourth quarter and fiscal year 2022 financial results included one extra reporting week for our North America business. Our reported fourth quarter and fiscal year 2023 financial results in North America reflect the impacts associated with one less reporting week compared to the prior year. Joining me today are PepsiCo Chairman and CEO, Ramon Laguarta, and PepsiCo's Executive Vice President and CFO, Jamie Caulfield. We ask that you please limit yourself to one question. With that operator, I'll turn it over to you for the first question. Thank you. In order to ask a question or make a comment, please press star followed by one on your touchtone.

Ravi: Please refer to our fourth quarter 2023 earnings release, and 2023 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.

Ravi: As a reminder, our reported fourth quarter and fiscal year 2022 financial results included one extra reporting week for our North America businesses.

Ravi: Our reported fourth quarter and fiscal year 2023 financial results in North America reflect the impacts associated with one less reporting week versus when compared to the prior year.

Speaker Change: Joining me today are pepsico's, chairman and CEO, Ramon Laguardia, and Pepsico's Executive Vice President and CFO, Jamie Caulfield, We ask that you. Please limit yourself to one question with that operator, I'll turn it over for the first question.

Speaker Change: Thank you in order to ask a question or make a comment. Please press star followed by one on your Touchtone phone, we will pause for a moment, while we compile the Q&A roster.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Our first question comes from Bryan Spillane with Bank of America. Your line is open.

Thanks, operator, good morning, everybody Jamie.

Bryan D. Spillane: Jamie I'm not sure who include more surprised we're seeing each other again mirror you but.

Operator: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Bryan Spillane with Bank of America. Your line is open. Thanks, operator. Good morning, everybody. Jamie, I'm not sure who's more surprised we're seeing each other again, me or you, but welcome back.

Speaker Change: Welcome back.

Bryan D. Spillane: It's great to talk to you again, Brian.

Bryan D. Spillane: So I have a question I guess, just we can feel that a few questions today about the organic sales growth guidance for the year and maybe if.

Bryan D. Spillane: If you can help dimensionalize.

Bryan D. Spillane: <unk>.

Bryan D. Spillane: Not just the.

Bryan D. Spillane: The reduction, but how much is.

Recall things that are sort of external how much are things that are under your control and maybe you can think about.

Bryan D. Spillane: It's great to talk to you again, Bryan. So I have a question, I guess, just in, we fielded a few questions today about the organic sales growth guidance for the year. And maybe if you can help dimensionalize, you know, not just the reduction, but how much is recall, you know, things that are sort of external, how much are things that are under your control?

Bryan D. Spillane: As we think the balance of that just how much of.

Bryan D. Spillane: Improvement.

Bryan D. Spillane: Are you expecting maybe in North America versus international just trying to understand the moving parts of how we get to the organic sales guide for the year.

Bryan D. Spillane: Great. Good morning, Brian This is Ron.

Ron: Isn't it.

Ron: Let me step back for a minute and talk about the last few years and then how next year fits into that so the last few years we've seen.

Ron: Double digit growth top line and the business consistently so I think as that 11, CAGR and a 14%.

Ramon Laguarta: And maybe you can think about, as we think about the balance of that, just how much improvement are you expecting maybe in North America versus international? Just trying to understand the moving parts of how we get to the Organic Sales Guide. Great. Good morning, Bryan. This is Ramon.

Ron: Our double digit EPS growth consistently as well.

Ron: Three very good years, now and we see a.

Ron: In 24, we see a normalization of the categories of normalization of the cost or monetization of inflations or we see everything trending back to our long term algorithm now.

Ron: We guided to upper end of the.

Ramon Laguarta: Listen, let me step back for a minute and talk about the last few years and then how next year fits into that. So the last few years we've seen double-digit growth on the top line in the business consistently. So I think it's an 11 CAGR and a 14 percent. Double-digit EPS growth consistently as well. So three very good years.

Ron: Both topline and Bottomline.

Ron: In our previous earnings call.

Ron: We maintain the top line of the upper end for the EPS and we.

Ron: We move back to a at least for for the top line and there's a few factors.

Ron: I think our material one is the Quaker recall, we had we had a food safety incident in our in our Quaker supply chain in the U S, which has impacted us in the November December and it will continue to impact us I think for the at least for the first half of the year.

Ramon Laguarta: Now we see a, In 2024, we see a normalization of the categories, a normalization of the cost, and a normalization of inflation. So we see everything trending back to our long-term algorithm. We guided to the upper end of both the top line and the bottom line on the previous earnings call. We maintained the top line at the upper end for the EPS, and we moved back to at least four for the top line, and there are a few factors that... Thank you very much.

Ron: We recover our supply chain to normality.

Ron: We're also seeing some geopolitical.

Ron: <unk> around the world that are impacting some of our markets.

Ron: My potentially <unk>.

Ron: Continued in the first half of next year.

Ron: <unk> the <unk>.

Ron: Third element is we are seeing.

Ron: A bit of a slowdown in the U S.

Ron: Both the food category in the beverage category in Q4.

Part of that is.

Ramon Laguarta: We're also seeing some geopolitical events around the world that are impacting some of our markets, which might potentially continue in the first half of next year. And then the third element is we're seeing a bit of a slowdown in the US, both in the food category and the beverage category, in Q4. Part of that is... It's a decline due to pricing and this possible income situation.

Ron: It slowed down due to pricing and disposable income.

Ron: Situation.

Ron: Part of that is also a <unk> between in home consumption and away from home consumption that we're seeing in our business in the U S. We think that that might continue in next year. So thats why were lower India.

Ron: Our guidance, we feel good about the consumer in 24 in the U S. We feel good in the sense of.

Ron: Very low unemployment, we feel good about the fact that we've seen wages will go higher than inflation next year.

Ramon Laguarta: Part of that is also pivoting between in-home consumption and away from home consumption that we're seeing in our business in the U.S. We think that that might continue next year. So that's why we're lowering our, you know, our guidance. We feel good about the consumer in 24 in the U.S. We feel good about the sense of very low unemployment, feel good about the fact that we think wages will go higher than inflation next year, and we hope that by the summer, interest rates will go down, and that will create another source of oxygen for this possible incoming household. So we feel good about the consumer in the U.S., but if you think about those three elements, we decided to have at Thank you.

Ron: And we we hope that by the summer interest rates will go down and that will create another source of oxygen for disposable incurring household. So we feel good about the consumer in the U S. But if you think about those three elements, where we decided to.

Ron: Have a at least for us the guidance for the top line.

Speaker Change: Thank you one moment for our next question.

Our next question comes from Lauren Lieberman with Barclays. Your line is open.

Lauren R. Lieberman: Hi, good morning.

Lauren R. Lieberman: Just kind of continuing on that thread perhaps.

Lauren R. Lieberman: Focusing more on free now.

Lauren R. Lieberman: Chat channel data hasn't looked great the reported.

Lauren R. Lieberman: Volume decline.

Lauren R. Lieberman: What we've seen in some time.

Lauren R. Lieberman: But when I look on a multiyear stack.

Lauren R. Lieberman: Look kind of steadier.

Lauren R. Lieberman: Sequentially when I look at the second half.

Lauren R. Lieberman: Curious how much is maybe near term result on Frito lay.

Lauren R. Lieberman: Looking into the beginning of the year is more multiyear comps is it the consumer backdrop the impact of pricing could you thinking a little bit about your expectations for <unk>.

Lauren R. Lieberman: Plans I guess for driving greater unit.

Operator: One moment for our next question. Our next question comes from Lauren Lieberman with Barclays. Your line is open. Great, thanks. Good morning.

Lauren R. Lieberman: Unit volume growth of 24.

Speaker Change: Two people great Lauren I think it's a great question.

Speaker Change: To summarize we're seeing the frito business going back to profitable volume growth in 'twenty four.

Lauren R. Lieberman: I'm just kind of continuing on that thread, perhaps, a little longer, focusing more on Frito. So track channel data hasn't looked great, you know, the reported volume decline, you know, sort of bigger than what we've seen in some times in this business. But when I look at a multi-year stack, you know, things look kind of steadier, sequentially, when I look at the second half. So just curious how much these near-term results on Frito may be influenced by these multi-year comps. Is it the consumer backdrop, the impact of pricing, but just thinking a little bit about your expectations for and plans, I guess, for driving greater unit, um, unit versus volume growth in 24. Great, Lauren. I think it's a great question.

Speaker Change: That's a.

Speaker Change: How we're thinking about the business.

Speaker Change: If you think about the slowdown in Q4 and Youre linkage to the elements that I was referring to there is a unit versus volume dynamic in the Frito business that is quite relevant as you see consumption moving from in home to away from home.

Speaker Change: The portion size is meaningfully different so we're seeing growth in convenience stores, we are seeing growth in away from home.

Speaker Change: Like two to three times the retail growth that obviously has an implication on volume as we look at the at the <unk>.

Speaker Change: 24, we have a very strong commercial plan for Frito, we have.

Speaker Change: Our core brands very well invested you saw that in 'twenty three we increase our A&M meaningfully we're planning to do that as well in 'twenty four.

Speaker Change: So <unk> has a big increase in A&M Doritos has a big increase in A&M. All are permissible portfolio, which is as you think about a combination of Sun chips, Bob corners, the whole simply line smart fluids.

Speaker Change: As part of their portfolio is growing.

Speaker Change: Almost three times the average of Frito. So we're putting a lot of emphasis on that particular part of the portfolio to make sure that it has is well.

Speaker Change: Executing this store and now that supply chain is back to a 100% we're going to push that part of the portfolio even more aggressively so we seen that frito.

We will have a continuation of the share of market gains that <unk> been having for the last couple of years.

Ramon Laguarta: Just to summarize, we're seeing the Frito business going back to profitable volume growth, so that's how we're thinking about the business. If you think about the slowdown in Q4, and you link it to the elements that I was referring to, there is a unit versus volume dynamic in the Frito business that is quite relevant. As you see consumption moving from in-home to away from home, the portion size is meaningfully different.

Speaker Change: And we expect that category will rebound as well.

Speaker Change: Part of that because of what we will do with our brands, which obviously have a lot of weight in the overall category.

Speaker Change: But also the fact that we think consumers will will continue to feel better throughout the year and that will recover that frito lay to offline.

Speaker Change: With a more balanced profitable volume growth and pricing versus what we've seen this year.

Speaker Change: Thank you one of them before our next question.

Speaker Change: Okay.

Speaker Change: The next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Bonnie Herzog: Alright, Thanks, Brian.

Bonnie Herzog: One I guess I had a question on <unk> profitability I believe you still have the goal to reach the mid teen operating margin levels, but so far we really haven't seen much progress. So Ramon I guess, hoping you could touch on your plans to achieve this.

Ramon Laguarta: So we're seeing growth in convenience stores, and we're seeing growth away from home, two to three times the retail growth, but obviously, that has an impact on volume. As we look at 24, we have a very strong commercial plan for Frito. We have our core brands very well invested. You saw that in 23, we increased our A&M meaningfully. We're planning to do that as well in 24.

Ramon Laguarta: And then maybe whether you're considering making bigger structural change.

Sure.

Ramon: As possible Refranchising of your body.

Ramon: Finally network I know you've mentioned in the past that you do see some advantages with broadly owning your network, but just curious to hear your thoughts on this and change and I get it.

Ramon: If not what other initiatives do you plan to implement to improve profitability at Keybanc.

Ramon: Yes.

Ramon Laguarta: So Lays has seen a big increase in A&M, Doritos has seen a big increase in A&M. And all our permissible portfolio, which if you think about a combination of SunChips, Popcorners, the whole Simply line, Smartfoods, that part of the portfolio is growing. Almost three times the average of Frito, so we're putting a lot of emphasis on that particular part of the portfolio. We make sure that it is well executed in the store, and now that the supply chain is back to 100%, we're going to push that part of the portfolio even more aggressively. We think that Frito will continue to enjoy the share of market gains that it has enjoyed for the last couple of years, and we expect the category will rebound as well.

Ramon: So.

Ramon: Yes.

Speaker Change: I would say.

Speaker Change: We don't contemplate at this point any of these structural changes to our business. We continue to think that.

Speaker Change: Operating.

Speaker Change: The business has advantages for us in terms of speed of execution and some other.

Speaker Change: Element is that as we see where the business is growing in e-commerce, our away from home and some other channels of the future, including direct to consumer within that that's going to create an advantage for us.

Now.

Speaker Change: We've been making progress at a good pace in our margin improvement.

Speaker Change: If you think about the last three years the net revenue for <unk> has grown has grown over $5 billion.

Speaker Change: On the operating profit.

Speaker Change: Around $1 billion.

Speaker Change: Core operating margin has expanded more than 150 bps. So we see the last few years a good improvement in the <unk> business.

Speaker Change: We think this will continue in.

Speaker Change: India in the coming years actually 24 <unk>.

Speaker Change: First step.

Speaker Change: Sure.

Speaker Change: Optimizing the portfolio were eliminated in parts of the portfolio that were.

Ramon Laguarta: Part of that is because of what we'll do with our brands, which obviously have a lot of weight in the overall category, but also because we think consumers will continue to feel better throughout the year, and that will recover the Frito-Lay top line with more balanced profitable volume growth and pricing versus what we've seen this year. Thank you.

Speaker Change: Less profitable we've referred to a bottle of water was referred to some multi serve parts of their portfolio that were not that profitable we continue to.

Optimize our efficiency.

Speaker Change: Efficiency of our supply chain, we're digitalized and our supply chain, we continue to extract.

Speaker Change: Eliminate ways from that we continue to.

Speaker Change: Work on global business services or reduces the G&A. We're also optimizing A&M trying to get to higher ROI on A&M and our trading investments. So we continue to think that.

Operator: One moment for our next question. The next question comes from Bonnie Herzog with Goldman Sachs. Your line is open. All right, thanks, everyone.

Speaker Change: Optimizing all those elements in the different parts of the P&L will continue to drive a sustainable margin improvement, whilst we will remain very competitive in the marketplace and that's.

Bonnie Herzog: I guess I had a question on PB&A profitability. I believe you still have a goal to reach, you know, the mid-teen operating margin levels. But you know, so far, we really haven't seen much progress.

Speaker Change: The balance that we're trying to strike with this business. So far we feel good the business grew with the rest of the category. If you take everything that is in our system.

Speaker Change: Grew in line with the category and we increased the operating margin. So that's how we're thinking at this point about about the.

Speaker Change: The <unk> business.

Speaker Change: And we thought with a long term perspective, obviously and how we will achieve those two elements of growing with the category and increasing the margins.

Ramon Laguarta: So, Ramon, you know, I'm hoping you could touch on your plans to achieve this. And then, you know, maybe whether you're considering making bigger structural changes to your business? Thanks for joining us. What other initiatives do you plan to implement to improve profitability at PNB? Thanks.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from <unk> <unk> with Jefferies. Your line is open.

Jefferies: Hey, everybody. Good morning, welcome back Jamie well I suppose you've got nowhere, but welcome back to dealing with us I guess.

Jefferies: Yes.

Jefferies: Hey.

Jefferies: Ken can you maybe talk a bit more about international particularly margins are picking up above the average now it's <unk>.

Speaker Change: Scaling quite nicely, but also.

Speaker Change: If there is anything we need to be aware of as it relates to hyper inflation, Argentina or anything like that.

Ramon Laguarta: Yeah, so yeah, I would say we don't contemplate at this point any structural changes to our business. We continue to think that operating the business has advantages for us in terms of speed of execution and some other things. All of these elements that, as we see where business is growing in e-commerce, away from home, and some other channels of the future, including direct-to-consumer, we think that that's going to create an advantage for us. We've been making progress at a good pace in our margin improvement efforts. If you think about the last three years, PB&A's net revenue for the last three years has grown over $5 billion.

Ken: No it isn't.

Ken: I'll start and maybe Jamie can add to this.

Speaker Change: This is the international.

Speaker Change: Our opportunity continues to be probably the most.

Speaker Change: Remarkable and exciting opportunity that we have as a company.

Jamie Caulfield: As you are saying our international business is very scaled now.

Jamie Caulfield: It's almost $40 billion.

Jamie Caulfield: Between beverages and snacks, so thats compared to some of the <unk>.

Jamie Caulfield: Consumer goods companies as.

Jamie Caulfield: It's much bigger than many other consumer goods companies, where there is clearly a big opportunity and we have just scratched the surface. When you think about the per capita consumption that we have in many markets and the opportunity. We have ahead of us. So yes. Your point you're right as we scale in some of those businesses are becoming more profitable and obviously you started the virtual <unk>.

Jamie Caulfield: <unk> scale reinvestment and margin expansion and get into a much more.

Jamie Caulfield: Profitable in our advantage businesses across many markets.

Jamie Caulfield: This year is not going to be a different one. So 24, we continue to think that international will grow faster than the U S business.

Ramon Laguarta: And the operating profit has grown $1 billion. Core operating margin has expanded more than 150 bips. So we have seen in the last few years a good improvement in the PB&A business. We think this will continue.

Jamie Caulfield: We're seeing.

Jamie Caulfield: Good good momentum as we started the year in many of our international businesses.

Jamie Caulfield: Our position is of <unk>.

Investment.

Jamie Caulfield: In those markets, so we're going aggressively with productivity and reinvestment for growth reinvestment in the brands are investments in systems and capabilities that that continue to drive the per caps and our share of market position. So.

Ramon Laguarta: In the coming years, actually 24 as a first step, we are... Optimizing the portfolio, we're eliminating parts of the portfolio that were less profitable. We've referred to bottled water, and we've referred to some multi-serve parts of the portfolio that were not that profitable. We continue to optimize the efficiency of our supply chain. We're digitalizing our supply chain. We continue to extract.

Jamie Caulfield: You should think about our international business as as a big opportunity for Pepsico and.

Jamie Caulfield: With regards to the Argentina situation.

Jamie Caulfield: We've taken we've already taken that hyper accounting and.

Jamie Caulfield: Wouldn't expect any material impact on organic sales growth.

Speaker Change: Thank you one moment for our next question.

Our next question comes from Dara <unk> with Morgan Stanley. Your line is open.

Dara: Hey, good morning, guys and Jamie Great to hear your voice again.

Dara: So.

Ramon Laguarta: We continue to work on global business services that reduces G&A. We're also optimizing A&M, trying to get a higher ROI on A&M and our trade investment. So we continue to think that optimizing all those elements in the different parts of the P&L will continue to drive sustainable margin improvement whilst we remain very competitive in the marketplace. And that's the balance that we're trying to strike with this business. So far, we feel good.

Dara: I wanted to drill down a bit more on bonnie's question, but looking at PB and a topline more than profit.

Dara: There've been some market share struggles in pieces of the portfolio of their sports drinks CSD et cetera. So I guess can you just talk a little bit more about strategy changes from a topline standpoint, how you sort of manage the business by product category and your thoughts around share trends as we look going forward.

Speaker Change: Hi, there.

Speaker Change: We feel good about.

Speaker Change: The overall portfolio of BNA manner.

Speaker Change: Manage the business as a full LRB business not as a CSD or any particular subcategory were looking at.

Speaker Change: The full portfolio and how it.

Speaker Change: It's always everywhere for consumers from the <unk> into the night in multiple locations.

Ramon Laguarta: The business grew with the rest of the category. If you take everything that is in our system, it grew in line with the category, and we increased the operating margin. So that's how we're thinking at this point about the PB&A business, and obviously, how we will achieve those two elements of growing with the category and increasing the margin. Thank you.

Speaker Change: We continue to believe that we have an advantaged portfolio.

Speaker Change: If you think about our positions in it.

Sports hydration our positions in.

Speaker Change: Coffee tea now the portfolio we have in energy.

Speaker Change: And our CSD position as well so we continue to manage as a full LRB.

Speaker Change: Now.

Speaker Change: If you think about our priorities for the year.

Operator: One moment for our next question. Our next question comes from Kaumil Gajrawala with Jeffries. Your line is open. Hey, everybody. Good morning.

Speaker Change: Relaunch of of Pepsi brand.

Speaker Change: With any re imagined with focus.

Zero zero has been growing very fast and continues to be an advantage proposition for us.

Kaumil Gajrawala: Welcome back, Jamie. Well, I suppose you've gone nowhere, but welcome back to dealing with us, I guess. Can you maybe talk a bit more about international business, particularly, you know, margins are picking up above the average now, and they're scaling quite nicely, but also if there's anything we need to be aware of as it relates to hyperinflation, Argentina, anything like that. No, listen, I'll start, and maybe Jamie can add to this.

Speaker Change: We are.

Speaker Change: We're putting a lot of additional investment in mountain view, and we're launching Baja blast as a permanent SKU by glass has been a success as an LTE our limited time.

Speaker Change: An offer for many years now we're launching it in the Super Bowl as a platform this weekend to launch Baja blast.

We continue to build.

Speaker Change: Our position in lateral line with Steri sorry, it's.

Speaker Change: It's been a good good first year I think we had.

Speaker Change: Our over indexing with Gen Z, we see the brand getting some good repeat you will see also an investment around Super Bowl and continued during the year. So that's our CSD portfolio, we feel very good about Gatorade Gatorade is we're moving from historically.

Ramon Laguarta: The, listen, the international opportunity continues to be probably the most remarkable and exciting opportunity that we have as a company. As you're saying, our international business is very large now, almost $40 billion between beverages and snacks. So that's, if you compare it to some of the consumer goods companies, much bigger than many of the consumer goods companies globally.

Speaker Change: Our liquid.

Speaker Change: Four.

Speaker Change: High performing.

Speaker Change: Athletes to a an ecosystem of solutions and hydration and fuel for every type of active first and then we're seeing a lot of traction is not only.

Speaker Change: Gatorade per say about us.

Speaker Change: Allied is deferred is propel is muscle milk all under one umbrella.

Ramon Laguarta: So, clearly, a big opportunity. And we have just scratched the surface when you think about the per capita consumption that we have in many markets and the opportunity we have ahead of us. So, yes, your point is right.

Not only liquid solutions is powders established is equipment personalized equipment <unk> and others.

Speaker Change: Now we are launching around the Super Bowl of Gatorade, IV, which is also an ecosystem of <unk>.

<unk> loyalty and.

Speaker Change: And I would say personalization for our consumers that will bring even more attention to the brand and more loyalty with younger consumers.

Ramon Laguarta: As we scale it, some of those businesses are becoming more profitable. And obviously, you start the virtuous circle of scale, reinvestment, margin expansion, and get into much more profitable and advantaged businesses across many markets. So this year is not gonna be a different one.

Speaker Change: On energy, we are very we're very happy with with our portfolio.

Speaker Change: Obviously, the Starbucks coffee energy.

Speaker Change: One side.

Rockstar and obviously, our collaboration with Celsius, which is which has been a great success as he provides scale to our go to market and.

Ramon Laguarta: So, 24, we continue to think that international business will grow faster than the U.S. business. We're seeing, you know, good momentum as we start the year in many of our international businesses. Our position is investment in those markets, so we're going aggressively with productivity and reinvestment for growth, reinvestment in the brands, reinvestments in systems, and in capabilities that continue to drive the per cap and our share of market position. So you should think about our international business as a big opportunity for PepsiCo. With regard to the Argentina situation, we've already taken that hyper-accounting and you shouldn't expect any material impact on organic... Thank you.

Speaker Change: Kind of a point of entry as well with some of our customers and then our <unk> business continues to do very well with pure leaf and our Starbucks collaboration.

Speaker Change: Now moving more into.

Speaker Change: Beyond coffee I would say more refresh or is there. Some other innovation that Starbucks is developing for their cafes, and we bring it to a ready to ready to drink. So.

Speaker Change: We have a beautiful portfolio, we continue to.

Grow in retail and we're putting a lot of focusing away from home as we are seeing that the away from home channel is getting much more traffic as people go back to a normal mobility and that will be a focus for us going forward.

Speaker Change: <unk>.

Speaker Change: We think we will continue to grow above the market and continue to gain to gain share in what is a very profitable and high growth channel. So this is how we're thinking about the business there.

Speaker Change: Hopefully it gives you a good sense of.

Speaker Change: Intentionality.

Speaker Change: How we're thinking about the broad portfolio and our willingness to compete with innovation with brand investment and with great execution.

Operator: One moment for our next question. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open. Hey, good morning, guys. And Jamie, great to hear your voice again. Hey, Dara.

Speaker Change: Thank you one of them before our next question.

Speaker Change: Our next question comes from Peter Grom with UBS. Your line is open.

Thanks, operator, and good morning, everyone I just wanted to ask a follow up based on your response to both Brian and Lauren's question on the organic growth and I may have misheard or it could be misinterpreting this but you've touched on some of the things you are doing internally that will drive the improved performance, but I think you also mentioned.

Dara W. Mohsenian: So I wanted to drill down a bit more on Bonnie's question, but looking at PB&A's top line, more than profit, there's clearly been some market share struggles and pieces of the portfolio there sports drinks, CSDs, etc. So I guess can you just talk a little bit more about strategy changes from a top line standpoint? How you sort of manage the business by product category and your thoughts on that? Share trends as we look going forward. Thanks. Hi there.

Speaker Change: Some sort of assumption around maybe the U S consumer would feel better.

Speaker Change: It doesn't happen with that.

Speaker Change: The organic revenue guidance at risk or would it improve backdrop be more of a source of upside versus the greater than 4%.

The current assumption is.

Speaker Change: What I said, we think that the.

Speaker Change: The consumer will.

Speaker Change: We'll continue to improve and its confidence and it's.

Ramon Laguarta: Good. We feel good about the, um... The overall portfolio of PB&A, you know we manage the business as a full LRB business, not as a CSD or any particular subcategory. We're looking at the full portfolio and how it's always everywhere for consumers from the morning to the night in all the multiple locations. We continue to believe that we have an advantaged portfolio. If you think about our positions in... Sports and Hydration, our positions in coffee, tea, now the portfolio we have in energy, and our CSD position as well. So we continue to manage as a full LRB, because if you think about our priorities for the year, the relaunch of the Pepsi brand with a new image and focus on Zero. Zero has been growing very fast and continues to be an advantage proposition for us. We are putting a lot of additional investment in Mountain Dew, and we're launching Baja Blast as a permanent SKU. Baja Blast has been a success as an LTO, a limited time offer, for many years now.

Speaker Change: Disposable income throughout the year.

Speaker Change: And as the ongoing assumption, we have a very strong productivity program in the company, which gives us the fuel for reinvestment and it gives US also a lot of flexibility to manage a potential different consumer reality, but at this point within this is the ongoing assumption who will invest in our brands we will.

Speaker Change: Invest in our innovation and now that supply chain is.

Speaker Change: In a very good place compared to what it was a couple of years ago, even last year. We can we can rely on our the tools that we're very good at which is brand building innovation and execution.

Speaker Change: Distribution increases.

Speaker Change: Strong commercial programs with our partners and Thats, where we think we will grow our will drive the growth of our top line here.

Speaker Change: Just a reminder, 40% of our business is now international So U.

Speaker Change: U S. As students are significant but we've got a big business outside the U S.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Gerald Pascarelli with Wedbush. Your line is open.

Gerald Pascarelli: Alright, thanks very much.

Gerald Pascarelli: Ramon I have a question on energy drinks can you just speak about your plans to maybe drive performance and Rockstar. This year, it's kind of been a relative underperformer in energy drinks for some time and now you have <unk>.

Gerald Pascarelli: And coming back into the market, which could potentially result in some incremental disruption. So maybe just some color on how you're thinking about driving an improvement in that brand and then maybe broader thoughts on the competitive dynamics within energy drinks. This year. Thank you.

Gerald Pascarelli: Yes.

It's a great question.

Speaker Change: The energy category continues to.

Ramon Laguarta: We're launching it. We're using the Super Bowl as a platform this weekend to launch Baja Blast. We continue to build a position in the lemon line with Starry. Starry, it's been a good first year.

Grow as you see about the LRB category, so continues to expand into new consumers and new consumer locations.

Speaker Change: Which obviously.

Ramon Laguarta: I think we had, we're over-indexing with Gen Z. We see the brand getting some good repeat. You will also see an investment around the Super Bowl and continue during the year. So that's our CSD portfolio. We feel very good about Gatorade.

Speaker Change: Creates growth for for everyone that participated in the category.

Speaker Change: So we participate as I've always said with multiple vectors.

Speaker Change: We're proud of our Starbucks partnership and some of the products, we offer a double double shelf staple shots, we're proud of.

Speaker Change: The Rockstar brand.

Speaker Change: Rockstar has been growing with the category more or less there is some parts of the country where.

Ramon Laguarta: Gatorade is, we're moving from historically a liquid for high-performing athletes to an ecosystem of solutions in hydration and fuel for every type of active person. And we're seeing a lot of traction. It's not only Gatorade per se, but Gatorlite, G-Fit, Propel, Muscle Milk, all under one umbrella. And it's not only liquid solutions.

Speaker Change: <unk> is well distributed and well preferred other parts of the country, where we're trying to get consumer penetration of instrument adoption the areas, where we've been successful with Rockstar, which will level down the zero.

Speaker Change: Recover part of the portfolio both of them.

Speaker Change: Do you think is energy with functionality and where we think our R&D can create advantage. So we're pushing those two plus.

Speaker Change: Firms.

Speaker Change: Rockstar zero Rockstar recover.

Speaker Change: And that will continue to be the focus of the brand.

Speaker Change: We've also been focusing on Hispanic consumer and that also we've seen.

Ramon Laguarta: It's powders, it's tablets, it's equipment, personalized equipment, bottles, and others. And now we're launching around the Super Bowl Gatorade ID, which is also an ecosystem of loyalty and, I would say, personalization for our consumers that will bring even more attention to the brand and more loyalty with younger consumers. On energy, we're very happy with our portfolio. Obviously, Starbucks coffee energy on one side, Rockstar, and obviously, our collaboration with Celsius, which has been a great success, and it provides scale to our go-to-market and, you know, kind of a point of entry as well with some of our customers. And then our tea business continues to do very well with Pure Leaf and our Starbucks collaboration, now moving more into, you know, beyond coffee, I would say, more refreshers and some other innovation that Starbucks is developing for their cafes, and we bring it to ready-to-drink.

Speaker Change: Increasing the penetration of the brand with the Hispanic population.

Speaker Change: Consumers will continue to drive that.

Speaker Change: That.

Speaker Change: The commercial activity.

Speaker Change: But do we see this as a portfolio of solutions, including <unk> and how.

The combined portfolio creates a very good.

Speaker Change: Point of execution for our multi brand it gives us an entry into a convenient stores and some other points of sale away from home and we will continue to drive the portfolio as the as the unit of execution.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Scott.

Speaker Change: I can say the other thing we're doing with Rockstar, which we don't talk a lot about it's an important part of our growth as we're launching Rockstar internationally in many markets around the world.

Speaker Change: From Asia to Europe to parts of Latin America, and we're having good success again as a portfolio of solutions that complement our our <unk> brand that we have in Asia or some other brands that we have in Europe as well.

Speaker Change: Our next question comes from Robert Moskow with TD Cowen Your line is open.

Robert Moskow: Hi, Thank you for the question.

In your prepared remarks, you said that you expect less commodity inflation, but some agricultural inputs might be higher.

Robert Moskow: Can you be more specific and I was hoping you could focus a little on frito, because there's a very big potato crop. This past year vegetable oil costs are coming down you see any relief on the horizon for Frito in that regard.

Ramon Laguarta: So I think we have a beautiful portfolio. We continue to grow in retail, and we're putting a lot of focus on away from home, as we're seeing that the away from home channel is getting much more traffic as people go back to normal mobility, and that will be a focus for us going forward. We think we'll continue to grow faster than the market and continue to gain share in what is a very profitable and high growth channel. So this is how we're thinking about the business there. Hopefully, it gives you a good sense of the intentionality, how we're thinking about the broad portfolio and our willingness to compete with innovation, with brand investment, and with great execution. Thank you.

Jamie Caulfield: Hey, Rob it's Jamie.

Jamie Caulfield: As a practice we.

Jamie Caulfield: Comment on the basket of inputs, we don't comment on specific.

Jamie Caulfield: Commodity movement.

Jamie Caulfield: Youre, absolutely correct that we do expect commodity.

Jamie Caulfield: Commodity inflation Doug.

Jamie Caulfield: Moderate from what we had in 2003.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Andrew <unk> with Jpmorgan. Your line is open.

Andrew: Thank you operator, and good morning to you all and great having you back Jamie on the Investor facing mode.

Andrew: I have one question and then a clarification first of all going on I was hoping to see if you can elaborate a little bit more on.

Andrew: How youre going to be lapping and if you add that lapped the mix tracks and the shift from <unk>.

Operator: One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open. Thanks, operator. And good morning, everyone.

Andrew: Way from to away from home.

Andrew: And where your market share is not <unk>.

Andrew: Probably is as strong as in snacks as you're having at home channels and given you are a strong gross margin delivery.

Andrew: Are you experiencing any question anything with a large box retailer anything, especially in Europe are retailers asking you to invest backing Palomar rollbacks, given your gross margin delivery and productivity gains and particularly in North America and in Europe, and my clarification for Jamie.

Peter K. Grom: Ramon, I just wanted to ask a follow-up question based on your response to both Brian and Lauren's questions on organic growth. And I may have misheard or could be misinterpreting this, but you touched on some of the things that you are doing internally that will drive the improved performance. But I think you also mentioned some sort of assumption around maybe the US consumer would feel better. I mean, if that doesn't happen, would that put the organic revenue guidance at risk, or would it improve? Backdrop be more of a source of upside versus the greater than 4%. Thanks. The current assumption is... As I said, we think that the consumer will continue to improve in confidence and its... Coop and thank you. We are in a very good place compared to what it was a couple of years ago, even last year. We can rely on the tools that we're very good at, which is brand building, innovation, execution, distribution increases, strong commercial programs with our partners, and that's where we think we'll The U.S. is significant, but we've got a big business outside.

Speaker Change: In terms of like your organic sales growth and EPS cadence for the year any anything we should be considering on your guidance as far as cadence. Thank you.

Speaker Change: Yes, so on the organic sales growth first of all Andre it's great to hear your voice again, and we look forward to interacting as we go forward, our organic sales growth cadence I'd say back half.

Speaker Change: <unk> than the first half as well.

Speaker Change: We've talked about before we've got the impact of the Quaker recall is going to be front half.

Speaker Change: Loaded the laps get easier as we get into the back half of the year and then some of these consumer pressures that.

Speaker Change: Have existed with.

Speaker Change: Elimination of stimulus benefits resumption of student loan payments will lap those as we get into the year.

Speaker Change: Yes.

Speaker Change: With regards to the customer.

Speaker Change: I think we're all trying to build.

Speaker Change: Win win plans.

Speaker Change: Since that we.

Speaker Change: We grow the business and we we create profit growth for both our customers and ourselves.

Speaker Change: We normally.

Speaker Change: We have always the consumer at the center. So it will be a combination of.

Speaker Change: We generate growth through.

Speaker Change: As I said innovation and we have a few.

Speaker Change: Big innovations and brand re launches this year, we'll put a lot of investment there together with our customers.

Speaker Change: We will continue to.

Speaker Change: Tried to expand our skus with the customers and there will be investments there and there will be some investments in in trying to give more value to consumers in a very holistic way right.

Ramon Laguarta: Thank you. One moment for our next question. Our next question comes from Joel Pasquarelli with Wedbush. Your line is open. Great, thanks very much.

Speaker Change: Back price through promotions through.

Speaker Change: Consumer events that eventually we'll drive preference for our brands, but that's the way we're thinking about creating this joint business planning with our with our large customers that create growth for the category growth for our customers and growth for us.

Joel Pasquarelli: Um, Ramon, I have a question on energy drinks. Um, can you just speak about your plans to maybe drive performance in Rockstar this year? It's It's kind of been a relative underperformer in energy drinks for some time, and now you have bang coming back into the market, which could potentially result in some incremental disruption. So maybe just some color on how you're thinking about driving an improvement in that brand, and then maybe broader thoughts on the competitive dynamics within energy. Thank you. Yeah, I mean... Great question.

Speaker Change: With regards to our away from home sorry, I forgot.

Speaker Change: The away from home.

We see it as an and not as an hour. So we see as an opportunity for us to continue to be in consumers' lives lives always everywhere.

Speaker Change: And as consumers pivot away from home.

Speaker Change: We'll try to be there for them, it's been a it's been a <unk>.

Speaker Change: You have investment for us both in distribution and in our specific solutions for away from home for quite some time and we're seeing our businesses in the large markets growing.

Speaker Change: Above the market in a way from home. So clearly this will be an opportunity for us for many years to come and I think we're getting better at mixology, we're getting better at more food experiences walking tack on there. It is loaded with destiny foot trucks were test and many things that.

Ramon Laguarta: The energy category continues to... The LRB category continues to expand into new consumers and new consumer locations, which obviously creates growth for everyone that participates in the category. So we participate, as I've always said, with multiple vectors. We're proud of our Starbucks partnership and some of the products we offer, double double shots, triple shots.

Speaker Change: We will make our brands available to consumers in.

Speaker Change: Beyond what is a package.

Speaker Change: Bag or a.

Speaker Change: Or a can or a bottle now I think consumers are specced in from us away from home.

Speaker Change: Much more holistic experience, that's where we're working on.

Speaker Change: And I think we're making good progress.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Robert <unk> with Evercore. Your line is open.

Ramon Laguarta: We're proud of the Rockstar brand. Rockstar has been growing with the category, more or less. There are some parts of the country where it's well distributed and, you know, well preferred, and other parts of the country where we're trying to get consumer penetration and consumer adoption. The areas where we've been successful with Rockstar, which we will double down on, the zero and the recover parts of the portfolio, both of them, if you think it's energy with functionality and where we think our R&D can create an advantage. So we're pushing those two platforms, Rockstar Zero and Rockstar Recover, and that will continue to be the focus of the brand.

Robert Moskow: Great. Thank you very much a.

Robert Moskow: A little bit more of a detailed question on <unk> and just wanted to talk about.

Robert Moskow: Gatorade and Celsius.

Robert Moskow: So in terms of Gatorade could you just remind us in terms of the timing of the move to DSD and how that impacted your income statement.

Robert Moskow: And then in terms of Celsius.

Robert Moskow: Obviously, the brand has done phenomenally well, it's getting pretty big now can you talk about how Celsius impacts the income statement in the U S. And then how your relationship with the company has evolved you talked about taking Rockstar internationally.

Robert Moskow: Celsius is doing some going international now are you part of that plan as well. Thank you.

Speaker Change: Yes, so on Gatorade, we're 90% through one the transition obviously that move as a.

Speaker Change: Positive two of the financial results results overall, that's why we did as the enhanced performance.

Speaker Change: We're happy with the margins we have on that business.

Speaker Change: On Celsius.

Speaker Change: The way that works is.

Speaker Change: We're sharing the system revenue with with Celsius.

Speaker Change: Yes.

Ramon Laguarta: We've also been focusing on the Hispanic consumer, and we've seen an increase in the penetration of the brand with the Hispanic population. With Hispanic consumers, we'll continue to drive that commercial activity, but we see this as a portfolio of solutions, including sales use and how the combined portfolio creates a very good point of execution for us, multi-brand; it gives us entry into convenience stores and some other points of sale away from Thank you. One moment for our next question. I forgot, maybe I can say, the other thing we're doing with Rockstar, which we don't talk a lot about, but it's an important part of our growth, is we're launching Rockstar internationally in many markets around the world, from Asia to Europe to parts of Latin America, and we're having good success.

Speaker Change: Yeah.

Speaker Change: We're happy with the collaboration with with Celsius, and that continues to be a part of our growth strategy.

Speaker Change: There is there is an opportunity for us to collaborate in the international expansion as well.

Speaker Change: At this point is not.

Speaker Change: I would say a scaled opportunity is a market by market opportunity and very particular markets. So.

Speaker Change: Yes, we are.

Speaker Change: Contemplating that as an option and we're having conversations with Celsius, how we can leverage the pepsico system for a bigger a bigger expansion nothing nothing short term I would say at this point.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Chris Carey with Wells Fargo. Your line is open.

Chris Carey: Hi, good morning, everyone.

Chris Carey: I just wanted to ask about SG&A over the past four years we've.

Chris Carey: We've talked about this before in this forum, but with the annual disclosures now out I thought it would be a good time to revisit the topic.

Chris Carey: Specifically.

Chris Carey: Ramon can you help contextualize.

The increase that we've seen in SG&A over the past four years.

Chris Carey: Pacifically in distribution cost I'm really curious about.

Chris Carey: Maybe how much of this is underlying inflation as opposed to discretionary investments that Pepsico is making and not really looking for a specific number per se I realize thats, probably difficult, but distributions up 40% over the past four years.

Ramon Laguarta: Again, as a portfolio of solutions that complements our Sting brand that we have in Asia or some other brands that we have in Europe. Our next question comes from Robert Mascott with TD Cowen. Hi, thank you for the question. In your prepared remarks, you said that you expected less commodity inflation, but some agricultural inputs might be higher. Can you be more specific?

Chris Carey: Wondering.

How much of this is within your control maybe some of the capabilities that <unk> been able to build over this over this timeframe and maybe get a sense of how this.

Chris Carey: How this line item should be trending going forward.

Chris Carey: Yes.

Chris Carey: As you point out as selling distribution is the biggest part of that.

Chris Carey: A part is less.

Chris Carey: <unk> and its going to be a reflection of what you see is one you've got market mix.

Robert Ottenstein: And I was hoping you could focus a little on Frito because, you know, there was a very big potato crop this past year, and vegetable oil costs are coming down. Do you see any relief on the horizon for Frito in that regard? Hey, Rob. It's Jamie.

Chris Carey: Sector mix components in there.

We've driven a lot of productivity and our opex, but at the same time, we're investing in opex to drive distribution and growth in the business.

Chris Carey: One other thing Chris that you should be mindful of as well.

Chris Carey: We do have a big direct store delivery business. So we've had inflation in various things like labor and so forth and Thats Whats gone up A&M has gone up as well, which is also kind of all part of that SG&A bucket.

Jamie Caulfield: Yeah, as a practice, we comment on the basket of inputs. We don't comment on specific commodity movements. But you're absolutely correct that we do expect commodity inflation to moderate from what we had in 23. One moment for our next question. Our next question comes from Andrea Teixeira with J.P. Morgan. Your line is open.

Chris Carey: We've made numerous capability investments in there as well so.

Chris Carey: It's all of the above I Wouldnt hone and just on the distribution costs, which I know you're focused on from the 10-K, there's a lot of buckets that go in that are far deeper that we can't get into for competitive reasons.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Philip <unk> with Citi. Your line is open.

Hey, good morning, everyone.

Andrea F. Teixeira: Thank you, operator. Good morning to you all, and great to have you back, Jamie, in the investor-facing mode. I have one question and then a clarification.

Philip: So Ramon and Jimmy you both mentioned.

Philip: The organic sales growth guidance is going to be more second half weighted and I know you don't provide breakdown on guidance on volumes, but given the importance of volume trends can.

Philip: Can you give us a sense of how you see volumes evolving is that a possibility in your guidance, where you see positive volumes in the second half of the year.

Ramon Laguarta: First, for Ramon, I was hoping to see if you could elaborate a little bit more on how you're going to be lapping, and if you have a red lap, the mixed drags and the shift to away from home, where your market share is not probably as strong in snacks as it is in at-home channels. And given your strong gross margin delivery and your experience in negotiating with large box retailers, especially in Europe, are retailers asking you to invest back in promo rollbacks, given your gross margin delivery and productivity gains, in particular in North America and Europe? And my clarification for Jamie is, in terms of like your organic sales growth and EPS cadence for the year, anything we should be considering on your guide as far as cadence is concerned? Thank you.

And then on the pricing front, maybe you can give us a sense of what are you assuming in terms of pricing I assume in the U S or developed markets limited and there is more pricing in emerging market, but any color on on pricing will be also helpful. Thank you.

Speaker Change: Yes, I think.

Speaker Change: You should be thinking about.

Speaker Change: We want to grow units next year.

Speaker Change: We will see profitable volume growth next year and.

Speaker Change: And you'll see a more balance.

Speaker Change: Between pricing.

Speaker Change: And volume.

Speaker Change: That you have seen in previous year, where obviously we had to.

Speaker Change: Sure.

Speaker Change: We have to cover a huge.

Speaker Change: Commodity increase in Opex increase.

Speaker Change: As as commodities kind of normalize and opex inflation normalizes that lever will be less.

Speaker Change: Necessary outside of what has been a normal.

Speaker Change: Pricing levels of our category in the 2% to 3%. So you should be thinking about profitable volume growth and more of a normalized pricing compared to what it was in the 18 19 timeframe.

Jamie Caulfield: Yeah, so on the organic sales growth, first of all, Andrea, it's great to hear your voice again, and look forward to interacting as we go forward. The organic sales growth cadence, I'd say back half, stronger than the first half, as we talked about before. We've got the impact of the Quaker recall going to be front half loaded, and the laps get easier as we get into the back half of the year. And then some of these consumer pressures that have existed with, you know, the elimination of stimulus benefits, the resumption of student loan payments, we'll laugh at those as we get into the fall.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Colin <unk> with Bernstein. Your line is open.

Colin: Hi, good morning.

Colin: Wanted to build upon Chris's question, Please and ask you about the A&M buckets and the spending behind your brands.

Colin: K shows advertising up around 10% year on year, and that's around 20 basis points increase as a percentage of sales.

Colin: We're still quite a long way below pre pandemic levels as a percentage of sales and comfortably below the average of the last several years. So I guess the question is audio brands getting enough support and do we need to see upward pressure.

Colin: On advertising spend as a percentage of sales over the coming years. Thank you.

Speaker Change: That's great good point.

Speaker Change: Obviously in absolute terms.

Speaker Change: We have much more A&M.

Speaker Change: So I think we have increased last year was $500 million.

Speaker Change: If you think about.

Ramon Laguarta: Yeah, listen, with regard to the customer. I think we're all trying to build win-win plans in the sense that we... We grow the business, and we create profit growth for both our customers and ourselves. Normally, we always have the consumer at the center, so it will be a combination of... We generate growth through, as I said... We have a few big innovations and brand launches this year. We put a lot of investment there together with our customers. We'll continue to try to expand our SKUs with our customers. And there will be investments there. And there will be some investments in trying to give more value to consumers in a very holistic way, right? Through pack price, through promotions, and through consumer events that will eventually drive preference for our brands.

Speaker Change: Longer timeframe.

Speaker Change: Meaningful over $1 billion increase in absolute A&M. So that's absolute dollars that go against our business.

Speaker Change: We were thinking about continuing that trend continuing to support both our large brands across multiple markets and then smaller brands for which take the portfolio.

Speaker Change: Into the future so that should be a composition of our A&M.

Speaker Change: Now when you look at the.

Speaker Change: The last few years, you should bear in mind, we stopped.

Speaker Change: Advertising in Russia, which was a meaningful market for us so that is reflected in our in our.

Speaker Change: Absolute numbers or relative numbers.

Speaker Change: So that you should contemplate that but as a.

Speaker Change: If you think about where and how we're going to create demand in the future you should be thinking about A&M continued to increase obviously will look at ways to optimize A&M and we have very strong measures on ROI and there's ways to invest in our brands that you should be thinking about as they come.

Ramon Laguarta: But that's the way we're thinking about creating this joint business planning with our large customers that create growth for the category, growth for our customers, and growth. With regard to Away From Home, sorry I forgot Andrea, the Away From Home, we see it as an and, not as an or, so we see it as an opportunity for us to continue to be in consumers' lives everywhere. And as consumers pivot away from home, we'll try to be there for them. It's been an area of investment for us, both in distribution and specific solutions for Away From Home for quite some time. And we're seeing our businesses in the large markets growing above the market in Away From Home. So clearly, this will be an opportunity for us for many years to come. And I think we're getting better at mixology, we're getting better at more food experiences, walking tacos, Doritos loaded. We're testing food trucks, we're testing many things that will make our brands available to consumers beyond what is a packaged bag or a can or a bottle.

Speaker Change: That continues to build brands continue to innovate continue to create value through.

Speaker Change: Through.

Speaker Change: Investment in consumer and obviously, we also create a lot of demand through our push model to some of the questions that was asked before it should be thinking about our selling and distribution costs not only as a cost but also a way for us to execute very granularly.

Speaker Change: Across millions and millions of point of sale around the world, where we reached the final point of sale and we created.

Speaker Change:

Speaker Change: I would say visibility for our brands and impulse for our brands.

Which are relevant and if you think about the categories, where we compete.

Speaker Change: One moment for our next question.

Speaker Change: Our last question comes from Steve Powers with Deutsche Bank. Your line is open.

Steve Powers: Oh, great good morning. Thanks.

Steve Powers: Everybody, Jamie add me to the with the people excited to work with you again.

Steve Powers: Yes.

Steve Powers: Hey, actually this question may be for you I would probably answer you that.

Steve Powers: On these calls for the last.

Steve Powers: Several years that we've been.

Steve Powers: Talking about one off just sort of the cash flow profile of the business and the like.

Steve Powers: Capital investments that have been made.

Steve Powers: In the business.

Steve Powers: Past eventually back towards a higher level of free cash flow conversion I guess.

Ramon Laguarta: Now I think consumers are expecting from us, Away From Home, a much more holistic experience. And that's what we're working on, and I think we're making good progress. Thank you.

Steve Powers: Acknowledging that you have been there in the room the whole time, because now as you assume the role of CFO do you see any opportunities to.

CFO: To speed that process of cash flow generation and a return to higher levels of free cash flow conversion.

CFO: From where we've been trending or is it more.

Speaker Change: Steady state if you could just give us a little perspective on how you or how are you seeing those cash flow profile of the business evolving from here that would be great. Thank you. Yeah. So clearly cash flow continues to be a priority.

Operator: One moment for our next question. Our next question comes from Robert Ottenstein with Evercore. Your line is open. Great, thank you very much. A little bit more of a detailed question on PB&A, and I just want to talk about Gatorade and Celsius.

Speaker Change: Our focus on Capex and we've been very intentional about the levels of capital we've invested in the business part of that was to catch up on capacity.

Robert Ottenstein: So in terms of Gatorade, could you just remind us in terms of the timing of the move to DSD and how that impacted your income statement? And then, in terms of Celsius, obviously, the brand has done phenomenally well. It's getting pretty big now. Can you talk about how Celsius impacts the income statement in the U.S. and then how your relationship with the company has evolved? You talked about taking Rockstar internationally. Celsius is doing some, you know, going international now.

Speaker Change: We're currently in the midst of big investments.

Speaker Change: And digitalization.

Speaker Change: But over time, I think youll see the level of Capex as a percent of sales ill begin to trend down and that will help with the cash flow conversion.

Speaker Change: Great. Thank you everybody I'm glad everybody is happy that Jamie is back and I see a lot of a lot of bonding.

Speaker Change: But obviously thank you for.

Speaker Change: The confidence that you've placed in our investment and we look forward to see many of you at Cagny in a couple of weeks and having a longer conversation there. Thank you very much.

Ramon Laguarta: Are you part of that plan as well? Thank you. Yes, so on Gatorade. We're 90% through the transition.

Speaker Change: Ladies and gentlemen that concludes today's presentation. You may now disconnect and have a one and have a wonderful day.

Ramon Laguarta: Obviously, that move was positive to the financial results overall. That's what we did to enhance performance, and we're happy with the margins we have on that business. On Celsius.

Speaker Change: Thank you gentlemen.

Speaker Change: Youre welcome.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Ramon Laguarta: The way that works is, you know, we're sharing the system revenue with sales. Yeah, I want, I just didn't... We're happy with the collaboration with Celsius, and that continues to be a part of our growth strategy. There is an opportunity for us to collaborate in the international expansion as well. But at this point, it's not, I would say, a scaled opportunity. It's a market-by-market opportunity and a very particular market. So, yeah, we're contemplating that as an option. And we're having conversations with Celsius about how we can leverage the PepsiCo system for a bigger expansion. Nothing short-term, I would say.

Speaker Change: Okay.

Speaker Change: Yes.

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Ramon Laguarta: Thank you. One moment for our next question. Our next question comes from Chris Carey with Wells Fargo. Your line is open.

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Chris Carey: Hi, good morning, everyone. So I just wanted to ask about SG&A over the past four years. We've talked about this before in this forum, but with the annual disclosure now out, I thought it would be a good time to revisit the topic. So specifically, Ramon, can you help contextualize?

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Jamie Caulfield: The increase that we've seen in SG&A over the past four years, specifically in distribution costs, I'm really curious about, you know, maybe how much of this is underlying inflation as opposed to discretionary investments that PepsiCo is making. And I'm not really looking for a specific number per se. I realize that's probably difficult, but distribution is up 40% over the past four years. And I'm just wondering.

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Jamie Caulfield: You know, how much of this is within your control, maybe some of the capabilities that you've been able to build over this or this time frame, and maybe get a sense of how this, you know, how this slide item should be trending going forward. So, thanks. Yeah, so, as you point out, selling and distribution is the biggest part of that. A part is less so, and it's going to be a reflection of what you see is that one, you've got market-mixed or sector-mixed components in there.

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Jamie Caulfield: We've driven a lot of productivity in our OPEX, but at the same time, we're investing in OPEX to drive distribution and growth. Um, one other thing, Chris, that you should be mindful of... You know, we do have a big direct store delivery business, so we've had inflation in various things like labor and so forth, and that's what's gone up. A&M has gone up as well, which is also kind of part of that SG&A bucket. We've made numerous capability investments in there as well, so it's all of the above. I wouldn't hone in just on the distribution cost, which I know you focus on from the 10K. There are a lot of buckets that go in that are far deeper that we can't get into for competitive reasons. Thank you.

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Operator: One moment for our next question. Our next question comes from Filippo Filorni with City. Your line is open. Hey, good morning, everyone. So, Ramon and Jamie, you both mentioned that the organic sales growth guidance is going to be more second-half weighted. And I know you don't provide breakdown and guidance on volumes, but given the importance of volume trends, can you give us a sense of how you see volumes evolving? Is there a possibility in your guidance where you see positive volumes in the second half of the year? And then on the pricing front, maybe you can give us a sense of what you are assuming in terms of pricing. I assume in the U.S. or developed markets, it's limited, and there's more pricing in emerging markets, but any color on pricing will also be helpful.

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Filippo Filorni: Thank you. Yeah, I think you should be thinking about it. We want to grow units next year. We will see profitable volume growth next year, and you'll see a more balanced result. Inaugural 0, cover a huge commodity increase and an opex increase. Commodities kind of normalize, and OPEX inflation normalizes, that lever will be less necessary outside of what has been a normal pricing level of our category in the two to three percent range. So you should be thinking about profitable volume growth and... more of a normalized pricing compared to what it was in the 80s.

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Ramon Laguarta: Thank you. One moment for our next question. Our next question comes from Callum Elliott with Bernstein. Your line is open.

Operator: Hi, good morning. I wanted to build upon Chris's question, please, and ask you about the A&M buckets and the spending behind your brand. I think the case shows advertising up around 10% year on year, and that's around a 20 basis points increase as a percentage of sales, but we're still quite a long way below pre-pandemic levels as a percentage of sales, comfortably below the average of the last several years.

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Callum Elliott: So I guess the question is, are your brands getting enough support? And do we need to see upward pressure on advertising spend as a percentage of sales over the coming years? That's a good point, obviously in absolute terms.

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Ramon Laguarta: We have much more A&M, so I think we have increased. Last year it was $500 million. If you think about a longer time frame... Thomas da Vibrantly is saying that this is the world's first very novel variation of the new ad app, so many times a year, you know it is very interesting in my opinion, although it is not currently developed in the U.S., but it's reliable in the U.S., and we will also be seeing some favorite releases produced. All I can say from my own perspective is that we will. One realization is that we have many more devices that we can make available in the domestic market, but what matters most right now is that we are making them available in the U.S. In any case, Lauren was talking about berly, and it perfectly matches what she is made up of. And just to remind you, we stopped advertising in Russia.

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Ramon Laguarta: It was a meaningful market for us, so that is reflected in our absolute numbers of relatives, so you should contemplate that. You know, if you think about where and how we're going to create demand in the future, you should be thinking about A&M continuing to increase. Obviously, we'll look at ways to optimize A&M, and we have very strong measures on ROI and the best ways to invest in our brands. But you should be thinking about us as a company that continues to build brands, continues to innovate, and continues to create value through investment in consumers. And obviously, we also create a lot of demand through our push model. To some of the questions that were asked before, you should be thinking about our selling and distribution cost, not only as a cost but also as a way for us to execute very gradually across millions and millions of points of sale around the world where we reach the final point of sale, and we create.

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Operator: Please find more information on www.artz.io. Our next question comes from Steve Powers of Deutsche Bank. Your line is open.

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Steve Powers: Oh, great. Good morning, and thanks, everybody. Jamie, add me to the list of people excited to work with you again. Hey, actually, this question may be for you. It probably is for you.

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Jamie Caulfield: You know, on these calls, you know, for the last several years, we've been talking about, on and off, you know, just sort of the cash flow profile, the business, and the capital investments that have been made in the business in the past, eventually, you know, back towards a higher level of pre-cash flow conversion, I guess. Acknowledging that you've been there, you know, in the room the whole time, I guess, now as you assume the role of CFO, do you see any opportunities to speed that process of cash flow generation and a return to higher levels of free cash flow conversion, you know, from where we've been trending? Or is it more in a steady state?

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Jamie Caulfield: And if you could just give us a little perspective on how you're seeing that cash flow profile of the business evolving from here, that'd be great. Thank you. Yeah, so clearly, cash flow continues to be a priority. I focus on CapEx. And, you know, we've been very intentional about the levels of capital we've invested in the business. Part of that was to catch up on capacity. We're currently in the midst of big investments in IT and digitalization. But over time, I think you'll see the level of CapEx as a percent of sales begin to trend down, and that'll help with the cash.

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Ramon Laguarta: So thank you, everybody. I'm glad everybody's happy that Jamie is back. And I see a lot of bonding. Great. But obviously, thank you for the confidence that you've placed in our investment. And we look forward to seeing many of you at Cagney in a couple of weeks and having a longer conversation there.

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Operator: Thank you very much. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. Thank you, gentlemen. I appreciate your help.

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Operator: You're welcome. Phone Ringing Phone Ringing Phone Ringing, In the name of the Father, and of the Son, and of the Holy Spirit. Amen. IN THE NAME OF THE FATHER, AND OF THE HOLY SPIRIT. In the name of the Father, and of the Holy Spirit. Amen. In the name of the Father, and of the Holy Spirit. In the name of the Father, and of the Holy Spirit. In the name of the Father, and of the Holy Spirit. In the name of the Father, and of the Holy Spirit. Amen. SourcePlays.com, COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE COLLAPSE,.

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Q4 2023 Pepsico Inc Earnings Call

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