Q4 2024 PepsiCo Inc Earnings Call - Q&A
Good morning, and a bucket of Pepsi Pepsico's fourth quarter and full year 'twenty 'twenty four earnings question and answer session. Your license are placed on listen only chose your turn to ask a question today's call is being recorded and will be archived at www Dot Pepsico Dot com. It is now my pleasure to introduce Mr. Robb you pay them the only senior Vice President of Investor Relations. Mr. <unk> you may begin thank you.
You, Kevin 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 guidance and outlook forward looking.
<unk> inherently involve risks and uncertainties.
And only reflect our view as of today February four 2025, 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.
Please refer to our fourth quarter 2024 earnings release, and 2024 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 Lavazza, and Pepsico Executive Vice President and CFO, Jamie Caulfield, 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.
Speaker Change: Thank you in order to ask a question or make a comment. Please press star followed by one one on your Touchtone phone at any time, we will pause for a moment, while we compile the Q&A roster.
Speaker Change: Our first question comes from Lauren Lieberman with Barclays. Your line is open.
Lauren Lieberman: Great. Thanks, so much good morning, everyone.
Speaker Change: And I wanted to talk about Frito significant reinvestment in the business that really started over the summer, but we really thought presumably stepped up in the fourth quarter funded by the one time gain you had.
Speaker Change: But volumes decelerated sequentially. So just curious if you can talk a little bit more about spending and reinvestment in the fourth quarter in particular, how much you would describe as kind of tactical versus laying strategic groundwork for next year, because right now just optically and Super Simplistically the ROI on reinvestment.
Speaker Change: It doesn't feel great with volumes kind of taken a step in the wrong direction.
Speaker Change: Hey, good morning, Laurence Jamie look were.
Speaker Change: Working hard to get the momentum back into the freedom business and just as importantly back into the salty savory category. So that's working for us working for our customers. So.
Speaker Change: We're going to continue to invest in but enables us to investors, we're generating productivity to your point, we did have some help from non operating gains in the fourth quarter.
Speaker Change: The investments are.
Speaker Change: Intended to improve the the performance in the fourth quarter, but more importantly to get us off to a good start going into 2025.
Speaker Change: Yes.
Speaker Change: These are among a couple of.
Speaker Change: Context.
Speaker Change: How do we feel about it.
Speaker Change: We're encouraged by the category. If you look at the mall applies to kind of data. The category is starting to grow again in the last periods of the year, including.
Speaker Change: Q1.
Speaker Change: And that's that was the number one objective that we had to get the category back into growth both in volume and hopefully is starting to take some.
Speaker Change: See some pricing price mix positive price mix I think we are there so consumers are back into the category.
Speaker Change: No I wouldn't say, a large number but delivering growth. So that's very positive from here. We can build on the learnings that we had during the year what are the best.
Speaker Change: Roy as you were saying in ROI investments in value for the category, but most importantly, we understand that.
Speaker Change: The bigger trends, where we can innovate where we can bring.
Speaker Change: Bring to the category.
Speaker Change: New spaces that will drive additional locations into the category. Moreover for our own business. The big opportunity. We're also addressing is the away from home.
Speaker Change: The opportunity which is a.
Speaker Change: Our blue space at Blue Ocean off opportunities for us and as consumers are.
Speaker Change: Being less at home and more away from home within that's another area of opportunity. So I would say category grows back too.
Speaker Change: Good levels, we're starting to see some pricing in the category.
The consumer programs in the commercial progress for next year look very strong addressing innovation spaces that have been made at this point I would say and then obviously for US away from home is a big opportunity in our fluids business, we have more of our business in beverages and away from home, but for foods is an underdeveloped opportunity.
Speaker Change: So those that's how we're thinking about investments that we put back into the business in Q4 as you said, we reinvested most of the onetime gains in building.
Speaker Change: The infrastructure to capture those opportunities and 25.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.
Bonnie Herzog: Thank you good morning, everyone.
Bonnie Herzog: She had a question on your guidance for this year your EPS guidance.
Speaker Change: Assume some leverage but not nearly as much as you have reported in prior year. So just kind of wanted to understand the drivers of this.
Speaker Change: I assume your productivity savings will remain robust so should we assume that the level of investments in your business.
Speaker Change: Ramp up fair amount this year and if so could you maybe give us.
Speaker Change: A little bit more of a sense of the types of investments for instance are.
Speaker Change: And are you considering more price investments that brito.
Speaker Change: And then also you got at an EPS range versus your typical percentage increase that is the idea there that you would.
Speaker Change: <unk> like to have more flexibility this year to maybe push more aggressively on investment levels if needed. Thank you.
Speaker Change: Yes, I would say.
Speaker Change: And Jamie.
Speaker Change: Add to this.
We're thinking about the year is continuing with the systematic productivity multi year programs that we've talked to you about so automation digitalization global capability centers simplifying the company duplicating, so theres a lot of.
Speaker Change: We feel very strong about that.
Speaker Change: We are.
Speaker Change: Reinvesting into.
Speaker Change: Price partitions.
Speaker Change: That we're not participating for freedom. If you think about there is sub $1 sub $2 theres multiple price partitions, where we're not participating where we're rethinking our we're redoing our price pack architecture and single serve and multi packs in multi serve to make sure that we attract consumers.
Speaker Change: Depending on their disposable income during the month, they will be able to access our product.
Speaker Change: Across across the.
Speaker Change: Multiple parts of the portfolio.
Speaker Change: Then to your point, we're being cautious like the reality is that they will looks better from the unemployment point of view there is theres very low unemployment around the world there is.
Speaker Change: Better inflation in most of the markets. However, the world is very volatile as you've seen from the geopolitical point of view or some of the.
The potential.
Speaker Change: Decisions that governments might take.
Speaker Change: Going forward, we think.
Speaker Change: It's prudent for us to.
Speaker Change: Give a guidance that reflects all of that and obviously, we can invest in the business and continue to invest for the long term as we always manage the business, but also gave us flexibility to react to potential circumstances that might come our way.
Speaker Change: In the coming months, especially I would say the first half of the year I.
Speaker Change: I don't know Jamie in terms of <unk>, Yes, I would add.
Speaker Change: We have about a three point Forex said, obviously the dollars.
Speaker Change: Strengthened recently.
Speaker Change: The peso is the biggest piece of that Forex guide and then below the line, we're expecting higher net interest expense.
Speaker Change: Part of that is as we've rolled over that.
Speaker Change: We've issued at slightly higher rates, and then a higher debt balances with the acquisitions of CSA and.
Speaker Change: 50% of Sabra that we did not previously own on top of that pension expense is going to be up a bit so where we typically have maybe a little bit of leverage.
Speaker Change: Below the line items, it'll be a bit of a headwind. So you should expect the sector operating profit to.
Speaker Change: To grow in excess of what we're guiding on EPS.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Camilo Gartrell wildly with Jefferies. Your line is open.
Camilo Gartrell: Hey, everybody good morning.
Camilo Gartrell: Quick questions I guess on the restructuring and realignment.
Camilo Gartrell: I guess the first thing is I don't know if it was 10 years ago, but there were a lot of conversations around splitting beverage and snack as two different businesses and I just wonder if these restructurings or maybe a prelude to something bigger down the road or maybe what's your appetite for that.
And then I guess in the midst of a restructuring like this does that also mean that.
Camilo Gartrell: Any other M&A is off the table after these.
Camilo Gartrell: Two recent deals.
Camilo Gartrell: Yes.
Camilo Gartrell: Okay.
Camilo Gartrell:
Camilo Gartrell: I mean, there are reasons for the for.
Camilo Gartrell: For the restructuring of our multiple but I'll summarize.
Camilo Gartrell: The international growth opportunity is.
Camilo Gartrell: These are very large for us and we want to have <unk> between what is a franchise beverage opportunity on what is a mainly a food operating unit opportunity. So.
Camilo Gartrell: We are separating those to make sure that we have category <unk>, but most importantly, we have.
Camilo Gartrell: Our consumer and franchise facing organization and a consumer down operating facing organization internationally, capturing what is a very large growth opportunity now in the U S. We have been investing in systems and we've been investing in data we've been investing in infrastructure now we are ready to capture.
Camilo Gartrell: The benefit of some of those investments in.
Camilo Gartrell: Better short term cost run into business and Theres duplications in how we service the two organization. So thats an opportunity we want to continue to have very focused category teams.
Camilo Gartrell: <unk> understand the consumer innovate manage the category separately, but also we see an opportunity to build the future.
Camilo Gartrell: Together in a different way. So if you think about infrastructure. If you think about technology investment. If you think about a lot of the.
Camilo Gartrell: The big decisions that we have to make for the future of the business, we have an opportunity to do that much more harmonized way in the U S. So those are the three big ideas that I think for the for the next chapter of the business on our accelerated growth ambitions and margin expansion is the best way to.
Camilo Gartrell: To run the organization.
Speaker Change: Thank you one moment for our next question.
Dara <unk>: Our next question comes from Dara <unk> with Morgan Stanley. Your line is open.
Dara <unk>: Hey, good morning, guys.
Dara <unk>: There so.
Dara <unk>: Just looking at Q4 results for you guys across the CPG industry, clearly a pretty muted topline growth environment in North America.
Dara <unk>: Touched on Frito lay North America already but I, just love to get a bit more granular on how youre, specifically managing the business differently in 2025 relative to the back half of last year.
Dara <unk>: On both the Frito lay and beverage side of the business.
Dara <unk>: Areas Youre, emphasizing more such as innovation et cetera, and just sort of the tweaks and strategy in light of that sustained environment and also just can you give us a quick update on performance in Mexico in Q4 somewhat tied into the same vein of a subdued consumer environment. So any update there would be helpful.
Dara <unk>: Thanks.
Dara <unk>: So let me start from.
Dara <unk>: The international business remains by far our largest growth opportunity and we've been investing consistently over the last 10 years, we will continue to invest.
Dara <unk>: <unk>.
Dara <unk>: To continue to nurture these big opportunity for us to develop our gaps and continue to build.
Dara <unk>: <unk> business with high margins.
Dara <unk>: I'll give you a sense today, our international business already almost $40 billion business accretive to pepsico's. So we build the scale we've built.
Dara <unk>: The leverage in that business continues to grow at a very very good base now in North America.
Dara <unk>: We are encouraged by what we're seeing we're encouraged by.
Dara <unk>: In the beverage business.
Dara <unk>: <unk>.
Dara <unk>: Continuous improvement of our margin and that was something that we put our.
Dara <unk>: Key objective.
Dara <unk>: A few years ago, we see our line of sight to a mid teens margin in our beverage business that continues to be a.
Dara <unk>: Aspiration now I think we have an opportunity to do better on the topline in beverages and.
Dara <unk>: That is the focus for this year continued to expand our margin, but drive acceleration on the top line.
Dara <unk>: Behind better price back I'm, much more focused innovation against zero against functional hydration against some of the more.
Dara <unk>: The categories, where we are leaders like teas, and coffees and we continue to improve our operational excellence.
Dara <unk>: In beverages. So that's a beverage journey beverage ambition again productivity at this center and the teams have been doing a great job in improving.
Dara <unk>: Operational efficiency across.
Dara <unk>: Diane across making outgrows, moving and everything else. So that's the journey on beverages and snacks.
Dara <unk>: After five years of very fast growth and gaining almost 200 bps of share 24 has been a slowdown.
Dara <unk>: Our number one priority. This year has been stabilizing the category, making sure that consumers coming back to the category with good ROI investments.
Dara <unk>: Where we can we can say that we see that happening we're seeing that.
<unk> starting to grow again on volume in the last three months and.
Dara <unk>: A little bit of pricing in the category.
Dara <unk>: Frito is has a very strong program for 25, much better price point.
Dara <unk>: Execution and partitions as I said earlier in the call.
Dara <unk>: Much better innovation, we're moving.
Dara <unk>: More of our A&M dollar stores.
Dara <unk>: We call <unk>.
Dara <unk>: The city of choices are permissible offerings for the consumer.
Dara <unk>: New line of no artificial.
Dara <unk>: And there are simply which will have all of our brands.
Dara <unk>: More effort on baked more effort on lightly salted Mario for some parts of the portfolio, where we see consumers moving.
Dara <unk>: Lot of effort on portion control a lot of effort on single serve on multi packs and a lot of efforts on availability of our small portions and then as I said earlier our away from home continues to be an investment area for Frito something that was in our strategy now we're dialing up the opportunity to.
Dara <unk>: Have our products available in away from home, but not only in the form of a conventional bag of.
Dara <unk>: Our snacks, but also more.
Dara <unk>: Elevated.
Dara <unk>: Experience is in form of ready to eat almost solutions.
Dara <unk>: For many meal solutions, that's why the acquisitions of <unk> and Sabra feed our strategy as they gave us not only better for you snacks about also the option to participate in meals a mini meals in a much more intentional way. So those are there.
Dara <unk>: Kind of the.
Dara <unk>: <unk> brought the broad strategies, we'll talk more at Cagny and how we're thinking about all of these for it for the coming years.
Dara <unk>: Thank you one moment for our next question.
Bryan Spillane: Our next question comes from Rod I'm, Sorry, Bryan Spillane with Bank of America. Your line is open.
Bryan Spillane: Hey, Thanks, operator, good morning, everyone.
Speaker Change: Hey, remote I'd like to pick up on the comments from the previous question related to.
Speaker Change: Frito and I guess the focus on some of the <unk>.
Speaker Change: Positive choices.
Speaker Change: I guess as we step back right and we've all been trying to understand both the frito share in the category how much of it is just simply price got ahead of the consumer's wallet how much of this is.
Speaker Change: Now a change in preference right.
Speaker Change: Healthier more important objective from here and then I guess the last is just.
Speaker Change: We're frito kind of fits in many meals because.
Speaker Change: Meals have become more expensive and is there a migration to like I don't know $1 menu relative to a bag of lay's and Pepsi So.
Speaker Change: Okay.
Speaker Change: Against those three things, which one is the most important and specifically if there is something that you are hearing from consumers that is causing a refocus on the more positive choices.
Speaker Change: Yes.
Speaker Change: It's a great question. It is actually probably the most strategic question.
I think when we talk to consumers value is the number one.
Speaker Change: <unk>.
Speaker Change: Decision maker and it's.
Speaker Change: The reason why the category has slowed down in the last 12 months. So we've seen that addressing value given the consumers choices at different price points different solutions throughout the months the consumers will be may.
Speaker Change: We're making choices as they they are trying to maximize their disposable income. So I think that continues to be the number one focus and I think we have a much stronger pricing sizing and promotional.
Speaker Change: Activities that address that.
Speaker Change: With high ROI and maximizing the value of the category.
Speaker Change: I think there is a more awareness.
Speaker Change: From consumers.
Speaker Change: The food and the drinks that they consume I think there is a this has been a multi year evolution of the consumer in the U S globally, obviously as well and obviously some parts of the world I'm more advanced, especially European European consumers.
Speaker Change: We think there is there has been a more conversations on social and more.
Speaker Change: We've seen some behaviors as well so that is maybe an acceleration in the U S market that we are very well positioned to capture you think about portion control probably being the number one solution for consumers to stay in our categories is small portions of our favorites ideally improved favorites with lower <unk>.
Speaker Change: And lower fat and no artificial so portion control of our favorites is a big a big study. There's also consumers that are looking for more functionality.
Speaker Change: And Theyre looking for protein in their snacks theyre looking for.
Speaker Change: Our whole grain and their snacks theyre looking for other other benefits and we are also well positioned to thing about sun chips on how centene innovating with whole grain and now <unk> you think about stages with call of grain if you think about it.
Speaker Change: Quaker with broad chain snacks.
Speaker Change: Think about bumping and bacon and better Fry and lower fat frying options that were putting on in front of consumers those are all.
Speaker Change: Tools in our in our portfolio enabled by very capable in R&D that we will continue to to to expand and the truth is that our partners have been great partners in expanding space for us in the stores and giving us.
Speaker Change: The tools to maximize consumer impact.
Speaker Change: That will be big in 'twenty, five and we're pivoting our of our A&M into those spaces.
Speaker Change: The third pillar is mini meals and this is not only a value driven decision, but is a sequential it's been also a multiyear.
Speaker Change: Evolution of the category, where more locations more calories are being eaten in in small meals versus large meals and I think that is something that will continue as consumers lifestyle evolve.
Speaker Change: It that way. So there we are participating with our with all of our brands. We're trying to create solutions for our consumers in those moments of the day, where they are looking for a 200 calories 300 calorie.
Speaker Change: <unk> that takes them over for the next few hours into their next.
Speaker Change: Nice job on whatever whatever they're trying to accomplish so those are those are multi multi strategies now the same applies to beverages beverages.
Speaker Change: <unk> are critical.
Speaker Change: The.
Speaker Change: Offering partitions that drive that are critical better for you, so zero and more functional beverages, and we have both in Gatorade propel and <unk>.
Speaker Change: The whole zero portfolio, and then also elevated experiences away from home and we have Pepsi drips that is an elevated experience.
Speaker Change: Notable other solutions that we have on our away from home business. So it is a three pronged strategy. It is across food and beverages and we feel good about our ability to continue to.
Speaker Change: Give consumers what they need as they as their preferences evolve.
Speaker Change: Obviously, either in the coming years.
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.
Speaker Change: Hi, good morning, everyone.
Speaker Change: I wanted to ask about your low single digit organic sales guidance for 2025 can you comment on much is the international contribution versus the North America expectations.
Speaker Change: Specifically in North America, you called out the.
Speaker Change: The performance to improve gradually as the progressive can you give us some sense of when you expect North America to improve and kind of what are the key drivers of that improvement 25. Thank you.
Speaker Change: We feel about its Jamie.
Speaker Change: As we mentioned in the prepared comments, we expect north America's performance to improve gradually as we work through the year our guidance of low single digits.
Speaker Change: In the same neighborhood as our exit rate clearly at this point in the year with a lot of global uncertainty I think.
Speaker Change: We've set the top line guidance to be.
Speaker Change: To be prudent in the cause of all the acceleration or the cause of the acceleration in North America is a lot of what the remand spin.
Sheri: Sheri previously on the call so.
Sheri: Innovation getting into new spaces getting into.
Speaker Change: Leaving more heavily into away from home and to be clear <unk>.
Speaker Change: International has been performing very well and we expect international to continue to be quite resilient and a major contributor to us too.
Speaker Change: Our results in 2025.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Peter Grom with UBS. Your line is open.
Speaker Change: Thanks, operator, and good morning, everyone hope you're doing well so.
Speaker Change: Ramon you mentioned in response to Lauren's question that you are kind of encouraged by some of the trends that youre seeing in <unk> more recently.
Speaker Change: Throughout this call you kind of touched on a lot of the things that the company is doing to improve performance around affordability innovation et cetera, but just over the past year category growth has been choppy and we've seen kind of these periods of growth kind of ultimately reverse. So just would be curious as you look at it today is there something that youre seeing thats different.
Speaker Change: That gives you greater confidence that the categories on much better footing today as we move into <unk>.
Speaker Change: The balance of 'twenty five thanks.
Speaker Change: Yes.
Speaker Change: I don't think we can read 24 in <unk>.
Speaker Change: Isolation of the previous three years, otherwise I think we were missing some of the major.
Speaker Change: Impacts on consumer both lifestyle.
Speaker Change: From home into away from home and disposable income challenges with inflation. So we look at 24 in the context of the last four years and we say okay.
Speaker Change: And the category has grown.
Speaker Change: <unk>, our long term expectations of freely grew 8% in the last four years, that's a pretty good compound rate for a company of that scale and that developmental.
Speaker Change: That's positive and Frito lay has gained almost 200 bps of share of market. So that that is that.
Speaker Change: The contextual.
Speaker Change: Reality to understand 24, as a normalization year inflation going back to normal.
Speaker Change: Normal levels, both on the cost of inputs and the consumer side.
Speaker Change: Side and the overall trends in the category now.
Speaker Change: Yes, we're encouraged by the fact that we're seeing more locations coming into the category in the last few years of the three months of the year and that is encouraging because we see consumers coming back to.
Speaker Change: To consume our product.
Speaker Change: Consumer the products that are being offered by the category. Now there is there is a higher level of consumption in the value segments of the category, but it's also more locations coming in the premium segments of the category, which also helps us to understand.
Speaker Change: The way to address that opportunity both with good offerings on the value side, but also innovation and good.
Speaker Change: Consumer solutions that consumers are willing to pay more on the premium side and that's why what.
Speaker Change: What I said, we're encouraged.
Speaker Change: I think our commercial plans address the opportunities both at both ends of the category and.
Speaker Change: Also trying to be very.
Speaker Change: Very cautious and very always having ROI at the center of our decisions not only for Pepsico, but for the full category of which we think where we are.
Speaker Change: Guardians of this category for the long term and Thats why.
Speaker Change: We're making some of the decisions we're making.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Steve Powers with Deutsche Bank. Your line is open.
Steve Powers: Thanks, and good morning.
Steve Powers: So I don't want to beat a dead horse, but I just wanted to delve a little further into the topic of Frito investments, specifically the topic of pricing and value.
Steve Powers: I appreciate the comments you made so far removed but I.
I, just I guess I'm trying to put a little.
Steve Powers: Finer point on it.
Steve Powers: Because it's the one area, where I guess you could.
Speaker Change: Argued you haven't really yet made clear in concern of investments just evidenced by the fact that pricing in Frito is still positive this quarter, despite tactical initiatives <unk> discussed coming into the quarter. So.
Speaker Change: The comments you've made today Ramon signal a change on that front.
Speaker Change: Yes.
Speaker Change: Pricing in Frito could potentially start to run negative as we start 2025.
Speaker Change: I certainly understand the risks and sensitivities of walking back pricing, but on the flip side.
Speaker Change: I guess the question would be how are you thinking how would you think about the risks of not.
Speaker Change: Investing more in price to Reenergize volume.
Speaker Change: Just just given that it's been I guess 18 months or so.
Speaker Change: Where we've seen.
Speaker Change: Category volumes and volumes in your portfolio extend their declines and fall short of expectations.
Speaker Change: I think I'm hearing a little bit more softness, but im just im just kind of.
Speaker Change: I wouldn't I wouldn't.
Speaker Change: I wouldn't assume that we're going to have negative pricing I don't think that's our strategy what I'm, saying is we're going to have a much more surgical offerings.
To consumers, especially around price partitions, which.
Speaker Change: I think we can do pricing sizing in a way that we.
Speaker Change: We give consumers optionality without diluting the pricing of our business are the category. For example, if you think about the multi pack business.
Speaker Change: We will be offering lower account will be offering aid counts and we will be offering <unk>.
Speaker Change: <unk> counts on ATM count from 20, count will be offering the consumer multiple choices so that the consumer can begin.
Speaker Change: Beginning with the month they might go for a <unk> count and end of the month they might take.
Speaker Change: A six count head count depending on their budget availability. That's one strategy. The same with the single serve we've always had the two for one dollar option for limited channels.
Speaker Change: Now, we're going to have a shot to option.
Speaker Change: That we didn't have we will have multiple partitions for different locations and obviously this is the.
Speaker Change: Our DSD system allows us to.
Speaker Change: Have distribution of the different price bags for the locations that matter for that particular customer of point of sales throughout the year. So those are capabilities that we have in place now we won't have the offerings. We will have the executions that we will have the partnership with our customers to try to continue to drive value for the consumer and for all.
Speaker Change: Our partners and for ourselves.
Speaker Change: I don't think we will have negative pricing will have a much more surgical price back strategy and execution of strategy that we think will drive growth for the category given where the consumer is in the in their disposable income.
Speaker Change: Evolution after the high inflation years that we just we just crossed.
Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Michael Lavery with Piper Sandler Your line is open.
Speaker Change: Thank you and good morning.
Speaker Change: Just wanted to come back to Frito.
Speaker Change: Not as much the pricing piece, but some of the other spending.
Speaker Change: At the end of Lauren's question, you were saying you reinvested most of the onetime gains in infrastructure.
Speaker Change: Just wanted to maybe understand a little bit better what that is I mean, I think the optics as you pointed out are a little funny, but if we understand that better I think thats helpful and just a little bit related you said that.
Speaker Change: The percentage of sales for advertising and marketing went up in <unk> can you maybe touch on what your expectations are for 2025 for that.
Speaker Change: I'll start with the A&M I would expect our A&M to be pretty consistent as a percent of sales in 2025.
Speaker Change: Investments and how we reinvest in them.
Speaker Change: I think.
Speaker Change: Going back to the investments I think we continue to think about.
Speaker Change: Our long term portfolio evolution so.
Speaker Change: Continue to invest more on the future platforms that we're trying to create.
Speaker Change: Weather is portion control platforms, whether it's permissible platforms ways that away from home platforms. All of those require investments upfront, especially away from home requires some investments to be able to capture new channels and new opportunities the same with some of the.
Speaker Change: The new the new platforms that we have to invest to get it off the ground. That's why my comment on Q4 investing on those platforms.
Speaker Change: But again, we're trying to run the business for the long term trying to.
Speaker Change: <unk> good options for the consumer and all the different price partitions move the portfolio to where we are seeing are.
Speaker Change: The new pockets of demand.
Speaker Change: <unk>.
Speaker Change: Again.
Speaker Change: Lower fat products lower saw the products better ingredients and our legumes and rise in some other ingredients.
Speaker Change: <unk> given consumers.
Speaker Change: Higher <unk> all of the different functionalities that consumers are looking for as they enjoy.
Speaker Change: Tasting snacks.
Speaker Change: And then again the away from home opportunity being much bigger both with mini mills and some are ready to eat solutions that our brands can participate and we're seeing high demand and that will require investments to be able to capture for the long term.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question comes from drew Levine with Jpmorgan. Your line is open.
Drew Levine: Hey can you hear me.
Speaker Change: Andre.
Speaker Change: Hey, Peter.
Speaker Change: Thanks for taking the question.
Speaker Change: So I think this is the first quarter in a while where energy wasn't specifically mentioned in the prepared remarks, just wondering any change in view of the category or pepsico's platform in the category and I know the company's previous said.
Speaker Change: We feel good about the service always on execution, but maybe any color on what the company has planned from a planning or execution perspective to drive growth in that part of the portfolio or if theres anything.
Speaker Change: The partnership can be doing differently or better from your perspective. Thank you.
Speaker Change: Yes, I think youre not leasing we continue to see energy as a fundamental part of our beverage growth strategy in the U S.
Speaker Change: <unk> four.
Speaker Change: For energy throughout the day and I think we have a portfolio that offers that.
Speaker Change: Both with our brands and some of the brands that we distribute.
Speaker Change: We're servicing our consumers and our customers with I think full end to end solution. So theres no theres no mentioned because there is no.
Speaker Change: There is no nothing special to mention.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from Robert <unk> with Evercore ISI. Your line is open.
Speaker Change: Hey, guys. This is Greg on for Robert I was just wondering if you could please talk a bit about the <unk> pricing strategy for 2025, and then a bit more about higher thinking of promo.
Speaker Change: In that segment and then as a.
Speaker Change: Quick other follow up maybe just touch on the incremental <unk> Baja blast and just how you guys are thinking about the mountain Dew franchise.
Speaker Change: Franchise. Thank you.
Speaker Change: Great.
Speaker Change: So at least in Baja blast is a.
Speaker Change: A big part of our strategy to make mountain Dew.
Speaker Change: A bigger contributor to our growth in beverages.
Speaker Change: It's a large franchise is almost $1 billion already between our away from home.
Speaker Change: In our retail business.
Speaker Change: The neighborhood of $1 billion.
Speaker Change: We see.
It is incremental in driving penetration for mentioned, you with new especially with <unk> and especially in parts of the country or our core months and there is less developed so we see a very good incremental <unk> for us.
Speaker Change: We will continue to invest in Baja blast as one of our best for the year, it's continuing the development of Baja blast.
Speaker Change: India.
Speaker Change: We'll have it for Super Bowl and there is a whole program throughout the year to continue to develop this platform I think it's.
Speaker Change: As sustainable as incremental it brings new consumers into the into the franchise.
Speaker Change: <unk>.
Regarding Baja blast regarding the pricing strategy I think there is very disciplined.
Speaker Change: CRE.
Speaker Change: <unk>.
Speaker Change: Both through price back in through our channel mix and we'll continue to tweak.
Speaker Change: To work on that direction to create value for our <unk> for our consumers, giving them the best choices in price bags and promotional offers that create category value and carrier.
Speaker Change: The ability for our partners and ourselves.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Robert Moskow with TD Cowen Your line is open.
Speaker Change: Hi, Thank you for the question.
Speaker Change: I was curious when you went through the list of factors impacting the slowdown in salty snacks.
Speaker Change: There's no mention of increased <unk> usage.
Speaker Change: And there's a pretty detailed study by numerator Cornell showing that salty snacks was a category that was probably most impacted.
<unk> usage.
Speaker Change: Right.
Speaker Change: Would you agree with that assessment or.
Speaker Change: Do you think it overstates the impact.
Speaker Change: And then secondly.
Speaker Change: Protein drinks, it's probably the fastest growing segment of the drinks market would you have any.
Speaker Change: Desire to go to become more aggressive in that category.
Speaker Change: Given given all the growth around it.
Speaker Change: That's great.
Speaker Change: That said on the protein beverages for sure we're trying to participate in that with a sense of urgency.
Speaker Change: Trying to participate in general.
Speaker Change: In the functionality evolution.
Speaker Change: The beverage category, both from the functional hydration point of view in there with the Gatorade and propel and <unk>.
Speaker Change: We see the opportunity to continue to create more value both in terms of hydration by hydration plant protein as well in that space.
Speaker Change: Yes in terms of broad chain, both with through muscle milk and some other innovations. We've got we're looking at participating in that in that carrier, which as you were saying. It is it is it is growing faster than total LRB. So.
Speaker Change: For sure.
Speaker Change: That is an opportunity that we are.
Speaker Change: Now on <unk>.
Speaker Change: Solve key.
I think we continue to.
Speaker Change: Study GOP, obviously with a lot of detail and at this point.
Speaker Change: We see that because of the lower levels of adoption and.
Speaker Change: People coming in and out of the.
Speaker Change: Treatment, we see very little impact in our business and in our category at this point. However, as I said earlier I think there is a there's a higher level of awareness in journal of American consumers towards health and wellness and this is driven by potentially all of the.
Speaker Change: All of the.
Speaker Change: All the conversation around obesity drugs, but also.
Speaker Change: There are conversations that are happening around this space on health and wellness. So I think yes, there is a health and wellness.
Speaker Change: The higher level of awareness by consumers and Thats driving some behaviors that we're addressing through the strategies that I talked earlier.
Speaker Change: Most important being portion control I think portion of rental is a highly strategic.
Speaker Change: Strategy that we've been implementing for many years, but also long term evolution of our of our portfolio with lower sodium lower fat lower sugar.
Speaker Change: Positive ingredients plant plant based broad chain whole hog range all of those are.
Speaker Change: Kind of.
Speaker Change: D J adjustment and evolution of our portfolio that we've been making for many years, we're accelerating to be able to offer our consumers.
Speaker Change: All different options for the multiple locations that they interact with our category. So.
Speaker Change: Again, we haven't seen a direct impact of GOP bar, we're seeing more conversation in social media about.
Speaker Change: Health and wellness in general and obviously that sort of impacting consumption of foods and consumption of beverages, and we're very well positioned with our broad portfolio to cater to all these new realities and this is not new this is something that we've been working on for many many years that is a sequential evolution of the consumer debt.
Speaker Change: Both through innovation and through M&A will be an interesting I think we have a very broad portfolio. If you think about the acquisitions of <unk> of Sabra there in that context, I know you gave us both they gave us both the opportunity to innovate, but also tien to enter new spaces like meals, where we needed them.
Speaker Change: More platforms.
Speaker Change: To take advantage of them, John just to add I think that I think the protein opportunities beyond protein beverages. So if you look at Quaker today, we've got a number of offerings that are high protein in the breakfast occasion, and I think there is a lot more opportunity to expand that.
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.
Speaker Change: Alright. Thank you so number one just on Europe. This has been a segment that has actually seen.
Speaker Change: Kind of successfully driven that improvement in volume just as.
Speaker Change: You guys pricing is normalized.
Speaker Change: What's specific about whats going on in Europe that has allowed you to see that positive balance of delivery over the course of this year end and do you think this performance is sustainable going into next year and then just connected.
Speaker Change: There was some view that international.
Speaker Change: Profit strength could fund some of the investments in North America would you continue to have that view given what we're seeing in the currency.
Speaker Change: Environment. So just the concept of international is still being able to give you that profit lift so as to fund some of the things that you want to do in North America. Thanks for those two.
Speaker Change: Yeah, Great. So international continues to be our largest.
Value creation opportunity both in the topline and margin expansion. If you look at the margin expansion of international in the last couple of years as it is.
Speaker Change: It's very remarkable and I wouldn't say that international will fund the U S, but as we manage the company in its totality, obviously international now.
Speaker Change: Great source off.
Speaker Change: Top line is a great source of profit at any gives us flexibility to to be much more.
Speaker Change: Flexible I guess in how we allocate resources and grow the overall business with regards to Europe, It's yesterday.
Speaker Change: I would say consistent.
Speaker Change: Strategy by our teams I think the teams have done a great job in.
Speaker Change: Being very balanced.
Simplifying the business <unk>.
Speaker Change: Unnecessary cost from the P&L and reinvesting those in growth in platforms that have been very good for as long term zero sugar beverages.
Speaker Change: Lower lower sodium on lower fat snacks and.
Speaker Change: <unk>.
Speaker Change: Better in terms of availability affordability, TN and entering new spaces like away from home, so they've been executing very well the strategy of the business.
Speaker Change: Starting I would say from a very.
Very intentional reduction of cost to reinvest in topline.
Speaker Change: In a difficult context like the European markets with large retailers.
Speaker Change: Done a great job and yes within that this is sustainable within this will continue.
Speaker Change: In this year and in coming years and.
Speaker Change: The opportunities to grow per caps in Europe, but still very large and we have very good teams in the markets and very good.
Speaker Change: The strategy is to deploy our capabilities against the market.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our last question comes from Kevin Grundy with Bnb Paribas. Your line is open.
Kevin Grundy: Great. Thanks, good morning, everyone.
Kevin Grundy: Ramon I wanted to take a step back here and give you the opportunity to perhaps level set on the company's longer term.
Kevin Grundy: <unk> sales guidance of 4% to 6% so not asking you to be redundant in any way, but pulling together a lot of themes on the call. It.
Speaker Change: It seems like you see issues in the snacks business is more transitory or cyclical as opposed to the secular you sound confident in the strength of the business outside the U S. But perhaps maybe cautiously optimistic you have the right plan in place to return snacks to grow time will tell but as we sit here today can you maybe comment on your level of confidence. These are indeed transitory issues facing the busy.
Speaker Change: And that 46% is still the right growth rate for your current portfolio on an intermediate term basis. Thank you.
Speaker Change: Thank you great question and I think obviously.
Speaker Change: C R R.
Speaker Change: Our long term.
Speaker Change: Growth of the business.
Speaker Change: And those levels for two 6% and we're obviously going to try to go for the upper end of the long term guidance again very high growth in international.
Speaker Change: We're very confident that the.
Speaker Change: Our North America business will accelerate this year, we are very confident in our plans and our long term and we see opportunities, especially away from home.
Speaker Change: Billions of applications in a daily basis that we need to go and capture.
Speaker Change: With much more intentional products and consumer facing and go to market. So.
Speaker Change: Our big opportunities, we remain very committed and we also remain very committed to translate that growth into a.
Speaker Change: A high single digit EPS and.
Speaker Change: If you look at our last five years, we've been delivering above our long term guidance, both in topline and bottom line and we don't see any reason why we should.
Speaker Change: Now to continue to deliver at those high levels. If you take the next five years.
Speaker Change: In context.
Speaker Change: So thank you very much.
Speaker Change: Been a good conversation and I really appreciate your question.
Speaker Change: Thank you for.
Speaker Change: Staying invested in our in our business, we look forward to the meeting in Cagny and also hope that you guys enjoy our products. We are indeed this weekend Super Bowl game. So thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Speaker Change: Okay.
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Okay.
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Speaker Change: Sure.
Speaker Change: Thank you.
Speaker Change: Okay.
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Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: [music].
Robb Uffelman: Good morning, and welcome to Pepsi Pepsico's fourth quarter and full year 2024 earnings question and answer session. There are lots of are placed on listen only chose your turn to ask a question today's call is being recorded and will be archived at www Dot Pepsico Dot com. It is now my pleasure to introduce Mr. Robb you pay them the only senior Vice President of Investor Relations. Mr. <unk> you may begin thank you Kevin and good.
Robb Uffelman: 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 guidance and outlook forward looking statements inherently.
Really involve risks and uncertainties and only reflect our view as of today February four 2025, 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.
Robb Uffelman: Please refer to our fourth quarter 2024 earnings release, and 2024 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.
Ramon Lavazza: Joining me today are pepsico's, chairman and CEO, Ramon <unk>, and Pepsico's Executive Vice President and CFO, Jamie Caulfield, 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.
Speaker Change: In order to ask a question or make a comment. Please press star followed by one one on your Touchtone phone at any time, we will pause for a moment, while we compile the Q&A roster.
Ramon Lavazza: Yeah.
Speaker Change: Our first question comes from Lauren Lieberman with Barclays. Your line is open.
Lauren Lieberman: Great. Thanks, so much good morning, everyone.
Speaker Change: Adam.
Speaker Change: I wanted to talk about Frito significant reinvestment in the business that really started over the summer, but we really thought presumably stepped up in the fourth quarter funded by the onetime gain you had.
Speaker Change: But volumes decelerated.
Speaker Change: So just curious if you can talk a little bit more about.
Speaker Change: Spending and reinvestment in the fourth quarter in particular, how much you would describe as kind of tactical versus laying strategic groundwork for next year, because right now just optically and Super Simplistically the ROI on reinvestment.
Speaker Change: Does it feel great with volumes kind of taking a step in the wrong direction. Thanks.
Jamie Caulfield: Hey, good morning, Lawrence Jamie, Yes look were.
Jamie Caulfield: Working hard to get the momentum back into the Frito business and just as importantly back into the salty savory category. So that's working for us working for our customers. So.
Jamie Caulfield: We're going to continue to invest in but enables us to investors. We are generating productivity to your point. We did have some help from non operating gains in the fourth quarter.
Jamie Caulfield: And the investments are.
Jamie Caulfield: Intended to improve the the performance in the fourth quarter, but more importantly to get us off to a good start going into 2025, yes.
Laurie: Yes Laurie.
Jamie Caulfield: These are among a couple of a car.
Laurie: Context.
Laurie: How we feel about it.
Laurie: We're encouraged by the category. If you look at the mall applies the two kind of data the category is starting to grow again in the last periods of the year, including.
Laurie: P. One.
Laurie: And that's that was the number one objective that we had to get the category back into growth volume both in volume and that hopefully is starting to take some <unk>.
Laurie: Some pricing price mix positive price mix I think we are there so consumers are back into the category.
Laurie: I wouldn't say, a large number but delivering growth. So that's very positive from here. We can build on the learnings that we had during the year what are the best.
Speaker Change: Richard Roy as you were saying that ROI investments in value for the category, but most importantly, we understand the bigger trends, where we can innovate where we can.
Laurie: Bring to the category.
Laurie: New spaces that will drive additional locations into the category. Moreover, for our own business that big opportunity. We're also addressing is the away from home.
Laurie: Opportunity, which is a.
Laurie: Blues space at Blue Ocean off opportunity as far as and as consumers are.
Laurie: Being less at home and more away from home within that is another area of opportunity. So I would say category grows back too.
Speaker Change: Good levels, we're starting to see some pricing in the category the consumer programs in the commercial progress for next year look very strong addressing innovation spaces that have been made at this point I would say and then obviously four hours away from home is a big opportunity in our fluids business, we have more of our business in.
Speaker Change: Beverages away from home, but for foods is an underdeveloped opportunities. So those that's how we're thinking about investments that we put back into the business in Q4 as you said, we reinvested most of the onetime gains in building.
Speaker Change: The infrastructure to capture those opportunities and 25.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.
Bonnie Herzog: Thank you good morning, everyone.
Bonnie Herzog: Actually I had a question on your guidance for this year your EPS guidance assume some leverage but not nearly as much as he reported in prior year. So just kind of wanted to understand the drivers of this high.
Bonnie Herzog: I assume your productivity savings or Rene robots, so should we assume that the level of investments in your business that theyre going to ramp a fair amount this year and if so could you maybe give us.
Bonnie Herzog: Little bit more of a sense of the types of investments for instance, our.
Speaker Change: And then are you considering more price investments that brito.
Speaker Change: And then also you got at an EPS range versus your typical percentage increase that is the idea there that you would.
Speaker Change: Ultimately like to have more flexibility this year to maybe push more aggressively on investment levels if needed. Thank you.
Speaker Change: Yes, I would say.
Jamie Caulfield: And Jamie will add to this.
Jamie Caulfield: We're thinking about the year is continuing with the systematic productivity multi year programs that we've talked to you about so automation digitalization global capability centers simplifying the company duplicating, so theres a lot of and.
Jamie Caulfield: And we feel very strong about that.
Jamie Caulfield: We are <unk>.
Jamie Caulfield: And reinvesting into.
Jamie Caulfield: Price partitions.
Jamie Caulfield: That we're not participating for freedom. If you think about there is sub $1 sub $2 theres multiple price partitions, where we're not participating where we're rethinking our we're redoing our price pack architecture and single serve and multi bags in multi serve to make sure that we attract consumers.
Jamie Caulfield: Depending on their disposable income during the month, they will be able to access our product.
Jamie Caulfield: Cross across the.
Jamie Caulfield: Multiple parts of the portfolio.
Jamie Caulfield: And then to your point, we're being cautious like the rehab.