Q3 2025 PepsiCo Inc Earnings Call

Operator: Good morning and welcome to PepsiCo's third quarter 2025 earnings question and answer session. Your lines have been placed on "Listen Only" until it is your turn to ask a question. 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, Investor Relations. Mr. Pamnani, you may begin.

Ravi Pamnani: Thank you, Operator, and good morning, everyone. I hope everyone has had the 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 involve risks and uncertainties and only reflect our view as of today, October 9, 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 third quarter 2025 earnings release and third quarter 2025 Form 10-Q, available on www.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.

Thank you, Operator, and good morning, everyone. I hope everyone has had the 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 involve risks and uncertainties and only reflect our view as of today, October 9, 2025. 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 third quarter 2025 earnings release and third quarter 2025 Form 10-Q available on pepsico.com.

Ravi Pamnani: Joining me today are PepsiCo's 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, I will turn it over to the Operator for the first question.

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 Laguarta, and PepsiCo's Executive Vice President and CFO, Jamie Cawfield.

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.

Operator: Thank you. In order to ask a question or make a comment, please press star followed by 11 on your touchtone phone at any time. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Star followed by 1 1 on your touchtone phone at any time.

We'll pause for a moment while we compile our Q&A roster.

Our first question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Bonnie Herzog: All right, thank you. Good morning, everyone. I have a question on the volume pressures you continue to face in both your food and beverage businesses. Could you give us a sense of how much this is being impacted by your pivot to smaller pack sizes, maybe versus category trend softening or potential market share losses? Essentially, how should we think about these volume declines, and how should we think about volume growth moving forward? Is it realistic to assume that volumes could start to inflect, especially considering the robust innovation pipeline you've highlighted this morning? Thanks.

Ramon Laguarta: Morning, Bonnie. Yeah, let me start with beverages. In beverages, the masses are easier when you take out the case packed water, kind of divestment or new business model we have. Beverages actually grew volume in the quarter. We're very happy with the performance on the beverage business, especially some of the larger brands like Pepsi grew volume, grew net revenue, grew shares. Positive development in beverages. In foods, we changed the promo strategy in the summer. You know, we went rather than very deep on a particular brand as we did in 2024. We tried to provide everyday low value or better value across all the brands. That impacted the volume, better revenue realization, probably a more balanced growth of the category and our competitiveness in the category. That explains a little bit the Q3 volume. Going forward, we're optimistic, as you said, both improvement of the basic performance.

All right. Thank you. Good morning, everyone. I had a question on the volume pressures you continue to face in both your food and beverage businesses, I guess. Could you give us a sense of how much this is being impacted by your pivot to smaller pack sizes? You know, maybe versus category trends softening or potential market share losses. You know, essentially, how should we think about these volume declines? And then, how should we think about volume growth moving forward? Is it realistic to assume that volumes could start to inflect, especially considering the robust innovation pipeline you've highlighted this morning? Thanks.

Good morning, morning, morning, morning. Yes, yes, yes. Let me start with beverages.

The maths are are easier. When you take out the, uh, case back water kind of the investment or new business model, we have, uh, beverages actually grew volume in the quarter. So we're we're very, uh, happy with the performance on the beverage business. Um, especially some of the larger Brands, like Pepsi group, volume group, net revenue, grew shares. So positive positive development in in, um, in in beverages, in food.

Ramon Laguarta: We had some service level issues early in the year as systems transitioned. Now that's behind us. Service levels are very high on both businesses in the 97%, 98%. That's being well appreciated by our customers. We're seeing much better fill rates and much better, you know, execution point of sale that's driving growth. We're seeing, as you're saying, you know, some of the innovation rolling out, and that will give us, you know, volume growth. I think we should think about the top line of the business at a balance between volume growth and price realization going forward. We should see an acceleration in PBNA, continued acceleration of net revenue in PBNA. The same with the food business. We should be very close to flat this quarter in foods.

Uh, we changed the promise strategy in the summer. Um, and um, you know, we went rather than very deep on a particular brand as we did in Q4. We tried to provide everyday low value or better value across all the brands that impacted the volume, better revenue realization, probably a more balanced growth of the category and our competitiveness in the category. So that explains a little bit of the Q3 volume going forward. Uh, we're optimistic, as you said, um, both, uh, improvement of the basic performance. We had some uh, service level issues early in the year, systems transition. Now, that's behind us; service levels are very high on both businesses in the 97-98 range. That's being well appreciated by our customers, and we're seeing much better um, field rates and much better, um, you know, execution point of sales that's driving growth. We're seeing, as you're saying, um, um, you know, some.

Some of the innovations rolling out, and that will give us, um, you know, volume growth.

Ramon Laguarta: Actually, we're very optimistic that the business actually grew in the last four weeks, the last quarter, and the last period that we closed. Optimistic about the top line growth on both businesses and the acceleration. With regards to international, we had a bit of a weaker summer because of some, you know, weather and some other elements in some of our large markets. September was also very good in international. We see that as the summer, a bit of a blip, and international is back to mid-single digit, high mid-single digits, you know, performance in the last month that we closed.

But I think we should think about the top line of the business at a balance between volume growth, and and price realization going forward. And, uh, we should see an acceleration in PV and a continued acceleration of net revenue in pvna. And the same with uh with the food business. We should be very close to uh to Flat this quarter in Foods. Actually, we're very uh Optum.

Jamie Caulfield: The other thing I'd add, Bonnie, is as we lapse some of these acquisitions, if you look at a Siete, Poppi, the Alani Nu, that's not included in organic. As we anniversary those, the volume and net revenue is going to be reflecting the organic sales growth.

Optimistic, that the business actually grew in the last 4 weeks, the last quarter, and the last period that we closed. So, optimistic about the, uh, the Topline growth on both businesses and the acceleration. And when when uh, with regards to International, we had a bit of a weaker summer because of some you know, whether and some other elements uh in um in some of our large markets September was also very good in international so we see that as the summer a bit of a blip and international is back to meet single digit, High meets single digits um um you know performance in the in the in the last month that we closed the other thing I'd add Bonnie is as we lap some of these Acquisitions. If you look at a catee poppy uh the ilani new that's not included in organic. So as we anniversary those uh the volume and net revenue is going to be reflecting the organic sales growth.

Operator: Thank you. One moment for our next question. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Daryl, Mercedi with Morgan Stanley. Your line is open.

[Analyst]: Hey, good morning. The commentary was helpful on top line growth. I guess just looking out more to 2026 and longer term, obviously a lot of work's underway to reinvigorate top line growth. Clearly, the heightened innovation focus, focused on permissible or more functional benefits in terms of products, portfolio reshaping, price pack architecture, away from home, et cetera. When you bring it all together, Ramon, which areas do you think are most impactful as we think about potentially accelerating revenue growth in 2026? Can you give us a little more specificity on, you know, when you think we'll start to see material progress on that front? Do you think there's a line of sight to returning potentially the long-term top line growth, your long-term algorithm at some point within 2026, just when you wrap all these efforts together? Thanks.

Hey, good morning.

so,

The commentary was helpful on topline growth. I think it's just looking out more to 2026 and longer term. Obviously, a lot of work is underway to reinvigorate topline growth. Clearly, there's a heightened innovation focus.

Focus on permissible or more functional benefits in terms of product portfolio reshaping, price back architecture, away from home, etc. So, just when you bring it all together, Ramon, which areas do you think are most impactful as we think about potentially accelerating revenue growth in 2026?

Ramon Laguarta: Yeah, thank you, Dara, for the question. It's super critical, right? We're acting with a lot, as you saw and you said, with a lot of sense of urgency on how we reignite top line growth, the growth across the business. Yes, we see a clear line of sight to going back to algorithm throughout 2026. Now, is it Q3? Is it Q4? We'll see. Clearly, I'll tell you about why we see that happening during the year. The first one is being brilliant at the basics. That is something that we're focusing on. As I said earlier, the right price points, the right service levels, the right execution, the right service to our customers, the right customer plans. We feel very good about how our customer plans are starting to shape up. We're already quite advanced in the process with our larger customers. That's being brilliant at the basics.

Firm topline growth. Uh, your long-term algo at some point within 2026, just when you wrap all these efforts together. Thanks, yeah. Thank you, Dara, for the question and.

Super critical, right? We're acting with a lot as you can as you saw and you said with a lot of sense of urgency on on how we recognize Topline growth or growth across the business. And yes, we see a clear line of sight to going back to algorithm throughout 26. Now, is it Q3? Is it Q4 will see, but clearly I I I'll tell you about the why we see that happening. Uh, during the year the, the first 1 is

Ramon Laguarta: We're making some big interventions in big brands. I said Pepsi is growing globally, and we relaunched Pepsi a year and a half ago. Now we're going after three of our top brands: Lay's, Tostitos, and Gatorade. We're relaunching three of our top brands in the U.S. and globally. That is going to drive growth in the core of the business, which is essential to your point on what's going to drive future growth. That is happening as we speak with Lay's and Tostitos, and it's happening with Gatorade a little bit later in the Q1 to Q2 timeframe. The other element we're focusing on is really accelerating the platforms that are growing. You mentioned some. Away from Home is growing very fast for us in the U.S. and internationally. It's going to be a focus for us. It's growing like two to three times the retail business.

Being brilliant at the basics and that is something that we're focusing on. Uh, as I said earlier the right price points, the right uh service levels the right execution, the right, the right service to our customers, the right customer plans, and we feel very good about how, um, you know, our our customer plans are starting to shape up, you know? And we're we're late. We're already quite advanced in the process with, with our larger customers. So that's being clear at the basics. Then we're making some big interventions in big Brands. I I said, Pepsi, uh, is growing globally and we relaunched Pepsi a year and a half ago now, we're going after 3 of our top brands uh lace Tostitos and Gatorade. We're relaunching 3 of our top brands, uh, in the US and globally. Um, and that is going to drive

Growth in the core of the business, which is, which is essential to your point on what's going to drive a future growth. Now, that is, uh, that is happening as we as we speak, uh, with less and Tostitos, and it's happening with Gatorade a little bit later in the, uh, in the um, in the queue. Uh, q1 to Q2 uh, time frame.

Ramon Laguarta: We'll continue to focus on execution of existing products and then some innovation special for Away from Home, more moving towards meals and more elevated experience. You mentioned permissible snacks. We have a very strong portfolio of permissible snacks in the U.S. and zero sugar across the world. That will continue to be a focus of our innovation, and that will drive growth. In functional hydration, we have a superior portfolio with Propel and the enhancers and tablets growing very fast. Those will be platforms of existing parts of the portfolio that will put a lot of investments that will drive growth. Now, innovation is critical for us, and we've been working with a real sense of urgency on new platforms to capture segments of the market that are disproportionately growing within our somehow low-growth categories. You mentioned protein. There's a lot of innovation on protein.

The other element. We're focusing on is really accelerating the platforms that are growing. And you mentioned some away from home is growing very fast for us in the US, and international is going to be a focus for us. It's growing like 2 to 3 times. The retail business will continue to focus its execution of existing products and then some Innovation special for away from home. Um more moving towards meals and more elevated experience. You mentioned, permissible snacks, we have a very strong portfolio of permissible, snacks in the US and zero sugar across the world that will continue to be a focus of our Innovation and that will drive growth and then we have in functional hydration. We have a superior portfolio with Propel and the enhancers and tablets growing very fast. Those will be platforms of existing uh parts of the portfolio that will put a lot of Investments that will drive growth. Now, Innovation is critical for us and we've been working.

Ramon Laguarta: The relaunch of Muscle Milk, a Starbucks and protein. We know in the morning consumers are looking for protein as well. Doritos protein, Quaker protein. We're having a Good Warrior meat snacks with our artificials. A new development from Propel for GLP-1 consumers will have a special type of electrolytes, high content of fiber, and good levels of protein. In the protein space, which, as you know, is driving a lot of growth. The move to no artificials is impacting all our brands, Lay’s and Tostitos now, but the rest of the portfolio throughout 2026. A new platform, we call it Naked, will have no colors and no artificials. We'll see how consumers react to the same great flavors with no colors. The customers are really very excited. We're also excited. Let's see if we can take consumers along in what would be a great development for the category.

With a real sense of urgency on new platforms, to capture segments of the market that are, you know, disproportionately growing within our, you know, somehow low growth categories. Um, so you mentioned protein, so there, uh, a lot of innovation on protein, the relaunch of Muscle Milk a uh, a Starbucks and protein. We know in the morning consumers are looking for protein as well. Doritos protein quicker protein we're having a good warrior meat snacks with our artificials and then a new uh a new development from Propel for glp1 consumers that will have a special type of electrolytes, high content of fiber and uh and good levels of protein. So that in the protein is page, which as you know, is driving a lot of a lot of growth. Now, the move to an artificial impacting, uh All Our Brands lace and Tostitos. Now that the rest of the portfolio throughout 26 and a new platform, uh we call it naked that will have no

Ramon Laguarta: We're launching products with higher fiber. I think fiber will be the next protein. Consumers are starting to understand that fiber is the benefit that they need. It's actually a deficiency in U.S. consumers' diets, and that will be elevated. We're also innovating in new oils. Some of our platforms, especially in potato, you will see us coming with avocado oil versions and olive oil. A very strong innovation pipeline, which we think will help us capture pockets of growth in our categories that will drive growth. The last element, as Jamie was saying, we made some acquisitions that are very strategic in how we reshape the portfolio. We divested some, we acquired some. We're very optimistic how Poppi is now in our system, and we're already seeing benefits of the physical availability of the product.

Colors and artificials. We'll see how consumers react to the same great flavors with no colors. The the customers are, are really, uh, very excited. We're also excited. Let's see if we can take consumers along in, what would be a great development for the for the category, where where we're launching products with higher fiber? I think fiber will be the next protein consumer size. Starting to understand that fiber is the benefit that they need is actually a deficiency in US consumers. Uh, uh, diet.

Ramon Laguarta: We're seeing growth with Siete, we're seeing growth with Sabra, and we're going to incorporate Alani Nu into our portfolio later in the year. Those are new platforms that will continue to accelerate the portfolio. Some of that will be organic, some of that will be non-organic. That is how we see the portfolio moving towards positive growth in some parts of the portfolio, the total company going towards, you know, within our long-term net revenue growth targets within next year. Obviously, we're working to do it as soon as possible.

Seen benefits of the physical availability of the product. We're seeing growth with CA we're seeing growth with Sabra. And we're, we're we're uh, going to incorporate Alani Nu into our portfolio later in the year. So those are new platforms that will continue to accelerate the portfolio. Some of that will be organic, some of that will be non-organic. But that's what how we see the portfolio moving towards, uh, positive growth.

Uh, in some parts of the portfolio, the total company going towards, uh, you know, within our long-term and net revenue growth targets within the next year. And obviously, we're working to do it as soon as possible.

Operator: Thank you. One moment for our next question. Our next question comes from Lauren Lieberman with Barclays. Your line is open.

Thank you. One moment for our next question.

Lauren Lieberman: Great. Thanks so much. Good morning. Wanted to talk a little bit or ask a little bit about the cost associated with a lot of these innovations and the, you know, plus protein, better for you, clean-label, et cetera, that you've run through. Would think that these come at a higher cost of goods. I know you've talked a lot about cost savings as well, but I think you're going to want to reinvest. Can you talk a little bit about, you know, margin structure or how to think about the cost implications of taking the portfolio and your big core brands in this direction? Also, what you do to make sure there's sufficient brand support for these relaunches, particularly as we look into 2026. Thanks.

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

Great, thanks so much. Good morning. Um, wanted to talk a little bit or ask a little bit about the cost associated with a lot of these innovations and the, you know, plus protein, better for you, cleaner labels, etc., that you've run through. Um, would think that these come at a higher cost of goods. I know you've talked a lot about cost savings as well, but I think, you know, you're going to want to reinvest. So, can you talk a little bit about margin structure or how to think about the cost implications of taking the portfolio and your big core brands in this direction? Um, and also, you know, what you do to make sure there's sufficient brand support for these relaunches, particularly as we look into 2026.

Ramon Laguarta: Yeah, good. The overall company within that will continue to improve margins going forward. We're, again, with a very high sense of urgency, attacking the cost structure in the different businesses with different tools. In particular, you already saw probably today in our remarks how we are attacking the deleverage in Frito-Lay with very, you know, I would say intentional and active actions around the supply chain and the go-to-market fixed costs. That's happening. Total company, Lauren, we see the margin improvement next year again, driven by the continuous acceleration of international. International is accretive to the company and continues to scale and becoming more profitable. That will continue in 2026. We see PBNA continue to expand margins at a good pace. The Q3 was impacted by tariffs. We see already in Q4 an expansion of the margin again to complete a positive margin expansion for the full year.

Thanks.

Yeah, good. Uh, I the overall company.

Movement next year, again, given by the continuous acceleration of international and national growth, is a creative strategy for the company. It continues to scale and become more profitable. We anticipate that this trend will continue in 2026. We see PVNA continuing to expand margins at a good pace.

Ramon Laguarta: We see Frito-Lay, or the foods business in North America, also starting to bend the curve after all the interventions we're making in the fixed cost structure. The truth is that we invested a lot in Frito-Lay in the last few years. Some of that was underinvestment. Some of that was expanding capacity. The demand signal we had in 2023 is different from the demand signal we have in 2025. There's some adjustment that we're making to both the assets and the headcount in the business to make sure that we have the right cost structure to navigate the coming quarter. Think about expansion of the margin for Total PepsiCo with the drivers that I said. The portfolio, as you mentioned, cost of goods, yes, but also price will be higher. You should see the innovation as accretive to the business.

to, you know, the Q3 was impacted by tariffs, which we already in Q4 and expansion of the margin again to complete a, a, a positive margin expansion for the full year. And, and we see free delay or the foods. The foods business in North. America also starting to bend the curve, uh, after, you know, all the interventions were making in the, um, in the fixed cost structure. Uh, the truth is that we invested a lot in free delay, um, in the last few years, some of that was under Investments. Some of that was, you know, expanding capacity. Uh, this the demand signal we had in 23 is different from the human signal. We have in 25 mm that we're making to the um both the assets and the um and the headcount in in the business to make sure that we have the right cost structure to navigate uh the uh the coming quarter. So think about expansion of the margin for a total PepsiCo with the drivers that I said the portfolio as you mentioned.

Ramon Laguarta: The A&M, we're making obviously internal reallocations to make sure that the new platforms have the right money. Also, some of the costs that we're taking out from our fixed cost structure, we will put it back into A&M to accelerate growth in the coming quarters.

Cost of goods. Yes, but also price will be higher. So you should see the innovation as a credit to the business. Um, and the, uh, the A&M, we're making obviously internal reallocations to make sure that the platforms have the right, uh, money. Also, some of the, uh, costs that were taken out from our fixed cost structure, we will put back into A&M to accelerate growth in the coming quarters.

Operator: Thank you. One moment for our next question. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Steve Powers with Deutsche Bank. Your line is open.

[Analyst]: Great. Thank you, everybody. Ramon, maybe picking up on that thread with respect to productivity, could you just give a little bit more detail on where the interventions are, specifically in PBNA that you're making to right size that kind of fixed cost structure? How far along do you think you'll be at the end of 2025? Do you think you'll have right-sized that business relative to the current demand signal, or is there more work to do in 2026? One of the things that I didn't see in today's remarks or release is any reference to One North America, which obviously was a big point of focus last quarter. Maybe you could talk about if that omission was intentional or just kind of where we are with One North America as well. Thank you.

Ramon Laguarta: Yeah. Good. Let me cover both. On Frito, I'll give you that we're clearly going after some manufacturing nodes that are not needed anymore. These are normally the least efficient, older manufacturing nodes that we have in the system. As we've increased capacity throughout the system in the last few years, those nodes can go away. We're also rationalizing our warehouse infrastructure, both in the context of some automation decisions that we're making and also some combination with the beverage business in some parts of the country. There is a right-sizing of our go-to-market. As we see, the labor market is stabilizing. Some of the excess labor that we had in go-to-market, now we can probably live without those extra coverage. Those are the three main areas.

Great. Thank you, everybody. Um, well, maybe picking up on on that thread with respect to productivity, uh, could you just give a little bit more detail on you, you know, where the interventions are specifically in, in pfna that you're making to, to the right size? Um, that, that, that kind of fixed cost structure and and how far along you think you'll be at the end of at the end of 25? Do you think you'll have right size that business relative to the current demand signal or is there more work to do in 26? And if I could, you know, 1 of the things that I I didn't see in today's remarks or release is, uh, is any reference to 1 North America, which obviously was a, a big point of focus last quarter. So maybe you could talk about if that if that Omission was intentional or just just kind of where we are with 1 North America as well. Thank you. Yeah, good. So I'll let me let me cover both uh on on free.

Ramon Laguarta: There are the global levers of servicing PepsiCo from global capability centers and some of the changes we're making in how we service the company. That is also a continuation that applies to Frito-Lay. The good news in Frito-Lay is that when we see the productivity per FTE is now at the levels of a couple of years ago. We've been able to get to those metrics with the reduction of fixed costs that we've done in the last six, seven months. There will be a continuation of those interventions in the balance of the year. I think they will continue. We will have additional productivity interventions in 2026 because we need to invest in affordability and we need to invest, as was previously mentioned, in some of the new platforms to drive growth. You should expect that in the coming months.

So uh, I'll give you, um, yeah, we're we're we're clearly, um, you know, going after, um, some manufacturing notes that are, um, not needed anymore. These are normally the least efficient older manufacturing notes that we have in the system and as we've increased capacity throughout the system, in the last few years, those notes can go away. Uh, we're also, um, rationalizing, our warehouse infrastructure, uh, both in the context of, um, some automation decisions that we're making and also, you know, some combination with the beverage business in some parts of the country. Um, there is a right sizing of our go to market. As we see uh, the labor market stabilizing, some of the, you know, excess labor that we had in. Go to market, uh, now we we can probably leave without without that those those um, those extra, um, extra extra coverage. So those are the 3 main areas there?

There's there's, you know, the the, the the global levers of, you know, our service in PepsiCo from Global capabilities centers and some, some of the, uh, changes we're making in how we service the company that it's also a continuation that applies to a freely. Now the, the good news in Fredo is that when we see the uh productivity per FTE is now at the levels of a couple of years ago. So we've been able to, you know, get get to those metrics with the reduction of fixed costs that we

Ramon Laguarta: I don't know, Jamie, if you want to add something to the productivity.

Jamie Caulfield: The only other thing I'd add is the pace of productivity. It built as we went through the year, and we took some of these incremental cost resizing actions. As you go into 2026, we're going to have a pretty significant carryover benefit of those actions, particularly in the first half of the year.

Ramon Laguarta: On One North America, we continue to, as we look at all the different opportunities to reduce costs, improve margins, drive growth, we're looking at One North America as one of the options. We're testing that in Texas. Texas is probably the state where we have the biggest opportunity given our low share in beverages, high share in snacks. When we put those businesses in the same warehouse and we serve the customers from one point of distribution, this is giving us a lot of benefits. We will see. We're testing and learning in Texas, and from that, we will make decisions on how we expand it to the rest of the country. The end solution will not be a one-size-fits-all for the whole country.

Since we went out went through the year and we took some of these incremental uh cost resizing actions. So as you go into 20126, we're going to have a pretty significant carryover benefit of those actions, uh, particularly in the first half of the year.

Ramon Laguarta: It will be more of a nuanced solution depending on the market, the market positions, the market size, and where the population is in the different parts of the country. We'll keep updating you on the decisions in that space.

This is giving us a lot of benefits. So we will see we're testing and learning in in Texas. And from that we will make decisions on how we expand it. Um, to the rest of the country. The the end solution will not be a 1 size fits all for the whole country. So it will be more of a nuanced Solutions, depending on the market, uh, the market positions and the, the market size and the where the population is in, the different parts of the country. So we'll keep updating you on on, on the decisions in that, in that space.

Operator: Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Philippa Falorni with Citibank. Your line is open.

Filippo Falorni: Hi, good morning, everyone. I want to talk about the international business. Ramon, you mentioned the quarter was negatively impacted by poor weather, but you saw a nice improvement in September, which is pretty encouraging. Some of your peers have talked about more macro pressures in regions like Latin America, Asia Pacific, including India. Can you give us a sense of the health of the consumer in some of those countries? What are you seeing and what gives you the confidence in the acceleration? Thank you.

Ramon Laguarta: Yeah, that's great, Filippo. I think, listen, when it comes to talking about Q3, I think most of the deceleration is linked to mostly weather, Filippo, in some of the large markets. The good news, as I said, is that September is strong, was strong, and we feel good about the balance of the year going back to the mid to high mid-single digits for our international business. Now, overall, the consumer is, you know, I would say it's stressed all over the world. We see the consumer making very choiceful decisions in many parts of the world, in China for sure. China is a big market for us. Not so much in India. We're seeing growth in India. India was more impacted by weather, and there's some competitive situation in the beverage category that will impact the growth maybe for a few quarters, but coming back strong.

Hi, good morning everyone. Um, I want to talk about the international business. Uh, Ramon you mentioned the quarter was negatively impacted by poor weather. By you saw a nice Improvement in September, which is pretty encouraging. Um, but some of your peers have talked about like some more micro pressures in regions like Latin America is a Pacific including India. So maybe can you give us a sense of the the health of the consumer, in some of those countries where you seeing and what gives you the confidence in in the acceleration? Thank you. Yeah. It's great philippo. I think. Um, listen when it comes when it, you know, talking about Q3, I think most of the, um, deceleration are linked to mostly weather Philippine in in some of the large markets. Uh, and and

Ramon Laguarta: We're seeing good growth in the Middle East. The consumer in the Middle East is probably feeling good. Eastern Europe is better than Western Europe, I would say. Mexico is somehow connected to the U.S., right? You know, however the U.S. goes, that impacts Mexico quite a lot. Clearly, the Hispanic cohort in the U.S. is being impacted by all these decisions. We see remittances impacting Mexico in a way, and that will continue probably for the next few quarters. Brazil continues to be strong for us, close to double digits in September and a good summer, their summer. I mean, our summer. I would say, you know, we see the consumer, you know, different parts of the world, different realities. Overall, we're managing to compete well, and we're managing to keep consumers in our brands and developing the per caps, which is the big idea for us internationally.

The good news, as I said, is that September was, is strong, was strong. And, uh, we, we feel good about the balance of the Year, going back to the, uh, you know, the mid to high, uh, mid single digits, for for, um, for our international business. Now, overall, the consumer is, you know, I would say it's is, uh, stressed all over the world. Um, um, we see the consumer, um, making very Choice decisions in many parts of the world, uh, in China, for sure. And China is a big market for us. Not so much in India. We've seen growth in India. Uh, India was more impacted by, by weather and there are some competitive situation in the beverage category that will impact the, um, you know, the the growth maybe for a few quarters, but, but coming back, strong, uh, we're seeing good growth in the Middle East, the consumer in the Middle East, probably feeling good, uh, Eastern Europe, better than Western Europe. Uh, I would say um,

And then, yeah, Mexico is Mexico is somehow connected to the US. Right. And and, you know, however, the US goes that that impacts Mexico quite a lot. Uh, clearly the Hispanic, um, you know, has Hispanic cohort in the US, is, is being impacted by, by all these decisions. Um, and we see remittances impact in Mexico in a way. And, and that will continue probably for the, uh, for the next few quarters. Um, Brazil

Uh, it continues to be strong for us, uh, close to double digits, um, in, in the, you know, in September and, and a good, good, um, good summer there, summer. I mean our summer, uh, and so good, good. Um, I would say, um, you know, we see the consumer, um,

Different parts of the world, different realities, but overall we're managing to compete well and we're managing to keep consumers in our brands and developing the per caps, which is the big idea for us internationally.

Operator: Thank you. One moment for our next question. Our next question comes from Michael Lavery of Piper Sandler. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Michael Lab. Are you Piper Sandler? Your line is open.

[Analyst]: Thank you. Good morning. Just want to come back to brand Pepsi. You know, seeing its better improvement, its better momentum and improvement in the U.S., and even from a share performance perspective. Just curious, maybe some of what's been driving that, how much is it just a changing of the messaging or, you know, maybe an increase in marketing? Also, when you talked about optimizing marketing spend as one of the ways to drive better ROIs, is there cuts to the marketing spending that's playing on, or do you believe you can be more efficient? Maybe help us understand just how to think about that language there as well.

Thank you. Good morning.

Just want to come back to brand Pepsi. You know, seeing its better improvement, either its better momentum and improvement in the U.S. and even from a share performance perspective.

Ramon Laguarta: Yeah, I think, as I mentioned, I think the Pepsi brand has been a success for us. Every launch we did, I think about a year and a half ago in the U.S., about a year, a bit more in international, has been a great success. We're seeing momentum in the Pepsi brand in many, many markets. I would say internationally, it is driven by the non-sugar success. I think zero sugar, non-sugar max in Europe, it is driving consumers to the brand. It is keeping consumers in the brand and continues to be very positive for us from the market share, but also the overall non-sugar segment growth. We're very pleased with that. In the U.S., multiple factors. As I said, there is a, I would say, a focus on away from home and food that serves Pepsi. I think the meal location is critical for beverages.

And just curious maybe some of what's been driving that how much is it? Uh, just a changing of the messaging or, or um, you know, maybe an increase in marketing. And also when you talked about optimizing marketing spend as, as 1 of the, uh, ways to drive better rois, is there cuts to to the marketing spending that's play on or, or do you believe you can be more efficient, maybe help us understand, just how to think about that language there as well?

Yeah, I I think as I as I mentioned the um I think the Pepsi has been a success for us. The relaunch we did, I think about a year and a half ago in the US about a year, a bit more in, the international has been a great success and we've seen momentum in the Pepsi brand. Um in many many markets um I would say internationally, um it is driven

Ramon Laguarta: It's very important for cola. We are focusing more and more in gaining points of access to the brand and linking the brand to that particular occasion in a culturally relevant way. Now, different types of foods for different types of consumers and good execution, I thought. We're investing a bit more in the brand. That is relevant, as you said, from the marketing point of view. There are two platforms that are growing faster than the rest. One is zero sugar, which is consistent with our international growth story. The second one is flavors. Flavors, especially Wild Cherry and Cream, but some others, are bringing new consumers to the brand, younger consumers to the brand. That is positive news for the development of Pepsi. We feel good. We'll continue with those drivers. We'll continue to invest in what is clearly our most important brand in the beverage portfolio.

In Europe, uh it is driving, consumers to the brand, it is keeping consumers in the brand and continue to be very positive for us from the uh market share. But also the uh the overall non sugar segment growth. So we're we're very pleased with that, um, in the US multiple factors, as I said, there is a, I would say a focus on away from home and, um, and food deserts Pepsi. I think the meal location is critical for beverages is very important for Cola and we are focusing more and more in gaining points of access to the brand and linking the brand to that particular, uh, occasion in a culturally relevant way. No different types of foods for different types of consumers, and, and good execution, I thought we're investing a bit more in the brand. And that is, that is relevant. As you said from the marketing point of view, uh, there are 2 platforms that are growing faster than the rest. 1 is zero sugar. Um

Which is consistent with our International um, growth. Um, story and the second 1 is a flavors and flavors. Um, especially a water and cream, but some others are, are, you know, bringing new consumers to the, uh, to the brand younger consumers to the brand and that is that is positive news for the development of, uh, of Pepsi. So you know, we we feel good. I will continue with those drivers, we'll um, continue to investing in. What is our

Ramon Laguarta: For next year, we're assuming that Pepsi will continue to grow and we'll be able to add some new layers of growth with Mtn Dew. Baja Blast is a very solid platform, $1 billion in retail value when you include both our sales and Taco Bell sales. It's a very strong consumer platform. We're adding now a new platform with Dew, so kind of a creamy flavor to the Mtn Dew platform. I think that will continue to expand the brand into more consumers. As I mentioned, the relaunch of Gatorade, which is critical for us. We're leaders in a category that needs to grow faster. We're working on value for Gatorade. Most importantly, we're working on, to your point, on marketing on superior hydration. We know we have proven superior electrolyte combinations that deliver both faster hydration, better hydration, longer hydration.

Clearly our our, you know, most important brand in the beverage portfolio and um, and we'll, um, we'll you know, for next year we're assuming that, you know, Pepsi will continue to grow and we will be able to add some new layers of growth with Mount and deal. And, you know, Baja Blast is is a very solid platform, a billion, a billion dollars in retail value when you include both our sales and Taco Bell sales or it's a very strong consumer platform. We're adding now, a new, a new platform with, um, dirty do so kind of a creamy flavors to the, uh, to the mountains and new platform. I think that will continue to expand the brand into more more consumers. Um, and then, as I mentioned, the relaunch of Gator, which is critical for us, you know, we, we're, we're, we're leaders in a, in a, in a category that needs to grow faster. So, we're working on value for Gatorade, but most importantly we're working on to your point of marketing on.

Ramon Laguarta: We're working on different parts of the portfolio to convey that message to the consumer. We're optimistic about how that will play out for us.

Superior hydration. We know we have proven Superior, electrolyte combinations, that deliver both, um, faster, hydration better, hydration longer hydration, and we are working on different parts of the portfolio to convey that message to the consumer. And um, and you know, we're optimistic about how that will play out for us.

Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.

Thank you. One moment for our next question.

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

[Analyst]: Thank you. Good morning, everyone. I was hoping to follow up on the prior commentary to, I think it was Bonnie Herzog's question. Ramon, I think you mentioned an expectation for PepsiCo Beverages North America to get back to kind of flat organic sales performance in the fourth quarter and that you actually saw the business return to growth in the last month. As you look at what happened over the last month, is that simply a function of what you were lapping, or is it more related to the actions around innovation and everyday execution? It's just not something we've seen yet in the data. Any color on what happened in the last month and how that drives the confidence on the path forward? Thanks.

Thank you. Good morning, everyone. So I was hoping to follow up on the prior commentary to, I think it was Bonnie's question. You mentioned an expectation for PFNA to get back to kind of flat organic sales performance in Q4, and that you actually saw the business return to growth in the last month. So just as you look at what happened over the last month, is that simply a function of what you were lapping, or is it more related to the...

Ramon Laguarta: I would say, I mean, listen, clearly there is sequential improvement in the business. At this point, I would say it is more related to being brilliant at the basics, doing better at the core things that drive our category: service, price, execution, customer space, et cetera. The key drivers of our category. I don't think it's one-off. We see better customer engagement, customer relation as our service levels became better following the system transition early in the year, and that should be sustainable. Now, I don't want, you know, to like things can change, things can evolve, but clearly the direction of the business, it's in the right direction and we're seeing signs that make us feel optimistic.

Innovation and everyday execution. It's just not something that we've seen yet in the data, so just any color on what happened in the last month and how that drives the confidence on the password. Thanks. I mean, um, listen, clearly there is sequential improvement in the business, and at this point I would say it is more related to uh,

Being brilliant at the basics—doing better at the core things that drive our category and service.

Prize execution, a customer, uh, space, etc. So the key drivers of our category, um, I don't think it's one-off. I we see a better customer, uh, engagement, customer relation as our service levels became better following the, uh, system transition early in the year, and that should be sustainable now.

I don't want, you know, to like things can change, things can evolve but but clearly the trans the direction of the, of the business, it's in the right direction and we're seeing signs that make us feel optimistic.

Operator: Thank you. One moment for our next question. Our next question comes from Andrea Teixeira with J.P. Morgan. Your line is open.

Thank you. One moment for our next question.

Andrea Teixeira: Thank you and good morning, everyone. My question is how to think about the headwinds of the SKU rationalization impacting new organic growth. Two clarifications, Ramon. For PBNA, can you comment on the results of the price reinvestments, in particular in the core brands at the entry-level price points? Second, I think you answered Bonnie and Peter a bit on the volume inflection. Is that a commentary in that you said volume inflection positive in the last four weeks? Is that for the total company or specific to some regions? I'm assuming specific to some regions and areas where you're seeing that service level coming back. Where are you seeing, if that's the case, where are you seeing the volume inflection? Thank you.

Thank you, and good morning everyone. So, my question is: how to think about the headwinds of the SKU rationalization impacting your organic growth?

And to clarifications, Ramen, uh, for PFNA, can you comment on the results of the price reinvestments, in particular, in the core brands at the entry-level price points?

Jamie Caulfield: Andrea, pardon me, it's Jamie. On the SKU rationalization, there's a lot of benefits that come from cutting the long tail. As we analyze the portfolio, there's a lot of overlap on those very small volume items with some of our larger parts of our portfolio. As you cut that long tail, you create a lot of operational efficiency that leads to better customer service. You're not losing a lot, and there's a lot to gain through the efficiency and improved service. I missed.

And then second I think you answer Bonnie and and Peter a bit on on the volume in flexion is that a commentary that I said volume affected positive in the last 4 weeks? Is that for a total company or a specific to some regions? Uh I'm assuming specific to some regions and areas where you're seeing that service level coming back. Um, so where are you seeing? If that's the case, where are you seeing the volume reflection? Thank you.

Andrea, pardon me. It's Jamie.

The SKU rationalization. I mean, there's a lot of benefits that come from cutting the long tail and as we analyze the portfolio, there's a lot of overlap on those, very small volume items with some of our larger parts of our portfolio. And as you cut that long tail, you create a lot of operational efficiency that leads to better customer service and that, you know, so that you're not losing a lot and, and there's a lot to gain through the efficiency. And, and improved, uh, improved service

Ravi Pamnani: Yeah, Andrea, on the entry price points, can you just restate your question on that? We didn't quite capture it as you were cutting off there a little bit.

Operator: Her line has actually left the queue. If you give me one moment, I can bring her back, okay?

Ravi Pamnani: Okay. Not a big deal, operator, either way.

I missed. Uh, yeah, Andrea, on the entry price points, can you just restate your question on that? We didn't quite capture it, as you were cutting off there a little bit. Her line has actually left the queue. If you give me one moment, I can bring her back, okay?

Operator: Okay, one moment. Your line is open again, Andrea. You can repeat the question.

Okay, not a big deal, operator; either way, okay, one moment.

Andrea Teixeira: Thank you. For the PBNA, if you're thinking about the price investments that you made in some of the core brands and entry-level price points, can you comment on how those results have been coming out? Or is it more coming from the permissible area of the business? How should we be thinking about the price reinvestments we've been making for, I think, more than three quarters now?

And your line is open in Andrea. You can, uh, repeat the question.

Jamie Caulfield: Yes, I view them as two fairly separate. The permissible, some categories doing well. Our permissible portfolio continues to do well. We look at the entire portfolio for price tag architecture opportunities. I think the bigger opportunity is in some of what I'll call more of the mainstream in take-home. We've been refining as we've moved through the year. We'll continue to refine as we get more and more data on how the brands and the packs are interacting with each other across the competitive set. That's the priority, to make sure that we've got the pricing very sharp to help drive demand.

Uh, thank you. Uh, so just for the pfna, um, if you thinking like the pricing Investments that you made, um, in some of the uh, core Brands and entry level price points, can you comment on how those results have been coming out? Uh, or, you know, it's, it's more coming from the permissible area of the business? How we should be thinking about the price to investment to be making for I think more than than 3 quarters for now?

Fairly separate. Uh, the permissible subcategories do well, our permissible portfolio continues to do well. Um, you know, we look at the entire portfolio for Price Tag architecture opportunities. I I I think the bigger opportunity is in some of what I'll call more of the mainstream uh in take-home. And and we've been we've been refining as we've moved through the year. We'll continue to refine as we uh get more and more data on how the the brands and and the packs are uh are interacting with each other across the competitive set and uh yeah. So that's that's that's the priority.

Priority is to make sure that we've got the pricing very sharp to help drive demand.

Operator: Thank you. One moment for our next question. Our next question comes from Peter Galbo with Bank of America. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Peter Gaba. With Bank of America, your line is open.

[Analyst]: Hey, Ramon, Jamie, good morning. Ramon, one of the areas where you focused a lot on in the prepared remarks within PBNA was on protein. I just want to understand a little bit more on the decision of kind of using the in-house brands like Muscle Milk or Propel to address, you know, protein in a bigger way versus other subcategories like energy or prebiotic where you've either bought or partnered. Maybe just if you can expand a little bit on kind of the decision to go more organic versus, you know, acquisition or partnership as we think about protein and beverages going forward. Thanks very much.

Ramon Laguarta: Thank you. We always try to leverage as much as we can our existing platforms. It's a cheaper, it's a better business decision. I think Muscle Milk is a great brand that as we improve the product and we, you know, we're very proud of the product that we've been able to, our R&D teams have been able to develop. It will be a great tasting, high levels of protein, good mouthfeel, and no artificials. I think it will clearly serve a lot of consumers that are looking for protein drinkable solutions to replace meals or snacks throughout the day. I think Muscle Milk can stretch. It's a brand that has the potential. We'll reposition it. We'll communicate a bit different. The packaging will be very, it's very modern and updated. The same with Propel. Propel is a great platform.

Hey Ramen Jamie, good morning. Um, remote 1 of the areas where you, you focused a lot on in, in the prepared remarks um, within pvna, what was on protein. And I guess I just want to understand a little bit more on the decision of kind of using the the in-house Brands like Muscle Milk or Propel. Um, to address, you know, protein in a bigger way versus other subcategories like energy or Prebiotic where you've either bought or or partnered. So maybe just if you can expand a little bit on on kind of the decision to go more organic versus you know, acquisition or partnership as as we think about protein and and beverages going forward. Thanks very much.

Thank you. Yeah. No, this isn't it was uh, we always try to leverage as much as we can. Our existing platforms is, is, is a cheaper is a Better Business decision. I think Muscle Milk. Um, you know, is a great brand that, um, as we improve the product and we, we, you know, and we're very, we're very proud of the product that we've been able to, our R&D teams, have been able to develop. Um, um, you know, we will be a great taste seeing high levels of protein. Good, um, mouth feel and artificials, I think,

Ramon Laguarta: It has a high penetration in female, and it's been growing at a double-digit CAGR for the last five, six years. It has a lot of credibility in hydration, but I think it can expand into more. This is why we think that we can take it into more of a functional hydration plus platform with Propel, focus on females, but not only, both in powders and in liquids. I think that that will have a multi-year innovation opportunity for us as we see consumers looking for more functional solutions in drinks that are not even available right now in the market. It's always a better ROI for the company to develop internally than not. In some of the examples that you put with Poppi and some others, we didn't have the platform to go after those opportunities.

Is being growing at a double digit, uh, cagr for the last 5, 6 years. Um, it has, it has a lot of credibility in hydration, but, but I think it can expand into more. So, this is why we, we think that we can take it into more of a, um, you know, functional hydration plus platform with Propel focus on on females, but are not only, uh, both in powers and in liquids and I think that that will have a multi-year um, Innovation opportunity for us as we see consumers looking for more functional, uh, Solutions in in drinks that, um, that are not even available right now in the market. So yeah, it's all it's always, it's always, you know, a better better Roi for the company to develop internally than than not in some of the examples that you put with poppy. And some others, we didn't have.

Ramon Laguarta: The marketplace had already some scale players that it was a better return for us to go and acquire. We'll continue to do both as we go along, innovate internally, take some of our big brands into new spaces, rejuvenate the portfolio under the big brands, and at the same time, look outside for tacking acquisitions that might give us head start or additional scale in segments that are growing faster. As you know, we're looking at portfolio transformation with a sense of urgency, and we're making, I think, the right moves, as you see from our innovation pipeline and some of the M&As we've made in the last six or seven months.

The, uh, the platform, uh, to to, to, to, to, to go after those opportunities. And, uh, and and the marketplace had already some scale players that that it was a better, um, return for us to go and, and acquire and we'll, we'll continue to do both as we go along uh, in innovating internally. Take some of our big Brands into new spaces rejuvenate the portfolio under the big Brands and at the same time look outside for tack in Acquisitions, that might give us Head Start or additional uh scale in segments that are growing faster, you know? So as

You know, we're looking at portfolio transformation with a sense of urgency and we're we're making that in the Right Moves as you see from our Innovation Pipeline and some of the m&as we've made in the last uh uh 6 or 7 months. Yeah.

Operator: Thank you. One moment for our next question. Our next question comes from Robert Moskow with Evercore ISI. Your line is open.

Thank you. One moment for our next question.

[Analyst]: Great. Thank you very much. Ramon, kind of a two-part question. The first part is, you talk a lot about right-sizing the cost structure, aggressively attacking costs, but at the same time, getting back to algorithm, suggesting that perhaps the top line isn't the problem, but maybe it's the type of costs that you have, perhaps too many costs in the U.S. in certain assets and certain brands, but you're going to make up for that in growth internationally and then innovation in the U.S., which may require a more complex cost structure, maybe smaller runs, different sorts of supply chains, and a whole different way of looking at the cost structure. Number one, is that assessment roughly right? Connected to that, very big announcement on the CFO side. Congratulations to everybody.

Our next question comes from Robert Odin with Evercore ISI; your line is open.

Great, thank you very much. Um, so Ramon, kind of a, a two-part question. Um, the first part is, you know, you talk a lot about rightsizing, the cost structure, aggressively attacking costs. Uh, but at the same time, getting back to the algorithm, uh, suggesting that perhaps the top line isn't the problem, but maybe it's the type of costs that you have, perhaps too many costs in the U.S. in certain assets and certain brands. Uh, but you're going to make up for that, uh, in growth internationally and then innovation in the U.S., which may require a more complex cost structure, maybe smaller runs, uh, different sorts of supply chains, uh, and a whole different way of looking at the cost structure. So, number one, is that assessment roughly right? And then connected to that, um, very big announcement on the CFO side.

[Analyst]: Could you talk a little bit about that decision to go outside of the firm to a very well-respected leader at your biggest customer and how you see him driving through that vision? Thank you.

Ramon Laguarta: That's good. I think it's an on. It's not an either-or. For us to be fit for the future, we're going to have to transform the portfolio, and we're doing that with a sense of urgency. That will drive growth as we are more on consumer trend and we're more in spaces of the category that are growing. I think we spent quite some time, but we also need to address the cost structure of the business because we need to continue to be extremely competitive, and we know consumers are looking for value. Value will be critical going forward, being at the right price points, competing with competitors, but also private label that will have their offering. Clearly, there is a need for us to reduce the cost, also change the type of cost. We need to be much more agile.

Driving through that vision. Thank you.

That's good. Um,

so listen I I think it's an on is not an either or so to for us to to be fit for the future, uh, we're going to have to transform the portfolio and we're we're doing that with a sense of urgency and that will drive growth as we are more on consumer Trend, and we're more, um, you know, in spaces of the category that are growing. So that I think we spend quite some time. And but also we need to address, uh, the cost structure of the business. Because we need to continue to be extremely uh, competitive. And we're not consumers are looking for value and value will be critical going forward. Uh, being at the right price points competing with competitors but also private label that will have, you know, their offering. So clearly there is a need for us to uh, reduce the cost.

Ramon Laguarta: We need to be much more flexible, have optionality. We've invested a lot in technology in the last five years. It is in our P&L. It's been a cost for us for the last five years. Now we can benefit from applying technology to everything we do, applying AI, overlaying intelligence to the infrastructure of data we've created. That will give us optionality, agility, and flexibility, which is probably what the market requires given the continuous pivots from the consumer and from our partners, our customers. That's how we're thinking. You'll see us going with a big sense of urgency against portfolio transformation and against cost transformation with decisions on assets, but also applying technology to our business at a very, very fast pace. We're ready for that. It probably will become a competitive advantage for us versus other companies given the investments we've made.

Also, change the type of cost. We need to be much more agile. We need to be much more, um, flexible—have optionality with investing. We’ve invested a lot in technology in the last five years. It is in our P&L. It's been a cause for us for the last five years. Now we can benefit from applying technology to everything we do, uh, applying AI—overlaying intelligence to the infrastructure of data we've created. And that will give us optionality, agility, and flexibility, which is...

Ramon Laguarta: Now, with regards to the CFO transition, first, let me thank Jamie for all the 35 years, Jamie?

Jamie Caulfield: 33 years.

Ramon Laguarta: 33 years in the company. He's been an amazing partner. We've worked together for some periods. I mean, I was in Europe, he was here, but we knew each other for a long time. We've been doing a lot of work together. Jamie expressed his desire to retire some time ago. I started looking for a CFO for the future to help me execute the strategy 2030. Steve is an incredible leader, as you said, the right experience, the right skills, proven record, the right culture fit in the company. I'm looking forward to welcoming Steve in the next few weeks and continue to accelerate the transformation of the company to the highs that we know this company will achieve.

Is, which is probably, uh, what the market requires given the, uh, The Continuous pivots from the consumer and from the from our, from our partners, the our customers. So that's how we're thinking. So you'll see us going with a big sense of urgency against portfolio transformation and against, uh, cost transformation with uh, decisions on assets. But also applying technology to our business, at a very, uh, very fast pace, and we're ready for that, probably will become a competitive Advantage for US versus other companies, given the Investments we've made now with regards to the CAO transition. Press first, let me, let me thank, uh, Jamie for, for all the uh 35 year Jamie or or 3 333 year, 33 years in the company. Uh, he's been an amazing partner. Uh, we work together for some periods. I mean, I was in Europe, he was here, but we we knew each other for a long time and we've been a, you know, we've been doing a lot of work together now.

Jamie expressed his desire to retire some some time ago. Uh, we I'm I started looking for a, uh, you know, a a, a, a CFO for the uh, for the future to help me, execute the strategy 2030. Uh, Steve is an incredible leader, as you said, uh the right um experience the right uh skills proven record the right culture, fit in the company and I'm looking forward to welcoming Steve in the next.

just a few weeks and, um, you know, continue to uh, uh, accelerate the transformation of the company to the, uh, to the, uh, the highs that we know this company will achieve.

Operator: Thank you. One moment for our next question. Our next question comes from Kaumil Gajrawala with Jefferies. Your line is open.

Thank you. One moment for our next question.

Our next question comes from Camila Gaara with Jeffrey. Your line is open.

[Analyst]: Hey, everybody. First of all, Jamie, thank you for all your help over the, I guess, what's now been decades. Ramon, a question on asset-based and sort of following on with some of the answers to your questions on One North America maybe being regional, a focus on agility, a focus on being fast, a lot going on in terms of innovation and right-sizing. To what degree are you open to the idea of franchising some of these operations on the beverage side, particularly, you know, maybe just from a regional perspective because it feels like many of the intentions of what you're looking to accomplish, some of it could be moved along by pushing a sort of a refranchising initiative. Curious what you think about that. Thanks.

Hey everybody. Uh, first of all, Jamie, thank you for all your help over the, I guess, what's now been decades.

And and Ron a question on asset based and and sort of following on with some of the answers to your questions on 1 North America. Maybe being Regional a focus on agility and focus on being fat. We have a lot going on in terms of innovation and right sizing to what degree are you open to the idea of franchising? Some of these operations on the beverage side, particularly, you know, maybe just from a regional perspective because it, it feels like many of the, uh, many of the intentions of what you're looking to accomplish. Uh, some of could be, um,

Some of this could be moved along by pushing a sort of refrigerating initiative. I'm curious what you think about that.

Ramon Laguarta: Yeah, listen, Camilo, as I said, we're going after growth and margin with high speed and a very strong sense of urgency. We are, at this point, open to all the ideas, and we appreciate all the perspectives to create sharing all the values. We'll listen. We'll do what's best for PepsiCo. As I'm thinking about this, or we think about this space of supply chain go-to-market, as I said earlier, the solution for this country, talking U.S., will not be a one-size-fits-all solution. There'll be nuance. There will be potential different geographical solutions that will be the best fit for that market given our market position, starting market position, the partners, and everything else that we can do. As I'm thinking about this topic, there's three things that we're taking into consideration, and I'd like for you to be aware.

Ramon Laguarta: One is we're trying to solve for the demand of the future, not the demand of the past. The demand of the future will be much more concentrated in a few retailers or customers. We need to assume the consumer will be looking for pickup or delivery and digital much more than it is today. It is today very high. It will be even better. We need to solve for that demand of the future that will be different from the demand of the past. The second is technology and the investment we've made in technology over the last five years helps allow us to do things that were unthinkable five years ago. If you think about a lot of the basic processes of the company, from order taking to transportation towers to how we can do manufacturing or warehousing, it's totally different than the past.

Uh, solutions that will be the best, the best, uh, fit for that market given our Market position, starting Market position the partners and everything else that that we can do. Uh, now as I'm thinking about this topic there, there's 3 things that we're taking into consideration, and I like, for you to, to be aware 1 is the, uh, we're trying to solve for the, uh, demand of the future, not the demand of the past and the demand of the future will be much more concentrated in a few retailers, or, or customers. And we need to uh, assume the consumer will be looking for pickup or delivery and digital much more than it is today. It is today, very high, it will be even better. So we need to solve for that demand of the future, that will be different from the demand of the past. The second is technology and the investment we've made in technology Over The Last 5 Years, helps allows us to do things that were Unthinkable 5 years ago.

Ramon Laguarta: We can manage complexity different. We can eliminate some of the human bottlenecks in ways that we couldn't do before. Technology, demand of the future. The third point is I'm trying to optimize the full PepsiCo P&L and not just one or the other. As we think of that, we will have for sure a nuanced solution. We will be driving different solutions, different parts of the country. We'll be looking for what is the best for PepsiCo long term. We'll listen to every perspective. We'll have constructive dialogues. I'm sure we'll come up with the best solution for this company going forward.

If you think about a lot of the, uh, basic processes of the company, from order taken to Transportation Towers to how we can do, uh, you know, manufacturing or warehousing, it is totally different than in the past. So we can manage complexity differently. We can eliminate some of the human bottlenecks in ways that we couldn't do before, so technology is in demand for the future. And the third point is, I'm trying to optimize the full PepsiCo P&L and not just one or the other. So, as we think about that,

Have for sure. A nuanced solution; we will be driving different solutions to different parts of the country, and we'll be looking for what is best for PepsiCo long term. We'll listen to every perspective and have constructive dialogues. I'm sure we'll come up with the best solution for this company going forward.

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

Thank you. One moment for our next question.

Our next question comes from Chris, carry with Wells Fargo Securities. Your line is open.

Christopher Carey: Hey, everyone. Most ground has been covered. Maybe just to take a step back, Ramon, I'd love to get your thoughts on something around cyclical versus structural, but really by geography. I think in North America, there's an ongoing debate about how much of this is the consumer shifting preferences toward healthier eating. Obviously, there's a cyclical component as well with value seeking. Can you compare the consumer behavior in the U.S., this cyclical versus structural dynamic, versus what you see in the international markets? Is the consumer there behaving in similar ways, both from an economic perspective, number one, but also, are the preferences for the international consumer outside the U.S. shifting and evolving like they are in the North America business? I'd love to get any context or additional color on how you see that interplay. Thanks.

Hey, everyone. Um, so yeah, most ground has been covered. So maybe just to take a step back, Ramen, I'd love to get your thoughts on something around.

Technical versus structural. But really, by geography, I think in North America, you know, there's an ongoing debate about how much of this is.

The consumer shifting preferences toward healthier eating obviously, there's a cyclical component as well with value seeking.

Can you compare the consumer behavior in the U.S., this cyclical versus structural dynamic, versus what you see in the international markets? Is the consumer there behaving similarly?

In similar ways, you know, both from an economic perspective, number one, but also, you know, are the preferences for the international consumer outside the U.S.?

Ramon Laguarta: Yeah. Listen, it clearly is a very, it's a complex topic, but I'll give you my point of view in a couple of areas. There are things that are clearly structural in the way which you think about consumers all over the world. I think consumers are moving to digital purchasing in a very structural way. That will change the dynamics of the industry in both the assortment, what they buy, how they buy, and what they expect the delivery method to be. I think consumers are going to expect different ways of how goods are delivered to them. That is a very structural change, and that's happening across the world with different speeds, but I think it's clearly a global trend. The second, I would say, in terms of the consumers, are much more informed about the food and the drinks, the ingredients in the foods and the drinks.

Shifting and evolving, like they are in the, uh, the North American business. So I'd love to get any, you know, context or additional color on how you see that interplay. Thanks. Yeah, so listen, uh, clearly it's a very, uh,

It's a complex topic, but I'll give you my point of view in a couple of areas.

There, there are things that are clearly. Uh, structural in the way, uh, which you think about consumers all over the world? I think consumers are moving to digital purchasing in a very structural way and that will change the Dynamics of, uh, uh, the industry in the both, the sorman, what they buy, and how they buy, and what they expect the delivery method to be. I think consumers are going to expect um, different ways of um you know how how goods are delivered to them. So that is a very uh structural um uh, change and that's happening across the world with different speeds, but I think it's a it's clearly a, a global, a global. Uh, um, you know, Trend the second I would say, in terms of

Ramon Laguarta: I think it's a secular trend as well that consumers will be more making choices based on clean-labels, based on the ingredients in the food, and not only the taste, but also the type of food that is in the brands. Therefore, some of the relaunches of the brands that we're making, whether it's Lay's or Gatorade or Tostitos, take that into consideration because I think they're very relevant going forward. Affordability is also a reality. I think when you look at low-income households or middle-income households, they're very stretched. Fixed costs of living are going up around the world. That will create the need for affordability and value and price points and cost consciousness also for the foreseeable future.

Ramon Laguarta: Those are trends that will go up and down, notches in the curve, but I think the curve is going in the same direction probably in the majority of the markets. That's my point of view. That's how we're thinking about the future. That's why we're moving the portfolio quickly in those spaces. We're looking at the cost structure to be able to compete both on the cost side, but also on how we serve our customers in this future of demand that will be very different from today.

Middle income households, they're very stretched. Um, fixed cost of living are going up around the world and that that will create the need for affordability and, and value, uh, and price points and, and cost Consciousness in in, you know, also for the foreseeable future. So those are trends that they will go up and down, you know, uh, notches in in, in the curve. But I think the curve is going in the same direction, probably in the majority of the markets. And that's my, my point of view, that's how we're thinking about the future and that's why we're moving the portfolio quickly. In those spaces, we're looking at the cost structure to be able to compete, both on the cost side but also on how we serve our customers in this, you know, in this future of demand that will be very different from today.

Operator: Thank you. One moment for our next question. Our last question comes from Robert Moskow with TD Cowen. Your line is open.

Thank you. One moment for our next question.

[Analyst]: Hi, thanks for the question. A few weeks ago, an activist investor announced a stake in your stock and published a long list of recommendations. I wanted to know your willingness to engage with them and if there's any ideas in there that you think are particularly important for your strategic direction. One in particular I wanted to know is establishing a margin target for Frito-Lay. It's been discussed in the past. I just want to know, is that something that you consider constructive for setting a path for the future, or you just look at the business and what it needs to do differently than that? Thanks.

Our last question comes from Robert Moscow with CD Cow, and your line is open.

Hi, thanks for the question. Um, you know, a few weeks ago uh an activist investor uh announced a, a stake in your stock and and published a long list of recommendations. So I want to know, you know, your your willingness to engage with them. Um, and and if there's any ideas in there that you think are particularly, uh, important for your strategic Direction, 1 in particular, I wanted to know is, uh, establishing a margin

Ramon Laguarta: Yeah, listen, a few questions in your question. Our engagement with Elliott has been, you know, we had a couple of interactions, very constructive and collaborative, and we're trying to understand each other. I think we're aligned on one thing, which is critical, which is PepsiCo is undervalued, and there's a lot of opportunities to improve the valuation of the company by, you know, making a few interventions with a sense of urgency in the way we're doing. I think we both want to create shareholder value. We're as interested as any of our investors to do this. We're aligned. Of all the ideas that Elliott mentioned in their document, most of them are included in our strategy 2030, and we're acting on it. I think we're acting with a sense of urgency on both portfolio transformation, simplification of the portfolio, cost reduction to invest in future growth, et cetera.

In Target for Fredo a, you know, it's been discussed in the past. I just want to know is, is that something that that you consider constructive for, um, setting a path for the future or you, you just look at the the business and and what it needs to do differently than that. Thanks.

Yeah, this is an app. Yeah. Okay. A few questions in your question. So, um, our engagement with Elliot has been, uh, you know, we had a couple of, uh, you know, interactions, uh, very constructive and collaborative. And we're trying to understand, um, each other. I think we're aligned on one thing, which is critical, which is PepsiCo goes undervalued.

And there's a lot of opportunities to, uh, improve the valuation of the company by, you know, making a few interventions with a central urgency and, and they were doing. So, I think we're both want to create, uh, shareholder value, or as interested as any of our investors to do this. So we're aligned now of all the ideas that um, um, Elliott mentioned in their, in their document.

Most of them are included in our strategy 2030 and we're acting on it.

Ramon Laguarta: A lot of positives. There are a few areas where, you know, we need to probably educate each other a bit more. We're going to have conversations in the coming weeks and months. I'm sure we'll reach a point where, you know, we'll listen to their perspective. They will help us in our decisions to make PepsiCo a better company and to create value for the long term. Good collaboration. I'm optimistic about how this will drive sense of urgency and will drive positive change for PepsiCo. Good. Okay, this concludes the meeting. Thank you very much to everybody for your engagement. Again, I would like to thank Jamie for the incredible work for PepsiCo for 33 years and the support he's given me and the management team for all those years, but in particular the last two years. Thank you, Jamie.

So, um, I think we're, we're acting with a sense of urgency on both portfolio transformation, simplification of the portfolio cost, uh, reduction to invest in future growth, etc, etc. So a lot of a lot of positives, there's a few areas, where, you know, we we need to probably educate each other a bit more. We're going to have conversations in the coming weeks and months and I'm sure, we'll, we'll reach a point. Uh, where, you know, uh, they will, they will, you know, will listen to their perspective. They will help us, you know, um, in our, in our decisions to make PepsiCo a, uh, a better company and to create value for the long term. So yeah, good good, good good, uh, good collaboration. And I I'm optimistic about, you know, how this will drive sense of urgency and will drive positive change for PepsiCo.

Ramon Laguarta: I don't know if you want to say anything to the team here.

Jamie Caulfield: No, just thank you. It's been a terrific, terrific run, and this is a great company. I continue to believe our best days are ahead of us.

Good. Okay, so this concludes the uh, the meeting. Thank you very much to everybody for your engagement. And again I would like to thank Jamie for uh, you know, the incredible work uh for PepsiCo for 33 years and support his giving me and and the management team, you know, for all those years. But in particular, the last 2 years. So um, um, thank you and Jamie. I don't have anyone to say anything to the team here. No. Just, uh, just thank you. It's, it's been a, a terrific, terrific run. And this is a great company. I continue to believe. Our best days are ahead of us.

Ramon Laguarta: Thank you.

Thank you.

Operator: Thank you, ladies and gentlemen. That concludes today's presentation. You may now disconnect and have a wonderful day.

Thank you, ladies and gentlemen. Let's conclude today's presentation. You may now disconnect and have a wonderful day.

Ramon Laguarta: Thank you, Kevin.

Thank you. Kevin Josh.