Good morning, welcome to PepsiCo's 2023 first quarter earnings question and answer session. Your lines have been placed on listen only until it's your turn to ask a question. Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin. Thank you, operator. 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 and updated 2023 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 25, 2023, 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 first quarter 2023 earnings release and Form 10-Q available on pepsico.com for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta, and PepsiCo's Vice Chairman and CFO, Hugh Johnston. We ask that you please limit yourself to one question. With that, I will turn it over to the operator for the first question. Thank you. Once again, in order to ask a question or make a comment, please press star followed by one one on your telephone. One moment for our first question. Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open. Hi, good morning, guys. Morning, Dara. Very impressive price mix result in the quarter at 16%. Can you just give us an update on the competitive environment you're seeing in your key business segments and geographies, both in terms of just price increases, but also promotion, and if that's picking back up to more normalized levels and if that favorable environment is continuing? Just as you look going forward, obviously very strong levels of pricing, how do you think about the moderation of that back to more normalized levels going forward the next few quarters and the ability of volume to recover as that pricing dissipates on a year-over-year basis? Thanks. Thank you, Dara. Let me cover that, and then Hugh can add some comments. We're seeing a competitive environment where we're all trying to protect the health of the categories and then make sure that our brands are participating in those categories, you know, in a competitive way. We're investing in our innovation, investing in our brands, investing obviously in value in different ways, price and sizing mostly. We're seeing a good, positive competitive environment in the U.S., in Europe, and also in our developing markets, consistently across the world. When it comes to pricing, as we said earlier, in February, we have mostly taken the pricing already this year that we needed to cover for our cost increases. It's where we stand at this point. We're seeing a deceleration of inflation, not a reduction of cost, but a deceleration of inflation. We think that with the pricing that we've taken already, most of our business around the world, that should be sufficient. Obviously there are some markets, highly inflationary markets around the world where we, you know, might have to take additional pricing. You know, if you think about Argentina, Turkey, Egypt, those kind of markets where the currencies are suffering. Majority of our pricing is already done. Yeah. The only thing I'd add to that, Dara, as a reminder, you know, we tend to buy commodities nine to 12 months out. To the degree that the rate of inflation decreases, and it will be a decrease in the rate of inflation, not deflation by any stretch of the imagination. That's gonna happen very slowly over the course of 2023. I think that's more of a 2024 thing to the degree it happens even then. Thank you. One moment before our next question. Our next question comes from Andrea Teixeira with JP Morgan. Your line is open. Good morning. I wanted to go back to a little bit of what you spoke on the prepared remarks. You also on an earlier interview, Hugh, that you gave, that you're not seeing the fact inflation is still high throughout these six to nine months that you're seeing here. It doesn't look like you're seeing the need for promotional environment. More in the context of what has happened in LATAM, I think is the only region that you haven't seen a re-acceleration. In every other region, you've seen an acceleration. I'm asking this question more of at a point of strength rather than a point of weakness. Of course, it's really hard not to like the numbers here. Just thinking of how to think of the volume decline you saw in snacks and to think about how to parse it out, or it's more about the comparison getting tougher. Thank you. Good morning, Andrea Teixeira, it's Hugh Johnston. A couple things. Just for clarity, in terms of the snack food or the convenience food volume, Pioneer Foods was a big driver of that. You know, there are challenges with the power grid down in South Africa, and obviously Pioneer Foods makes a lot of heavy products. Ex Pioneer Foods snacks volume was basically flat for the quarter, and beverages obviously was up a small amount for the quarter. In terms more broadly of sort of the rate of growth of all of the businesses, from a revenue standpoint, I think generally speaking, you know, you see the consumer continuing to buy our products. Elasticities are still holding up quite well across most of the globe. You know, despite the fact that we're taking pricing driven by the inflation that we're facing into. In terms of operating performance, I think what you're seeing more than anything is a reflection of the productivity initiatives that we've put into place, whether they be automation in the supply chain or digitalization across the company or leveraging Global Business Services. When we talk about sort of an acceleration in the operating income performance, I think it's a consumer that's responding to the brand advertising we're doing in addition to that, the productivity that we're driving. Thank you. One moment for our next question. Our next question comes from Kevin Grundy with Jefferies. Your line is open. Great. Thanks. Good morning, everyone. Just picking up on some of your prior commentary there and just the decision to raise the EPS guidance at this juncture of the year, which I think is noteworthy because the company's delivery against guidance has historically been quite good, as you're well aware. Historically the tact has been to maintain it and then as the year moves on to edge it higher. Just some context here, did the first quarter was that good relative to your expectations, just came in that much better? It's noteworthy within the context of all the prognostication around potential recession and market volatility for the raise at this juncture of the year. Maybe just some historical context around it and relative to the first quarter results I think would be helpful. Thank you. Yeah, Kevin, good morning. I think, you're right. Your assessment is right. We're seeing both better elasticities than, you know, some of the worst- case scenarios we were planning for. Also we're seeing the teams delivering better productivity. We're seeing the, in general, the flow of materials, the availability of labor, transportation, all those elements that we're making as a suboptimal company, just to call it somehow, in terms of operating metrics, that's getting better, which is giving us the opportunity to, you know, improve some of the metrics in our operations faster than what we thought. It's both a improvement in productivity on the cost side and better elasticity. I think the commercial programs were strong. You saw that we've increased A&M again in the first quarter. I think the commercial plans, the innovation plans are very strong. We always play out a lot of scenarios before we give you guys a guidance. You know, we feel comfortable that even at this early point in the year, we can raise our top line and bottom line estimates. Thank you. One moment for our next question. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open. All right. Thank you. Good morning, everyone. I had a question on organic revenue growth at PBNA. Your price mix in the quarter was incredibly impressive, but your volumes were down slightly again. Could you touch on where you're primarily seeing the pressure and then, you know, maybe what you're seeing from the consumer? It seems that incremental pricing may be a bit harder to come by and promotional levels may need to increase in beverages this year. Could you touch on that as well as, you know, maybe your key initiatives to stabilize or turn your volume trends around at PBNA? You know, is your Pepsi rebranding or the new logo and visual identity for the brand, you know, one of those key initiatives, for instance? Thanks. Thank you, Bonnie. No, we don't see. Actually, we see the momentum in the beverage category very strong in terms of demand. We're seeing away from home very strong. We're seeing the convenience channel very strong, and we're seeing most of the in-home channels also, you know, quite strong. We don't feel that there's a competitive environment that is getting worse in beverages. There's some one-off in the first quarter because, as you know, we're moving Gatorade from a warehouse system to a DSD system. In that transition, there is some inventory reduction overall in the system that is impacting Q1. You know, we don't think that the competitive environment in beverages in the U.S. is getting worse and that we need to do anything special. We have a very strong commercial program, both innovation, brands, commercial execution, and customer programs. That will be the way we're planning to continue to compete vigorously in the market. Thank you. One moment for our next question. Our next question comes from Lauren Lieberman with Barclays. Your line is open. Great. Thanks. Good morning. We've already been asked about, you know, raising the guidance early in the year, and it would sort of be mechanically hard not to given how strong the quarter was. Your, your prior outlook, you had baked in what we thought was one of the more conservative set of assumptions around the macro environment, at least for the second half of the year, across our coverage anyway. I was just curious, you know, if you're seeing anything more recently that has you more optimistic on the macro trajectory, you know, anything in terms of that, you know, broader market outlook or consumer outlook that's informing, you know, your ability to raise the guidance? Or is it really more tied to just the momentum in your own business? Thanks. Yeah, Lauren, it's mostly related to the fact that we're already, you know, one-third of the year is passed, and we have better information on our costs and everything else that, you know, complex operating. There are a few things we're still, you know, concerned about. One is, where's the consumer gonna be in second half of the year? We continue to, you know, have multiple scenarios and, you know, some of scenarios are more optimistic, some less, and we continue to have various scenarios. The second one, geopolitics, and that might impact the business, and therefore we wanna be cautious there as well. The third one, as I mentioned earlier, there is some currencies in some emerging and developing markets that, you know, we don't know where some of those markets will go in the second half of the year, we also wanna make sure that we have the right financial scenarios around those options. Those are the three variables that could define where the business goes. You know, as I said earlier, operationally, the business is better. We're seeing better labor availability, better flow of materials. Suppliers are obviously getting better as well. Transportation is getting better. Operationally, the business is in a better place than it was in 2022. Thank you. One moment for our next question. Our next question comes from Bryan Spillane with Bank of America. Your line is open. Hey, thanks, operator. Good morning, everyone. You know, Hugh, I wanted to ask about accounts payable. Just it was a pretty meaningful shift year-over-year. I understand there's a sequential or a seasonal piece to it, but I think it's up more than $1 billion versus the first quarter last year. Is that tied to the Gatorade DSD distribution change? I don't know, is there something else going on with accounts payables that just is driving such a meaningful change? Yeah. Hey, Bryan. It's really two things. One is seasonal inventory build on the Gatorade thing, as you mentioned. The second is we've got a number of significant capital projects that are in flight right now, and the timing of the payables on the capital equipment is what drove that number. I would take it as a one-off, not a change in trend by any stretch of the imagination. It's just a one-off when the quarter ended. Thank you. One moment for our next question. Our next question comes from Christopher Carey with Wells Fargo. Your line is open. Hi, good morning. Good morning. Can you maybe just touch on how investment priorities will evolve in 2023? I think one of the key takeaways from 2022 was, you know, distribution costs between shipping, handling, and merchandising activity was a key driver of, you know, SG&A inflation. I'm conscious of double-digit increases in added marketing spending out of the gates into Q1. Can you maybe just frame, you know, how overall investment will be evolving over the course of this year in the context of maybe some easing on inflation in certain SG&A buckets and, you know, an ability to put more spending in others? Thanks so much. Yeah, Chris. Listen, I think the framework of investment is similar to what we've expressed in the past. I mean, number one priority for us is to make sure that our categories remain highly visible in consumers' minds in a complex, you know, consumer choices environment, and our brands do very well in those categories. That's priority number one, make sure that we, you know, we continue to be the preferred brand with our consumers. Second, we continue to invest in transformation of the business, digitalization and productivity at the center of, you know, the strategy. Systems, we've been investing on that for quite a while. That continues to be an enabler of all the data strategy that we have in the business. Those are the two big priorities. We continue to invest in capacity. You know, there is good volume growth across many of our markets around the world, and that continues to be a priority in enabling the brands to continue to grow. Those are the principles. I don't know, Hugh, if there's anything else to add. No, I think that's right. I think to where Chris was going with the question from his perspective as well, Chris, I think you'll see more of the financial impact of those investments in SG&A, significantly less so in cost of goods. As you're modeling it out, SG&A is the place where you'll see all the items that Ramon referenced will be hitting. Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open. Thanks, operator, and good morning, everyone. I was hoping to get more color on the international performance in the quarter, but maybe specifically in China. I know it was called out in the prepared remarks as a market where you gain share, and maybe I missed this, but I don't think it was- mentioned, when discussing growth in the quarter. Can you maybe share a view on the current environment in China, how that evolved through the quarter, and kind of how you see that progressing from here? Thanks. Good. We're seeing obviously in China a optimism in consumers and optimism in the customers, that's driving volume for us across the across both our food and our beverage business. We're gaining share on, especially in snacks. Snacks has been performing very well through the pandemic and continues to outgrow the category. In beverages as well, we're seeing competing quite well in colas and in sports hydration. Obviously this is gonna be a tailwind for us as the year progresses both in away from home and in home consumption. Thank you. One moment for our next question. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open. Great. Thank you very much. Given the strong start to the year and your confidence in the year, thought I'd ask a longer-term question. That is, as you look at the categories that you're in, you know, over time in the past, you've expanded in certain countries a little bit outside of beverages and snacks, either for reasons of scale or growth opportunities, or maybe that's just, you know, what was available as part of an acquisition. You know, over the next, call it, next five years or so, do you believe that you're in the right categories to drive your algorithm? Or do you see, potentially the need, or desirability to, you know, expand into some adjacent areas? Given the advances that you've made in IT and logistics, perhaps that's even a greater opportunity than in the past. Thank you. I think it's a great question. Listen, we believe our categories are large and growing at a very fast pace, around 5% globally. I think our main responsibility is to maintain the innovation and make sure that the portfolio evolves with consumers, the brands continue to be super relevant. You know, that is where we want to focus our efforts. We're making some small moves, as you saw, for example, when we're going into low alcohol here in the U.S., expanding the brands. We're making small moves like Cheetos going into mac and cheese. We're expanding some of our brands organically into some new spaces that make sense from the consumer point of view. That we believe our categories are large, global, healthy, and we... Our responsibility is to keep them healthy and growing very fast. Thank you. One moment for our next question. Our next question comes from Vivien Azer with Cowen. Your line is open. Good morning. Thank you. I wanted to ask about Pepsi Zero Sugar, given the reformulation and the broad-based international distribution. Can you offer some perspective on how that's performing relative to expectations? As well, could you possibly update us on how the organization is tracking towards your 2025 ESG target to derive 67% of volumes from lower added sugar beverages? Thank you. Thank you. Great question. It's, it's central to our strategy to continue to drive low sugar and non-sugar products as, you know, kind of the portfolio transformation. In the case of Pepsi, obviously that is very relevant for us given the size and scale of Pepsi brand for us. The relaunch in the U.S. with the new formula is being very well received by consumers based on our early data of repeats and preferences. The brand is growing 60%, if I remember correctly, in the first quarter. That's driven a little bit by distribution, but it's mostly velocity. Clearly the consumers are, you know, they like the product and they're coming back to the product. Globally, we also see, you know, big growth of the non-sugar segment in the category two, three times the average of the category in most of the markets. We are driving that growth along with some of our key competitors. It's a, I think it's a strategy that is working and is keeping the category very relevant for consumers. We'll continue to invest in non-sugar as a driver of growth for our brands. Thank you. One moment for our next question. Our next question comes from Gerald Pascarelli with Wedbush. Your line is open. Hi. Good morning. Thanks for the question. In U.S. measured channels for salty snacks, we've seen private label products gain share of the overall category for the past few months now. This is obviously happening in tandem with very strong performance and market share gains for Frito-Lay as well, which is great. Was just curious if you've seen any near-term changes to broad consumer purchase patterns in this category relative to maybe a few months ago. Any thoughts there would be helpful. Thank you. Yeah. In general, we're seeing private label growth, in some of the categories where we participate, especially waters, juices that we used to participate in some categories in salty snacks as well, as you mentioned. You know, as you well say, Frito-Lay is, I think it's growing share of market at the fastest pace that we've seen in the last maybe 10 years, if I recall. As a consequence of the great work the team is doing in terms of execution, but mostly innovation and brand building. I think we see both private label increasing, although from a very low base in salty snacks. Most importantly for us, we're seeing our brands continue to gain loyalty, expand the consumer base, and be preferred in that segment. Yes, private label is slowly increasing from a very, very low base, as I said, in some subsegments of the salty snacks business. Thank you. One moment for our next question. Our next question comes from Brett Cooper with Consumer Edge. Your line is open. Good morning. With about a year in of Blue Cloud and Hard Mountain Dew, I was hoping you could provide some color on your view of the performance of the brand and the operation to date, any learnings, and then how you think about proceeding from here. Thanks. Yeah. Listen, we're happy with the learnings that we're taking, both in the, you know, the operation of this category, which is new to us, and also in how we create consumer demand and consumer loyalty. And we continue to, you know, find partners to create new solutions for consumers with our brands. We, you know, we just launched a tea version, a hard- tea version, with Lipton and PepsiCo company. They developed a great product, which we're gonna start distributing through our system in the next few weeks. So we're gonna go into the summer with two main products, Mountain Dew, Hard Mountain Dew and Hard Lipton. As I said, our intention is not to build a large portfolio of products and complex portfolio, but is to focus on a few good brands developed with strategic partners, and then leverage our distribution capabilities to, you know, to give it to consumers all across the country. That's our, that's our journey. We're not rushing. We're going at a speed that we learn, and we make this business solid and with the right margins and the right consumer propositions. Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open. Hey, good morning, everyone. Question on the PepsiCo Beverages North America business. It seems clearly this year you're making a lot of investments. The Pepsi logo change, the Starry launch, a lot of other launches, expansion of Pepsi Zero Sugar and Hard Mountain Dew. Just bigger picture, what are your expectations from kind of a market share standpoint in the business? What would you consider a success for this year? Secondly, how do you balance these investments that you're making with your target of getting back to mid-teens margin for the business? Thank you. Yeah. I mean, we expressed this in the past. We wanna have a business that grows at the category pace or above and expands its margins to the mid-teens levels that we have mentioned as well in the next two to three years. That is the strategic intent for this business. I think the team is executing very well. The way we measure our share is full LRB, so it's the full, you know, full set of brands that we have in our portfolio, not just small segments within the category. Obviously, I think we're progressing well against that growth target for the year, whilst also expanding the margins for the business. You know, we feel good about the margin expansion this year. Thank you. One moment for our next question. Our last question comes from Charlie Higgs with Redburn. Your line is open. Thanks for the question. Good morning, everyone. I was just wondering if you could talk a little bit more about the Frito-Lay North America division and the volume growth there. How did Lay's, Doritos, Cheetos perform? Is there any color you can give on the single-serve packs versus multi-packs? Just how you see the very strong margin growth in Q1 progressing throughout the year would be useful. Thank you. Great. Listen, as I said earlier, Frito-Lay, I think it's in the U.S. and also on the whole snack business globally is doing extremely well. If we focus on the U.S., I think the team is doing a fantastic job growing the large brands, as you mentioned, Lay's, Doritos, Ruffles, Tostitos, Cheetos. At the same time building peripheral brands that cover some spaces that we, you know, we're not covering with the big brands. Let's call it PopCorners or SunChips or Smartfood. We really building a portfolio of brands that covers different cohorts and different need states in a unique way. We also innovating in new formats. You mentioned multipacks, which has been a great hit for us in terms of variety and empowering consumers for personalization. This year, a few months ago, we launched minis, which is also an incredible innovation if you think about the convenient, the additional convenience it gives consumers, and putting our best brands in that format opens a whole set of new occasions for the business. We feel very good about the innovation strategy and how we keep capturing new occasions into our brands. As I said earlier, I think the business is becoming better operationally as the supply of materials is getting better, you know, labor availability is getting better. We should see, you know, operational metrics improving, and that's what you're seeing in the margins. Although the Q1 margin was a little bit elevated, you know, the strategic intent with Frito-Lay is growing it very, very fast and keeping the margins at those high levels, because that's super accretive for the PepsiCo overall business. Okay, I think this is the last question. Really appreciate the conversation this morning. Thank you, everyone for joining today, and especially for the confidence that you're all placing in our company and the investments you're making in our company. Thank you very much and have a great day. Ladies and gentlemen, this has concluded today's presentation. You may now disconnect and have a wonderful day.