PepsiCo, Inc. (NASDAQ:PEP) Q1 2024 Earnings Call Transcript

PepsiCo, Inc. (NASDAQ:PEP) Q1 2024 Earnings Call Transcript April 23, 2024

PepsiCo, Inc. misses on earnings expectations. Reported EPS is $1.48 EPS, expectations were $1.52. PEP isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to PepsiCo’s 2024 First Quarter Earnings question-and-answer session. Your lines are being placed on listen-only until it’s your turn to ask the 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.

Ravi Pamnani: Thank you, operator and good morning everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today’s call, including about our business plans and 2024 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 23rd, 2024, and we are under no obligation to update them. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our first quarter 2024 earnings release and first quarter 2024 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 Executive Vice President and CFO, Jamie Caulfield. We ask that you please limit yourself to one question. And with that, I will turn it over to the operator for the first question.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Dara Mohsenian: Hey guys, good morning.

Ravi Pamnani: Goof morning Dara.

Dara Mohsenian: So, really strong international profit results for the third quarter in a row here. Can you just take a step back, Ramon, and maybe give us some perspective on that international performance over the last few quarters? And, A, just looking forward, short-term, how confident are you in the sustainability of that in the balance of the year? But, B, also just long-term as you think about international development over the last few quarters give us some perspective looking out over the next few years, both from a top line perspective and then the margin flow through? Thanks.

Ramon Laguarta: Great. Thank you, Dara. And yes we’re very pleased with the performance of international businesses in Q1, but also in the last few quarters, as you mentioned. And this has been an area of investment for us now for a few years, both in snacks and in beverages and trying to build scaled businesses in most of the markets where the scale in terms of population and profitable growth. So, I feel very good about our ability to continue to outperform our categories in international and to keep our categories growing both food and beverages in the future. Our innovation is strong. Our ability to understand local rituals and local food and beverage occasions is better than ever. We are adapting our portfolio to that. Our ability to attract the best talent in the markets where we participate and build really capable teams is better than ever.

We’ve been investing in capacity. We’re — right now, we’re in the process of opening factories in Vietnam and in China and in India and in Mexico, and we just opened one in Poland. So we keep expanding our manufacturing and our go-to-market capabilities in those markets. So we feel good, and I think that it’s going to continue to be a big source of growth for us. As we mentioned in CAGNY, I think our international business is already $36 billion and it’s growing at a very high single-digit level and with very good profitability. So it is part of the future growth story for PepsiCo for sure.

Operator: Thank you. One moment for our next question. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

BonnieHerzog: Hi. Thank you. Good morning, everyone. I had a question on Frito-Lay op margins, which were a little soft in the quarter. So hoping you could talk through some of the key puts and takes on your margins in the quarter and then moving forward? And then is it realistic to assume Frito-Lay’s op margins will expand in 2024? And I’m thinking about that in the context of commodity cost pressures easing a bit, or how do we think about your level of reinvestment as these cost savings maybe in an effort to drive faster top line growth? And then ultimately, curious to hear if Frito-Lay margins can ultimately return to the low 30% range? And if so, by when, how do we think about that? Thank you.

JamieCaulfield: Hey, Bonnie, it’s Jamie here. How are you? Yeah on Frito, when you look at the Q1 profit, the thing to keep in mind is last year, we’re lapping 24% growth in the first quarter of last year. I think we had 180 basis points of margin improvement last year. And we don’t want to push the P&L that hard. The growth last year, growth this year, part of that has to do with investment timing, the flow of productivity. But I think you’ll see margin improvement over time at Frito, but this is a business that has very healthy margins already, and we want to make sure that we’re investing back in the business to sustain growth.

Ramon Laguarta: Yeah, Bonnie. I think on top of what Jamie said, for the long term, the key goal for Frito in the US is to continue to grow the salty, savory category at a very high rate and continue to get occasions from other parts of macro snacks into the savory and from meals into savory, and continue to gain share of that category as it has been doing and including Q1. So that’s the ultimate goal. Because that, if you think about the high margin that we have in that business and the impact it would have in the overall PepsiCo margins, that’s the role that Frito-Lay has in the portfolio.

Operator: Thank you. One moment for our next question. Our next question comes from Bryan Spillane with BofA. Your line is open.

Bryan Spillane: Thanks, operator. Good morning, everybody. Ramon, I guess, a question on PBNA and specifically on Gatorade and Mountain Dew. The volumes are still — with Gatorade noticeably weak in the quarter. And so can you just talk about, one, how much in the quarter might have been affected by the weather? And then second, I guess, as we’re thinking about volume recovery for the whole for the enterprise at PBNA, just what’s on tap for both Mountain Dew and Gatorade to stabilize the volume trend?

Ramon Laguarta: That’s good, Bryan. Just actually we feel good about those two brands. Those two brands actually gained share in Q1, so Mountain Dew and Gatorade, in their own category. So that’s a meaningful good performance, I would say. Now Gatorade, as you mentioned, a little bit of weather impact. So we’re not concerned about Gatorade this year as the weather improves, I think we have the right investments, the right commercial programs. Our G2DSD was impactful to us last year operationally. I think we’ve learned a lot on how to deal with a very high seasonality product and category and give the better service to our customers and maintain the product in stock and available. So we feel good about we have the platform to take Gatorade to higher market share in a faster growing category.