PepsiCo, Inc. (NASDAQ:PEP) Q2 2023 Earnings Call Transcript

PepsiCo, Inc. (NASDAQ:PEP) Q2 2023 Earnings Call Transcript July 13, 2023

PepsiCo, Inc. beats earnings expectations. Reported EPS is $2.09, expectations were $1.96.

Operator: Good morning, and welcome to PepsiCo’s 2023 Second Quarter Earnings Question-and-Answer session. Your lines have been placed on listen-only until it’s your turn to ask a question. [Operator Instructions] 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 updated 2023 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, July 13, 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 second quarter 2023 earnings release and second quarter 2023 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. 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 Bryan Spillane with Bank of America. Your line is open.

Bryan Spillane: Thanks, operator. Hey. Good morning, Hugh. Good morning, Ramon.

Hugh Johnston: Good morning, Brian.

Ramon Laguarta: Good morning, Brian.

Bryan Spillane: So I guess, Ramon, my question is more kind of related just how you’re looking at the bigger kind of macro picture in the consumer specifically. I think as we went into this year, there was an expectation that elasticity would increase and there’d be more of a consumer response, I guess, to all the inflation we’re seeing really globally. So I guess it seems like in the first half volumes effectively have been better than expected. So I guess as we’re kind of looking forward in the back half of the year and even into next year. Can you just kind of give us a little bit of a some insight into how what you’re seeing with the consumer? What your expectations are and just how that may have differed from what we were seeing or what you were thinking maybe going into the start of the year?

Ramon Laguarta: Yeah. Good morning, Brian. Yeah. So I’ll give you two, like, — there are two areas where which we’re looking at very carefully. One is on the supply side, things like become much better. We’re seeing much better flow of materials from suppliers. We’re seeing in general better labor market and that has helped us to run a better company. So that’s one area we’re looking at very carefully. During COVID (ph), it was not perfect. It’s becoming better and that’s why you will see that our costs are performing better and how we’re slowing (ph) some of the net revenue down into the bottom line. On the consumer front as well, we were planning the year with more of historical data on elasticities, both in developed and developing markets.

And we’re seeing in the majority of the markets where we operate, we’re seeing better elasticities and that has continued to be during the first half of the year, even though we’re seeing lower income consumers strategizing around obviously optimizing their budgets, but we’re seeing the majority of consumers staying within our categories, staying within our brands. And it’s remarkable what our marketing teams are, commercial teams have been doing to minimize elasticities. In some respect it is what we have been investing for the last few years. Our brands are stronger.The perceived value of our products is better than it was. And obviously, we’ve been able to raise prices and consumers stay within our brands. Now we’re seeing consumers making some adjustments, right?

We’re seeing consumers shopping in more stores than before. They’re looking for better deals. They’re starting to look for optimization. They’re going to channels that have better perceived value. They’re buying more in Dollar stores or they buy more in mass or in clubs. So every segment of the consumer is making adjustment. Overall, we’re seeing very positive. And I think it has to do with the levels of unemployment that we’re seeing all around the world. Unemployment is very low. In most of the economies, if you think about developed markets, but also developing markets. So markets like Mexico record low unemployment, some markets in Asia as well. So we’re seeing overall very, very good consumer behavior, especially when it refers to our categories and that’s why we raised guidance on our top line and because of the first factor, we raised guidance on the second — on the bottom line as well.

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