Release Date: July 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PepsiCo Inc (PEP, Financial) has confidence in achieving mid-single-digit organic sales growth in the second half of 2024, driven by productivity and cost reduction efforts.
- Quaker's supply chain recovery is expected to be nearly 100% by Q4, leading to significant business growth.
- International markets have shown strong performance, with a 7% growth in the first half of the year, and are expected to continue this trend.
- The North America beverage business has been highlighted for its profitable growth and improved margins, with increased investments in advertising and marketing.
- PepsiCo Inc (PEP) has a strategic focus on growing its Frito-Lay North America business, with targeted interventions to address value gaps and drive volume and net revenue growth.
Negative Points
- The US consumer environment remains challenging, with low single-digit growth in recent quarters.
- Frito-Lay North America experienced soft volume results in Q2, necessitating incremental actions to drive recovery.
- The salty snack category as a whole is under pressure, with limited responsiveness to promotions.
- Latin America's organic revenue was weaker than expected, with specific issues in Mexico due to election-related changes in income distribution.
- The cautious consumer behavior in China, with a focus on saving rather than spending, poses challenges for growth in that market.
Q & A Highlights
Highlights from PepsiCo Inc (PEP) Q2 2024 Earnings Call
Q: What gives you confidence in achieving the implied organic sales growth guidance for the second half of the year, especially in a softer US consumer environment?
A: Ramon Laguarta, Chairman and CEO: We are confident due to several factors: recovery in Quaker's supply chain, better laps in the second half, strong international performance, and targeted value adjustments in the US. Our productivity and cost reduction efforts provide the flexibility to reinvest in the second half, ensuring a positive impact on performance.
Q: Are you satisfied with the progress in reinvigorating the PBNA (PepsiCo Beverages North America) business?
A: Ramon Laguarta, Chairman and CEO: Yes, we are seeing positive results, particularly with Gatorade gaining share and Mountain Dew returning to growth. Investments in innovation, execution, and branding are paying off. We are also focusing on the zero-sugar segment and improving our food service business.
Q: Can you comment on the pressure in the salty snack category and how you plan to address it?
A: Ramon Laguarta, Chairman and CEO: The issue is primarily about value. We are focusing on targeted promotions and value adjustments for specific products and consumer segments rather than blanket promotions. We are also investing in marketing and innovation to drive growth in the permissible snack segment.
Q: How does the increased productivity this year affect next year's productivity pipeline?
A: Ramon Laguarta, Chairman and CEO: Our productivity initiatives are strategic and multi-year, focusing on automation, digitalization, and simplification. We do not anticipate a slowdown in productivity gains in the coming years. We manage total PepsiCo operating margin and continue to improve it consistently.
Q: Do you believe that the prices at Frito-Lay are too high given recent increases?
A: Ramon Laguarta, Chairman and CEO: Some parts of the portfolio may need value adjustments, but not the entire portfolio. We will make targeted interventions to provide value to consumers while maintaining overall profitability.
Q: What drove the weaker organic revenue in Latin America this quarter, and what is the outlook for the region?
A: Ramon Laguarta, Chairman and CEO: The weakness was primarily due to changes in government income distribution in Mexico. However, we are seeing demand return as funds are redistributed. We expect Latin America to continue being a high-performing region with strong growth prospects.
Q: Can you provide more details on the growth potential in international markets and the expected improvement in organic sales for the second half?
A: Ramon Laguarta, Chairman and CEO: Most of the acceleration will come from North America, driven by Quaker's recovery, better laps, and targeted investments. Internationally, we expect the growth rate to continue at the same level as the first half, with strong performance across diverse markets.
Q: What is your perspective on the energy drinks category, given the recent slowdown in growth?
A: Ramon Laguarta, Chairman and CEO: We believe the energy category has long-term growth potential. Short-term fluctuations may be due to factors like channel dynamics and weather. We continue to see strong demand for energy drinks and are focused on providing value and functionality to consumers.
Q: How do you plan to bridge to mid-single-digit organic sales growth in the second half, and what is the channel outlook?
A: Jamie Caulfield, CFO: The acceleration will come mainly from North America, with easier laps and targeted investments. Away-from-home channels are outgrowing the balance of our portfolio, and we expect this trend to continue.
Q: Can you comment on the resilience of trends in Europe and the outlook for Asia, particularly China?
A: Ramon Laguarta, Chairman and CEO: Europe is performing well with strong top-line growth and margin improvement. In Asia, particularly China, we see a cautious consumer but continue to gain market share and expand distribution. We remain optimistic about long-term growth prospects in these regions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
