PepsiCo, Inc. (PEP) Earnings

Management highlights

### Overall Corporate Strategy - PepsiCo's "Hungry and Thirsty for Growth" strategy prioritizes balanced growth paired with structural productivity improvements to fund growth investments, with rigorous, urgent execution across all divisions - Supply chain resilience built over the post-COVID period includes redundancy for key materials and multiple supply points, giving PepsiCo an advantage amid global volatility ### PF&A (North America Foods) Transformation - The PF&A business is undergoing a holistic portfolio transformation that includes brand restages (for core brands like Lay's, Tostitos, and the global Lay's brand refresh), expanded innovation focused on permissible/functional snacks, shelf space expansion, value adjustments for consumers, and reallocation of marketing spend to away-from-home channels - Most shelf resets and new product launches will be completed by the end of Q2 2026; current early performance is ahead of internal expectations, with sequential improvement expected through the rest of the year - Lay's, the brand furthest along in the refresh, grew volume in Q1, and the portfolio as a whole has seen higher household penetration across core brands ### Productivity Initiatives - Productivity is a core company priority, with 2026 on track to deliver record annual productivity gains - Key productivity drivers include prior year structural actions (headcount reduction, plant closures, SKU rationalization), global shared services, broad deployment of AI and digital tools across supply chain, transportation routing, and go-to-market ordering, and ongoing optimization of marketing and trade promotion ROI - New tests of integrated U.S. supply chain operations are underway in Texas, with potential broader deployment after further evaluation ### International Business - International business is a core long-term growth pillar and continues to accelerate, with no observed demand impact from the Iran conflict as of Q1 end and early April 2026 - In some markets, PepsiCo's more robust supply chain has yielded a competitive advantage versus local rivals, and execution is on track for summer growth initiatives ### 2026 Summer World Cup Activation - PepsiCo is executing a holistic global activation tied to the 2026 World Cup, including region-specific global flavor innovations for Lay's, in-store space gains, personalized marketing tied to teams and matches, and partnerships with retailers and quick delivery providers to capture in-home viewing consumption occasions - The campaign builds on the global "No Lays No Game" platform, and Quaker Oats is also included in stadium-side global brand activation; early acceleration from the campaign is already visible in international markets

Guidance

- Full-year 2026 organic revenue guidance of 2% to 4% is maintained, with the back half of the year still expected to come in at the upper end of this range. No changes were made to the full-year outlook, despite stronger-than-expected early performance in PF&A and international business - Management affirms that overall full-year targets for organic revenue growth and core operating margin expansion for the total company will be met, and retains flexibility within segment budgets to prioritize long-term growth investment in PF&A while hitting overall corporate targets - Sequential acceleration of PF&A volume, organic revenue, and profit growth is expected through the remainder of 2026, with Ciete set to become an organic revenue contributor starting in Q2 - For PB&A, positive volume growth (excluding the case-backed water transition) is expected in coming quarters, with ongoing acceleration of growth through the end of the year - Management has begun scenario planning for 2027 but has not released any formal 2027 guidance at this time

Segment performance

The provided Q1 2026 transcript does not disclose full absolute financial figures or revenue contribution percentages for individual PepsiCo segments. The only segment-level performance details shared are: 1) PepsiCo Frito-Lay North America (PF&A): delivered 2% overall volume growth, 4% unit growth, added 300 million new consumption occasions versus Q1 2025, grew 1% organic revenue, and achieved lower unit costs in Q1. Away-from-home sales grew three times the company average, and the permissible/functional snack portfolio grew at double-digit rates. PF&A has recently gained both volume and value share in the U.S. savory snack category. 2) PepsiCo Beverages North America (PB&A): delivered 9% total revenue growth and 2% organic revenue growth. Excluding the ongoing transition of the case-backed water business to a third party, volumes were nearly flat in Q1, with positive volume growth expected in coming quarters. Growth is driven by acquired brands (e.g., Poppy, Celsius distribution) and expanded fast-growing categories like functional hydration, where Gatorade and Propel are gaining share. 3) Overall company: core operating margin expanded 10 basis points year-over-year, organic revenue grew 2.6%, and core EPS increased 9% year-over-year.

Risks & headwinds

- Geopolitical volatility from the ongoing Iran conflict creates uncertainty for commodity and transportation costs, with the magnitude of potential inflation still being assessed, though no supply chain disruptions have occurred to date - Ongoing cost inflation could require use of three offset levers (growth, productivity, price pack architecture adjustments), with management preferring to rely primarily on growth and productivity, but prepared to adjust pricing if inflation is sustained - Increased competitive intensity is expected in the savory snack category during the key summer high season, which could create pressure on pricing and market share - Eight U.S. states implemented SNAP benefit restrictions on eligible items including beverages and candy in Q1 2026, and it is too early to assess the long-term impact of these changes on consumer demand - GLP-1 impacts on overall snack and beverage demand are not reflected in formal guidance, with management noting the savory snack category is already accelerating and gaining share to offset potential broad category trends

Analyst Q&A

• Q: What impact has the Iran conflict had on PepsiCo's costs, supply chain, and international demand, and how is the company mitigating new inflation pressures?

  A: Management reported no major supply chain disruptions as of the call, and PepsiCo's scale and built-in supply chain redundancy create a competitive advantage amid volatility. Systemic 6-12 month hedging programs provide near-term cost visibility, though the full magnitude of potential inflation is still being determined. Inflation will be mitigated through three core levers: leveraging scale for growth, accelerating productivity, and adjusting price pack architecture if needed, with a preference to rely primarily on the first two levers. No demand impact from the conflict has been observed in international markets, which continue to accelerate, and the company's more robust supply chain has even yielded share gains in some markets.

• Q: How sustainable is the recent volume inflection in PF&A, and what is driving the growth?

  A: The volume inflection stems from a holistic multi-year transformation, not temporary factors like early shipping or weather impacts. Key drivers include brand restages, expanded shelf space, innovation in fast-growing permissible snack categories, and investment in away-from-home channels. Growth has delivered 300 million new consumption occasions, double-digit growth for the functional snack portfolio, and three times faster away-from-home growth, with productivity improvements allowing lower unit costs. The transformation is still 50% complete, with full completion expected by end-Q2, and the business has already begun gaining value share after multiple periods of volume share gains.

• Q: What is the outlook for PB&A volume and market share, and what is driving current growth?

  A: Reported volume is pressured by the ongoing transition of the case-backed water business to a third party, which will be completed in Q2. Excluding this transition, volumes were nearly flat in Q1, with positive volume growth expected in coming quarters. PB&A delivered 9% total revenue growth and 2% organic growth, driven by growth in fast-growing categories: Celsius energy distribution is gaining share, Gatorade/Propel lead the accelerating functional hydration category, and new innovation is growing Poppy and Mountain Dew. No Sugar Pepsi continues to outgrow competitor zero-sugar offerings, and overall portfolio growth remains on track.

• Q: How does PepsiCo expect competitive dynamics and affordability concerns to impact PF&A's transformation, and does productivity support current value investments?

  A: Management expects increased competitive intensity during the key summer holiday season, but the company's multi-faceted growth strategy (not just pricing, but innovation and execution) is positioned to compete effectively. PepsiCo's multi-year productivity program has already delivered lower unit costs for PF&A, with additional untapped productivity drivers coming in future quarters that will support continued consumer value investments. Management noted that competitors do not have the same scale of productivity improvements, giving PepsiCo a competitive advantage in balancing affordability and margins.