PEPSICO INC Q3 FY2024 earnings call

Long-term Trends

• Very positive about long-term growth potential of U.S. food business due to Gen Z snacking patterns (snacking more, mini meals favoring category growth).

Productivity Initiatives

• Deploying productivity platforms like supply chain automation (warehouses, manufacturing, distribution centers), digitalization across value chain, global capability centers for labor and service, and A&M optimization.

Frito-Lay Strategy

• Multi-pronged approach including value on core (e.g., Lays gaining penetration), investments in categories like Doritos and Tostitos during fall/winter seasons (brand events, bonus packs), and evolving permissible portfolio (e.g., SunChip, Simply, PopCorners) with new additions like Siete.

International Business

• Pockets of growth in markets like Southeast Asia, India, Eastern Europe, Brazil; deceleration in China, Mexico, Western Europe due to geopolitical tensions, weaker consumers, etc. Beverage business in international grows faster than food business.

Affordability and Portfolio Evolution

• Focus on providing value to consumers through bonus packs, brand events, and evolving portfolio to meet consumer needs for permissible options and mini meals.

In the third quarter, Frito-Lay volumes trended positively but faced a tough category backdrop. Lays gained 3 points of household penetration. Internationally, there are pockets of strength in markets like Southeast Asia, India, Eastern Europe, Brazil, but some markets like China, Mexico, and Western Europe saw deceleration. The beverage business in international grew faster than the food business. Frito-Lay's potato chips business saw growth with investments in summer, and there's a focus on value in forms like bonus packs and brand events for other categories like Doritos and Tostitos. Permissible brands like SunChip, Simply, etc., are growing, and multicultural brands like Sabritas are being scaled in the U.S.

Productivity and Growth

• Management expects productivity programs to continue driving growth, with belief that category growth will be more than low single digits due to investments and innovation.

Fourth Quarter Outlook

• No huge inflection expected in fourth quarter from Q3 conditions.

Margin Management

• Focus on stimulating demand responsibly at portfolio level, with intention to manage margin as consumer and business conditions improve.

• Geopolitical tensions impacting some international markets.
• Weaker consumer in certain markets affecting sales.
• Deceleration in convenience food side in international compared to beverage.
• Impact of affordability and multi-pack trends on sales.

Q: Lauren Lieberman asks about building blocks to return to volume growth for Frito-Lay and growth rates for core Lays, promotional work, expansion efforts, and premium end.

A: Ramon Laguarta talks about long-term positive trends in U.S. food business, normalization of Frito growth, multi-tier opportunities for Lays, and investing in categories like Doritos and Tostitos.

Q: Bryan Spillane asks about planning for 2025 and balance between investment, spending, returns, and bottom line.

A: Ramon Laguarta discusses productivity programs, digitalization, global capability centers, and investing for long-term growth while managing short-term for investors.

Q: Kaumil Gajrawala asks if organic revenue growth in low single digits can still deliver 8% on EPS.

A: Ramon Laguarta states they have productivity tools and believe category growth will be more than low single digits with investments and innovation.

Q: Dara Mohsenian asks about initial payback in Frito-Lay actions and future actions.

A: Ramon Laguarta mentions multi-pronged strategy, value investments in Lays driving growth, applying to other categories, and evolving portfolio.

Q: Filippo Falorni asks about international business, negative impact markets, and drivers of international slowdown in snacks.

A: Ramon Laguarta talks about pockets of strength in international, deceleration in China, Mexico, Western Europe, and beverage growth outpacing food.

Q: Peter Grom asks about full year organic revenue guidance and underlying assumptions.

A: Jamie Caulfield says recovery in U.S. consumer was slower than expected and geopolitics impacted international, and pricing outlook is complex.

Q: Robert Moskow asks about Tostitos investment and progress on permissible brands.

A: Ramon Laguarta talks about investments in Tostitos and Doritos, multi-pack trends, and progress on permissible brands with penetration increasing.

Q: Andrea Teixeira asks about international convenience food reinvestment and Frito-Lay margin.

A: Ramon Laguarta talks about dialing in affordability in LatAm, and Jamie Caulfield mentions focusing on stimulating demand at portfolio level.

Q: Chris Carey asks about slowdown cyclicality and Siete acquisition.

A: Ramon Laguarta talks about margin improvement in beverage and food business, and Siete acquisition for permissible occasions.

Q: Robert Ottenstein asks about Gatorade transition and DSD system in PBNA.

A: Ramon Laguarta talks about Gatorade and Propel performance, and productivity in PBNA go-to-market.

Q: Kevin Grundy asks about energy drink category and Celsius market share.

A: Ramon Laguarta talks about energy needs staying, impact of traffic inconvenience stores, and optimism on Celsius partnership.