Release Date: October 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- PepsiCo Inc (PEP, Financial) is optimistic about the long-term growth potential of the food business in the US, driven by favorable Gen Z snacking patterns.
- The company has a multi-tier strategy for its potato chips category, offering a range of products from value to premium options, which is expected to drive growth.
- PepsiCo Inc (PEP) is investing in automation and digitalization across its supply chain to enhance productivity and efficiency.
- The company is focusing on expanding its permissible snack portfolio, which includes brands like Sunchips and Simply, to cater to health-conscious consumers.
- PepsiCo Inc (PEP) is leveraging its global business services to optimize labor and service operations, contributing to cost savings and efficiency.
Negative Points
- The recovery of the consumer in the US has been slower than anticipated, impacting revenue growth.
- Geopolitical tensions and weaker consumer demand in certain international markets, such as China and Mexico, have negatively affected performance.
- The Frito-Lay segment experienced a 200 basis point decline in operating margin, indicating pressure on profitability.
- The energy drink category in the US has been impacted by reduced traffic in convenience stores, affecting sales.
- PepsiCo Inc (PEP) faces challenges in maintaining momentum for its positive choice brands, which have been weak despite targeting higher-income consumers.
Q & A Highlights
Q: Can you discuss the building blocks for a return to volume growth in the Frito-Lay business, particularly focusing on core Lays, multicultural offerings, and premium segments?
A: Ramon Laguarta, Chairman and CEO, explained that the long-term growth potential of the food business in the US is positive, driven by Gen Z's snacking patterns. After three years of outsized growth, this year is a normalization period. The strategy involves a multi-tier approach with core Lays, unsalted, flavored, lightly salted, and premium options like M Vickki's to drive growth and create value.
Q: How are you approaching planning for 2025, considering the current consumer environment and balancing investment with returns?
A: Ramon Laguarta emphasized a focus on productivity and cost transformation, including automation, digitalization, and global capability centers. These initiatives provide flexibility to invest in growth while delivering financial returns. Despite challenges, PepsiCo aims to maintain long-term investments in brand building and sustainability.
Q: Can PepsiCo deliver 8% EPS growth if organic revenue growth remains low?
A: Ramon Laguarta expressed confidence in PepsiCo's productivity tools and investments, which are expected to drive more than 1% growth in their categories. The focus is on controlling productivity, maintaining brand health, and building profitable partnerships to ensure long-term growth.
Q: What actions are being taken to drive growth in the Frito-Lay business, and how do you plan to provide value to consumers?
A: Ramon Laguarta outlined a multi-pronged strategy, including investments in core categories like potato chips, Doritos, and Tostitos, with a focus on value through bonus packs and brand events. The strategy also involves evolving the portfolio with permissible and multicultural offerings and expanding into new channels.
Q: How is the international business performing, and what are the challenges in specific markets?
A: Ramon Laguarta noted growth in Southeast Asia, India, and Brazil, while China and Mexico face deceleration. The Middle East is impacted by geopolitical tensions. The beverage business is growing faster than the food business globally, with challenges in certain regions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
