Earnings call transcript: PepsiCo beats Q3 2025 forecasts, stock rises

PepsiCo Inc. reported better-than-expected earnings for the third quarter of 2025, with earnings per share (EPS) at $2.29, surpassing the forecast of $2.26. Revenue also exceeded expectations, coming in at $23.94 billion against a forecast of $23.86 billion. Following the announcement, PepsiCo’s stock rose by 1.49% in pre-market trading, reaching $140.33. According to InvestingPro analysis, PepsiCo currently appears slightly undervalued, with a Financial Health Score rated as GOOD, suggesting solid fundamentals despite recent market volatility.

Key Takeaways

• PepsiCo’s Q3 2025 EPS and revenue surpassed forecasts.
• Stock price increased by 1.49% in pre-market trading.
• Strategic focus on international expansion and cost optimization.
• Major brand relaunches planned for key products.
• Anticipated return to long-term growth in 2026.

Company Performance

PepsiCo’s performance in Q3 2025 reflects its strategic emphasis on cost optimization and international expansion. The company is positioning itself for future growth by focusing on operational efficiency and brand innovation. With impressive gross profit margins of 54.68% and a 52-year track record of consecutive dividend raises, as highlighted by InvestingPro, PepsiCo demonstrates strong operational execution. This quarter’s results align with PepsiCo’s long-term goal of returning to its growth algorithm by 2026.

Financial Highlights

• Revenue: $23.94 billion, exceeding forecast by $340 million.
• Earnings per share: $2.29, beating forecast by $0.03.
• Focus on margin improvement and operational efficiency.

Earnings vs. Forecast

PepsiCo’s Q3 2025 EPS of $2.29 exceeded the forecast of $2.26, resulting in a surprise of 1.33%. This marks a positive deviation from expectations, continuing a trend of strong performance. Revenue also surpassed forecasts, demonstrating the company’s effective strategic initiatives.

Market Reaction

In response to the earnings announcement, PepsiCo’s stock price increased by 1.49% in pre-market trading, reaching $140.33. Trading at a P/E ratio of 25.31, the stock has drawn mixed analyst sentiment, with analyst targets ranging from $115 to $170. The stock remains within its 52-week range, with a high of $177.50 and a low of $127.60. For deeper insights into PepsiCo’s valuation metrics and comprehensive analysis, investors can access the detailed Pro Research Report available on InvestingPro, which covers over 1,400 top US stocks.

Outlook & Guidance

PepsiCo anticipates a return to its long-term growth algorithm in 2026, driven by international expansion and operational efficiencies. The company is also focusing on margin improvement and product innovation, with plans to relaunch major brands and introduce new product platforms.

Executive Commentary

Ramon Laguarta, CEO, emphasized the company’s strategic focus: "We see a clear line of sight to going back to algorithm throughout 2026." He also highlighted the urgency in reigniting top-line growth and leveraging technology for competitive advantage.

Risks and Challenges

• Supply chain disruptions could impact operational efficiency.
• Market saturation in key regions may limit growth potential.
• Macroeconomic pressures could affect consumer spending.
• Price sensitivity among consumers could impact sales.
• International market variations present unique challenges.

Q&A

During the earnings call, analysts inquired about volume pressures and innovation strategies. PepsiCo addressed these concerns by discussing its cost optimization efforts and plans for international expansion. The company also highlighted its focus on operational restructuring and potential franchising opportunities.

Full transcript - PepsiCo Inc (PEP) Q3 2025:

Operator: Good morning and welcome to PepsiCo’s third quarter 2025 earnings question and answer session. Your lines have been placed on listen only until it’s your turn to ask the question. 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, Investor Relations. Mr. Pamnani, you may begin.

Ravi Pamnani, Senior Vice President, Investor Relations, PepsiCo: Thank you, Operator, and good morning, everyone. I hope everyone has had the 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, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 9, 2025, 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 third quarter 2025 earnings release and third quarter 2025 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 Executive Vice President and CFO, Jamie Caulfield. We ask that you please limit yourself to one question. With that, I will turn it over to the Operator for the first question.

Operator: Thank you. In order to ask a question or make a comment, please press star followed by 11 on your touchtone phone at any time. We’ll pause for a moment while we compile our Q&A roster. Our first question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

All right, thank you. Good morning, everyone. I have a question on the volume pressures you continue to face in both your food and beverage businesses. Could you give us a sense of how much this is being impacted by your pivot to smaller pack sizes, maybe versus category trend softening or potential market share losses? Essentially, how should we think about these volume declines, and how should we think about volume growth moving forward? Is it realistic to assume that volumes could start to inflect, especially considering the robust innovation pipeline you’ve highlighted this morning? Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Morning, Bonnie. Let me start with beverages. In beverages, the maths are easier when you take out the case packed water, kind of the investment on a new business model we have. Beverages actually grew volume in the quarter. We’re very happy with the performance on the beverage business, especially some of the larger brands like Pepsi grew volume, grew net revenue, grew shares. Positive development in beverages. In foods, we changed the promo strategy in the summer. We went rather than very deep on a particular brand as we did in 2024. We tried to provide everyday low value or better value across all the brands. That impacted the volume, better revenue realization, probably a more balanced growth of the category and our competitiveness in the category. That explains a little bit the Q3 volume. Going forward, we’re optimistic, as you said, both improvement of the basic performance.

We had some service level issues early in the year as systems transitioned. Now that’s behind us. Service levels are very high on both businesses in the 97%, 98%. That’s being well appreciated by our customers. We’re seeing much better fill rates and much better execution point of sale. That’s driving growth. We’re seeing, as you’re saying, some of the innovation rolling out, and that will give us volume growth. I think we should think about the top line of the business, a balance between volume growth and price realization going forward. We should see an acceleration in PBNA, continued acceleration of net revenue in PBNA. The same with the food business. We should be very close to flat this quarter in foods. Actually, we’re very optimistic. The business actually grew in the last four weeks, the last quarter, and the last period that we closed.

Optimistic about the top line growth on both businesses and the acceleration. With regards to international, we had a bit of a weaker summer because of some weather and some other elements in some of our large markets. September was also very good in international. We see that as the summer, a bit of a blip, and international is back to mid-single digit, high mid-single digit performance in the last month that we closed.

Jamie Caulfield, Executive Vice President and CFO, PepsiCo: The other thing I’d add, Bonnie, is as we lap some of these acquisitions, if you look at a Siete, Poppi, the Siete, that’s not included in organic. As we anniversary those, the volume and net revenue is going to be reflecting the organic sales growth.

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

Good morning. The commentary was helpful on top line growth. I guess just looking out more to 2026 and longer term, obviously a lot of work’s underway to reinvigorate top line growth. Clearly, the heightened innovation focus, focused on permissible or more functional benefits in terms of products, portfolio reshaping, price pack architecture, away from home, et cetera. When you bring it all together, Ramon, which areas do you think are most impactful as we think about potentially accelerating revenue growth in 2026? Can you give us a little more specificity on, you know, when you think we’ll start to see material progress on that front? Do you think there’s a line of sight to returning potentially the long-term top line growth, your long-term algorithm at some point within 2026, when you wrap all these efforts together? Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Thank you, Daryl, for the question. It’s super critical, right? We’re acting with a lot, as you saw and you said, with a lot of sense of urgency on how we reignite top line growth, the growth across the business. Yes, we see a clear line of sight to going back to algorithm throughout 2026. Now, is it Q3? Is it Q4? We’ll see. Clearly, I’ll tell you about why we see that happening during the year. The first one is being brilliant at the basics. That is something that we’re focusing on. As I said earlier, the right price points, the right service levels, the right execution, the right service to our customers, the right customer plans. We feel very good about how our customer plans are starting to shape up. We’re already quite advanced in the process with our larger customers. That’s being brilliant at the basics.

We’re making some big interventions in big brands. I said Pepsi is growing globally, and we relaunched Pepsi a year and a half ago. Now we’re going after three of our top brands: Lay’s, Tostitos, and Gatorade. We’re relaunching three of our top brands in the U.S. and globally. That is going to drive growth in the core of the business, which is essential to your point on what’s going to drive future growth. That is happening as we speak with Lay’s and Tostitos, and it’s happening with Gatorade a little bit later in the Q1 to Q2 timeframe. The other element we’re focusing on is really accelerating the platforms that are growing. You mentioned some. Away from Home is growing very fast for us in the U.S. and internationally. It’s going to be a focus for us. It’s growing like 2 to 3 times the retail business.

We’ll continue to focus on execution of existing products and then some innovation special for Away from Home, more moving towards meals and more elevated experience. You mentioned permissible snacks. We have a very strong portfolio of permissible snacks in the U.S. and zero sugar across the world. That will continue to be a focus of our innovation, and that will drive growth. In functional hydration, we have a superior portfolio with Propel and the enhancers and tablets growing very fast. Those will be platforms of existing parts of the portfolio that will put a lot of investments that will drive growth. Innovation is critical for us, and we’ve been working with a real sense of urgency on new platforms to capture segments of the market that are disproportionately growing within our somehow low-growth categories. You mentioned protein. There’s a lot of innovation on protein.

The relaunch of Muscle Milk, a Starbucks and protein. We know in the morning consumers are looking for protein as well. Doritos protein, Quaker protein. We’re having a Good Warrior meat snacks with our artificials. A new development from Propel for GLP-1 consumers will have a special type of electrolytes, high content of fiber, and good levels of protein. In the protein space, which, as you know, is driving a lot of growth. The move to no artificials is impacting all our brands, Lay’s and Tostitos now, with the rest of the portfolio throughout 2026. A new platform, we call it Naked, will have no colors and no artificials. We’ll see how consumers react to the same great flavors with no colors. The customers are really very excited. We’re also excited. Let’s see if we can take consumers along in what would be a great development for the category.

We’re launching products with higher fiber. I think fiber will be the next protein. Consumers are starting to understand that fiber is a benefit that they need. It’s actually a deficiency in U.S. consumers’ diets, and that will be elevated. We’re also innovating in new oils. Some of our platforms, especially in potato, you will see us coming with avocado oil versions and olive oil. A very strong innovation pipeline, which we think will help us capture pockets of growth in our categories that will drive growth. The last element, as Jamie was saying, we made some acquisitions that are very strategic in how we reshape the portfolio. We divested some, we acquired some. We’re very optimistic how Poppi is now in our system, and we’re already seeing benefits of the physical availability of the product.

We’re seeing growth with Siete, we’re seeing growth with Sabra, and we’re going to incorporate Alani Nu into our portfolio later in the year. Those are new platforms that will continue to accelerate the portfolio. Some of that will be organic, some of that will be non-organic. That is how we see the portfolio moving towards positive growth in some parts of the portfolio, the total company going towards, you know, within our long-term net revenue growth targets within next year. Obviously, we’re working to do it as soon as possible.

Operator: Thank you. One moment for our next question. Our next question comes from Lauren Lieberman with Barclays. Your line is open.

Great. Thanks so much. Good morning. I wanted to talk a little bit or ask a little bit about the cost associated with a lot of these innovations and the, you know, plus protein, better for you, cleaner labels, et cetera, that you’ve run through. We think that these come at a higher cost of goods. I know you’ve talked a lot about cost savings as well. I think you’re going to want to reinvest. Can you talk a little bit about, you know, margin structure or how to think about the cost implications of taking the portfolio and your big core brands in this direction? Also, what you do to make sure there’s sufficient brand support for these relaunches, particularly as we look into 2026. Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah, good. The overall company within that will continue to improve margins going forward. We’re, again, with a very high sense of urgency, attacking the cost structure in the different businesses with different tools. In particular, you already saw probably today in our remarks how we are attacking the delivery in Frito-Lay with very, you know, I would say intentional and active actions around the supply chain and the go-to-market costs, and that’s happening. Total company, Lauren, we see the margin improvement next year again, driven by the continuous acceleration of international. International is accretive to the company and continues to scale and becoming more profitable. That will continue in 2026. We see PBNA continue to expand margins at a good pace. You know, the Q3 was impacted by tariffs.

We see already in Q4 an expansion of the margin again to complete a positive margin expansion for the full year. We see Frito-Lay, or the foods business in North America, also starting to bend the curve after, you know, all the interventions we’re making in the fixed cost structure. The truth is that we invested a lot in Frito-Lay in the last few years. Some of that was underinvestment. Some of that was, you know, expanding capacity. The demand signal we had in 2023 is different from the demand signal we have in 2025. There’s some adjustment that we’re making to both the assets and the headcount in the business to make sure that we have the right cost structure to navigate the coming quarter. Think about expansion of the margin for total PepsiCo with the drivers that I said.

The portfolio, as you mentioned, cost of goods, yes, but also price will be higher. You should see the innovation as accretive to the business. The A&M, we’re making obviously internal reallocations to make sure that the new platforms have the right money. Also, some of the costs that we’re taking out from our fixed cost structure, we will put it back into A&M to accelerate growth in the coming quarters.

Operator: Thank you. One moment for our next question. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.

Great. Thank you, everybody. Ramon, maybe picking up on that thread with respect to productivity, could you just give a little bit more detail on where the interventions are, specifically in PBNA that you’re making to right size that kind of fixed cost structure? How far along do you think you’ll be at the end of 2025? Do you think you’ll have right sized that business relative to the current demand signal, or is there more work to do in 2026? One of the things that I didn’t see in today’s remarks or release is any reference to One North America, which obviously was a big point of focus last quarter. Maybe you could talk about if that omission was intentional or just kind of where we are with One North America as well. Thank you.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah. Good. Let me cover both. On Frito, I’ll give you that we’re clearly going after some manufacturing nodes that are not needed anymore. These are normally the least efficient older manufacturing nodes that we have in the system. As we’ve increased capacity throughout the system in the last few years, those nodes can go away. We’re also rationalizing our warehouse infrastructure, both in the context of some automation decisions that we’re making and also some combination with the beverage business in some parts of the country. There is a right sizing of our go-to-market. As we see, the labor market is stabilizing some of the excess labor that we had in go-to-market. Now we can probably live without those extra coverage. Those are the three main areas.

There are the global levers of servicing PepsiCo from global capability centers and some of the changes we’re making in how we service the company. That is also a continuation that applies to Frito-Lay. The good news in Frito-Lay is that when we see the productivity per FTE is now at the levels of a couple of years ago. We’ve been able to get to those metrics with the reduction of fixed costs that we’ve done in the last six or seven months. There will be a continuation of those interventions in the balance of the year. I think they will continue. We will have additional productivity interventions in 2026 because we need to invest in affordability and we need to invest, as was previously mentioned, in some of the new platforms to drive growth. You should expect that in the coming months.

I don’t know, Jamie, if you want to add something to the productivity.

Jamie Caulfield, Executive Vice President and CFO, PepsiCo: The only other thing I’d add is the pace of productivity, both as we went through the year and we took some of these incremental cost resizing actions. As you go into 2026, we’re going to have a pretty significant carryover benefit of those actions, particularly in the first half of the year.

Ramon Laguarta, Chairman and CEO, PepsiCo: On One North America, we continue to, as we look at all the different opportunities to reduce costs, improve margins, drive growth, we’re looking at One North America as one of the options. We’re testing that in Texas. Texas is probably the state where we have the biggest opportunity given our low share in beverages, high share in snacks. When we put those businesses in the same warehouse and we serve the customers from one point of distribution, this is giving us a lot of benefits. We will see. We’re testing and learning in Texas, and from that, we will make decisions on how we expand it to the rest of the country. The end solution will not be a one-size-fits-all for the whole country.

It will be more of a nuanced solution depending on the market, the market positions, and the market size and where the population is in the different parts of the country. We’ll keep updating you on the decisions in that space.

Operator: Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open.

Filippo Falorni, Analyst, Citi: Hi, good morning, everyone. I want to talk about the international business. Ramon, you mentioned the quarter was negatively impacted by poor weather, but you saw a nice improvement in September, which is pretty encouraging. Some of your peers have talked about more macro pressures in regions like Latin America, Asia Pacific, including India. Can you give us a sense of the health of the consumer in some of those countries? What are you seeing and what gives you the confidence in the acceleration? Thank you.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah, that’s great, Filippo. I think, listen, when it comes to Q3, I think most of the deceleration is linked to mostly weather, Filippo, in some of the large markets. The good news, as I said, is that September was strong, and we feel good about the balance of the year going back to the mid to high mid-single digits for our international business. Now, overall, the consumer is, you know, I would say it’s stressed all over the world. We see the consumer making very choiceful decisions in many parts of the world, in China for sure, and China is a big market for us. Not so much in India. We’re seeing growth in India. India was more impacted by weather, and there’s some competitive situation in the beverage category that will impact the growth maybe for a few quarters, but coming back strong.

We’re seeing good growth in the Middle East. The consumer in the Middle East is probably feeling good. Eastern Europe is better than Western Europe, I would say. Mexico is somehow connected to the U.S., right? However the U.S. goes, that impacts Mexico quite a lot. Clearly, the Hispanic cohort in the U.S. is being impacted by all these decisions. We see remittances impacting Mexico in a way, and that will continue probably for the next few quarters. Brazil continues to be strong for us, close to double digit in September and a good summer, their summer, I mean, our summer. I would say we see the consumer, you know, different parts of the world, different realities, but overall, we’re managing to compete well and we’re managing to keep consumers in our brands and developing the per caps, which is the big idea for us internationally.

Operator: Thank you. One moment for our next question. Our next question comes from Michael Lavery, Piper Sandler, your line is open.

Thank you. Good morning. Just want to come back to brand Pepsi. You know, seeing its better improvement, its better momentum and improvement in the U.S. and even from a share performance perspective. Just curious, maybe some of what’s been driving that, how much is it just a changing of the messaging or, you know, maybe an increase in marketing? Also, when you talked about optimizing marketing spend as one of the ways to drive better ROIs, is there cuts to the marketing spending that’s planned, or do you believe you can be more efficient? Maybe help us understand just how to think about that language there as well.

Ramon Laguarta, Chairman and CEO, PepsiCo: I think, as I mentioned, the Pepsi brand has been a success for us. Every launch we did, I think about a year and a half ago in the U.S., about a year, a bit more in international, has been a great success. We’re seeing momentum in the Pepsi brand in many, many markets. Internationally, it is driven by the non-sugar success. I think zero sugar, non-sugar max in Europe, is driving consumers to the brand. It is keeping consumers in the brand and continues to be very positive for us from the market share, but also the overall non-sugar segment growth. We’re very pleased with that. In the U.S., multiple factors. As I said, there is a focus on away from home and food desserts, Pepsi. I think the meal location is critical for beverages. It’s very important for cola.

We are focusing more and more on gaining points of access to the brand and linking the brand to that particular occasion in a culturally relevant way. Now, different types of foods for different types of consumers and good execution. I thought we’re investing a bit more in the brand. That is relevant, as you said, from the marketing point of view. There are two platforms that are growing faster than the rest. One is zero sugar, which is consistent with our international growth story. The second one is flavors. Flavors, especially white cherry and cream, but some others are bringing new consumers to the brand, younger consumers to the brand. That is positive news for the development of Pepsi. We feel good. We’ll continue with those drivers. We’ll continue to invest in what is clearly our most important brand in the beverage portfolio.

For next year, we’re assuming that Pepsi will continue to grow and we’ll be able to add some new layers of growth with Munch and You. Baja Blast is a very solid platform, $1 billion in retail value when you include both our sales and Taco Bell sales. It’s a very strong consumer platform. We’re adding now a new platform with Dirty Dew, so kind of a creamy flavor to the Munch and You platform. I think that will continue to expand the brand into more consumers. As I mentioned, the relaunch of Gatorade is critical for us. We’re leaders in a category that needs to grow faster. We’re working on value for Gatorade. Most importantly, we’re working, to your point, on marketing on superior hydration. We know we have proven superior electrolyte combinations that deliver both faster hydration, better hydration, longer hydration.

We’re working on different parts of the portfolio to convey that message to the consumer. We’re optimistic about how that will play out for us.

Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.

Thank you. Good morning, everyone. I was hoping to follow up on the prior commentary to, I think it was Bonnie’s question. Ramon, I think you mentioned an expectation for PBNA to get back to kind of flat organic sales performance in the fourth quarter and that you actually saw the business return to growth in the last month. As you look at what happened over the last month, is that simply a function of what you were lapping, or is it more related to the actions around innovation and everyday execution? It’s just not something we’ve seen yet in the data. Any color on what happened in the last month and how that drives the confidence on the path forward. Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: I would say, I mean, listen, clearly there is sequential improvement in the business. At this point, I would say it is more related to being brilliant at the basics, doing better the core things that drive our category: service, price, execution, customer space, et cetera. The key drivers of our category. I don’t think it’s one-off. We see better customer engagement, customer relation as our service levels became better following the system transition early in the year, and that should be sustainable. I don’t want, you know, to like things can change, things can evolve, but clearly the direction of the business, it’s in the right direction and we’re seeing signs that make us feel optimistic.

Operator: Thank you. One moment for our next question. Our next question comes from Andrea Teixeira with J.P. Morgan. Your line is open.

Andrea Teixeira, Analyst, J.P. Morgan: Thank you and good morning, everyone. My question is how to think about the headwinds of the SKU rationalization impacting new organic growth. Two clarifications, Ramon. For PBNA, can you comment on the results of the price reinvestments, in particular in the core brands at the entry-level price points? I think you answered Bonnie and Peter a bit on the volume inflection. Is that a commentary in that you said volume inflected positive in the last four weeks? Is that for the total company or specific to some regions? I’m assuming specific to some regions and areas where you’re seeing that service level coming back. Where are you seeing, if that’s the case, where are you seeing the volume inflection? Thank you.

Jamie Caulfield, Executive Vice President and CFO, PepsiCo: Andrea, pardon me, Jamie. On the SKU rationalization, there’s a lot of benefits that come from cutting the long tail. As we analyze the portfolio, there’s a lot of overlap on those very small volume items with some of our larger parts of our portfolio. As you cut that long tail, you create a lot of operational efficiency that leads to better customer service. You’re not losing a lot, and there’s a lot to gain through the efficiency and improved service. I missed.

Yeah, Andrea, on the entry price points, can you just restate your question on that? We didn’t quite capture it as you were cutting off there a little bit.

Operator: Her line is actually left to queue, so give me one moment. I can bring her back, okay?

Okay, not a big deal, operator, either way.

Okay, one moment. Your line is open again, Andrea. You can repeat the question.

Andrea Teixeira, Analyst, J.P. Morgan: Thank you. For the PBNA, if you’re thinking like the price investments that you made in some of the core brands and entry-level price points, can you comment on how those results have been coming up? Or it’s more coming from the permissible area of the business, how we should be thinking about the price reinvestments we’ve been making for, I think, more than three quarters for now.

Jamie Caulfield, Executive Vice President and CFO, PepsiCo: Yes, I view them as two fairly separate. The permissible subcategory is doing well. Our permissible portfolio continues to do well. We look at the entire portfolio for price pack architecture opportunities. I think the bigger opportunity is in some of what I’ll call more of the mainstream in take home. We’ve been refining as we’ve moved through the year. We’ll continue to refine as we get more and more data on how the brands and the packs are interacting with each other across the competitive set. That’s the priority, to make sure that we’ve got the pricing very sharp to help drive demand.

Operator: Thank you. One moment for our next question. Our next question comes from Peter Galbo with Bank of America. Your line is open.

Hey, Ramon, Jamie, good morning. Ramon, one of the areas where you focused a lot on in the prepared remarks within PBNA was on protein. I just want to understand a little bit more on the decision of kind of using the in-house brands like Muscle Milk or Propel to address, you know, protein in a bigger way versus other subcategories like energy or prebiotic where you’ve either bought or partnered. Maybe just if you can expand a little bit on kind of the decision to go more organic versus, you know, acquisition or partnership as we think about protein and beverages going forward. Thanks very much.

Ramon Laguarta, Chairman and CEO, PepsiCo: Thank you. Yeah, no, listen, we always try to leverage as much as we can our existing platforms. It’s a cheaper, it’s a better business decision. I think Muscle Milk is a great brand that as we improve the product and we’re very proud of the product that our R&D teams have been able to develop, it will be a great tasting, high levels of protein, good mouthfeel, and no artificials. I think it will clearly serve a lot of consumers that are looking for protein drinkable solutions to replace meals or snacks throughout the day. I think Muscle Milk can stretch. It’s a brand that has the potential. We’ll reposition it. We’ll communicate a bit different. The packaging will be very, it’s very modern and updated. The same with Propel. Propel is a great platform.

It has a high penetration in female, and it’s been growing at a double-digit CAGR for the last five, six years. It has a lot of credibility in hydration, but I think it can expand into more. This is why we think that we can take it into more of a functional hydration plus platform with Propel, focus on females, but not only, both in powders and in liquids. I think that that will have a multi-year innovation opportunity for us as we see consumers looking for more functional solutions in drinks that are not even available right now in the market. Yeah, it’s always a better ROI for the company to develop internally than not. In some of the examples that you put with Poppi and some others, we didn’t have the platform to go after those opportunities.

The marketplace had already some scale players that it was a better return for us to go and acquire. We’ll continue to do both as we go along, innovate internally, take some of our big brands into new spaces, rejuvenate the portfolio under the big brands, and at the same time, look outside for tacking acquisitions that might give us head start or additional scale in segments that are growing faster. As you know, we’re looking at portfolio transformation with a sense of urgency, and we’re making, I think, the right moves, as you see from our innovation pipeline and some of the M&As we’ve made in the last six or seven months.

Operator: Thank you. One moment for our next question. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open.

Great. Thank you very much. Ramon, kind of a two-part question. The first part is, you talk a lot about right-sizing the cost structure, aggressively attacking costs, but at the same time, getting back to algorithm, suggesting that perhaps the top line isn’t the problem, but maybe it’s the type of costs that you have, perhaps too many costs in the U.S. in certain assets and certain brands, but you’re going to make up for that in growth internationally and then innovation in the U.S., which may require a more complex cost structure, maybe smaller runs, different sorts of supply chains, and a whole different way of looking at the cost structure. Number one, is that assessment roughly right? Connected to that, very big announcement on the CFO side. Congratulations to everybody.

Could you talk a little bit about that decision to go outside of the firm to a very well-respected leader at your biggest customer and how you see him driving through that vision? Thank you.

Ramon Laguarta, Chairman and CEO, PepsiCo: That’s good. I think it’s an on, it’s not an either-or. For us to be fit for the future, we’re going to have to transform the portfolio, and we’re doing that with a sense of urgency. That will drive growth as we are more on consumer trend and we’re more in spaces of the category that are growing. I think we spend quite some time, but we also need to address the cost structure of the business because we need to continue to be extremely competitive, and we know consumers are looking for value, and value will be critical going forward, being at the right price points, competing with competitors, but also private label that will have their offering. Clearly, there is a need for us to reduce the cost, also change the type of cost. We need to be much more agile.

We need to be much more flexible, have optionality. We’ve invested a lot in technology in the last five years. It is in our P&L. It’s been a cost for us for the last five years. Now we can benefit from applying technology to everything we do, applying AI, overlaying intelligence to the infrastructure of data we’ve created. That will give us optionality, agility, and flexibility, which is probably what the market requires given the continuous pivots from the consumer and from our partners, our customers. That’s how we’re thinking. You’ll see us going with a big sense of urgency against portfolio transformation and against cost transformation with decisions on assets, but also applying technology to our business at a very, very fast pace. We’re ready for that. Probably will become a competitive advantage for us versus other companies given the investments we’ve made.

Now, with regards to the CFO transition, first, let me thank Jamie for all the 35 years, Jamie, or 33 years in the company. He’s been an amazing partner. We’ve worked together for some periods. I mean, I was in Europe, he was here, but we knew each other for a long time. We’ve been doing a lot of work together. Now, Jamie expressed his desire to retire some time ago. I started looking for a CFO for the future to help me execute the strategy 2030. Steve is an incredible leader, as you said, the right experience, the right skills, proven record, the right culture fit in the company. I’m looking forward to welcoming Steve in the next few weeks and continue to accelerate the transformation of the company to the highs that we know this company will achieve.

Operator: Thank you. One moment for our next question. Our next question comes from Kaumil Gajrawala with Jefferies. Your line is open.

Hey, everybody. First of all, Jamie, thank you for all your help over the, I guess, what’s now been decades. Ramon, a question on asset-based and sort of following on with some of the answers to your questions on One North America maybe being regional, a focus on agility, a focus on being fast, a lot going on in terms of innovation and right sizing. To what degree are you open to the idea of franchising some of these operations on the beverage side, particularly, you know, maybe just from a regional perspective because it feels like many of the intentions of what you’re looking to accomplish, some of it could be, some of it could be moved along by pushing a sort of a refranchising initiative. Curious what you think about that. Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah, listen, as I said, we’re going after growth and margin with high speed and a very strong sense of urgency. At this point, we’re open to all the ideas and we appreciate all the perspectives to create sharing all the values. We’ll listen, we’ll do what’s best for PepsiCo. As I’m thinking about this, or we think about this space of supply chain go-to-market, as I said earlier, the solution for this country, talking U.S., will not be a one-size-fits-all solution. There’ll be nuance, there will be potential different geographical solutions that will be the best fit for that market given our market position, starting market position, the partners, and everything else that we can do. Now, as I’m thinking about this topic, there’s three things that we’re taking into consideration and I’d like for you to be aware.

One is we’re trying to solve for the demand of the future, not the demand of the past. The demand of the future will be much more concentrated in a few retailers or customers. We need to assume the consumer will be looking for pickup or delivery and digital much more than it is today. It is today very high, it will be even better. We need to solve for that demand of the future that will be different from the demand of the past. The second is technology and the investment we’ve made in technology over the last five years helps, allows us to do things that were unthinkable five years ago. If you think about a lot of the basic processes of the company, from order taking to transportation towers to how we can do manufacturing or warehousing, it’s totally different than the past.

We can manage complexity different. We can eliminate some of the human bottlenecks in ways that we couldn’t do before. Technology, demand of the future. The third point is I’m trying to optimize the full PepsiCo P&L and not just one or the other. As we think of that, we will have for sure a nuanced solution. We will be driving different solutions, different parts of the country. We’ll be looking for what is the best for PepsiCo long term. We’ll listen to every perspective. We’ll have constructive dialogues. I’m sure we’ll come up with the best solution for this company going forward.

Operator: Thank you. One moment for our next question. Our next question comes from Chris Carey with Wells Fargo. Your line is open.

Chris Carey, Analyst, Wells Fargo: Hey, everyone. Most ground has been covered. Maybe it’s just to take a step back. Ramon, I’d love to get your thoughts on something around cyclical versus structural, but really by geography. I think in North America, there’s an ongoing debate about how much of this is the consumer shifting preferences toward healthier eating. Obviously, there’s a cyclical component as well with value seeking. Can you compare the consumer behavior in the U.S., this cyclical versus structural dynamic, versus what you see in the international markets? Is the consumer there behaving in similar ways, both from an economic perspective, number one, but also, are the preferences for the international consumer outside the U.S. shifting and evolving like they are in the North American business? I’d love to get any context or additional color on how you see that interplay. Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah. Listen, it clearly is a very, it’s a complex topic, but I’ll give you my point of view in a couple of areas. There are things that are clearly structural in the way which you think about consumers all over the world. I think consumers are moving to digital purchasing in a very structural way. That will change the dynamics of the industry in both the sourcing, what they buy, how they buy, and what they expect the delivery method to be. I think consumers are going to expect different ways of how goods are delivered to them. That is a very structural change and that’s happening across the world with different speeds, but I think it’s clearly a global trend. The second, I would say, in terms of consumers, are much more informed about the food and the drinks, the ingredients in the foods and the drinks.

I think it’s a secular trend as well that consumers will be more making choices based on clean labels, based on the ingredients in the food and not only the taste, but also the type of food that is in the brands. Therefore, some of the relaunches of the brands that we’re making, whether it’s Lay’s or Gatorade or Tostitos, take that into consideration because I think they’re very relevant going forward. Affordability is also a reality. I think when you look at low-income households or middle-income households, they’re very stretched. Fixed costs of living are going up around the world. That will create the need for affordability and value and price points and cost consciousness also for the foreseeable future.

Those are trends that will go up and down, notches in the curve, but I think the curve is going in the same direction probably in the majority of the markets. That’s my point of view. That’s how we’re thinking about the future. That’s why we’re moving the portfolio quickly in those spaces. We’re looking at the cost structure to be able to compete both on the cost side, but also on how we serve our customers in this future of demand that will be very different from today.

Operator: Thank you. One moment for our next question. Our last question comes from Robert Moskow with TD Cowen. Your line is open.

Hi, thanks for the question. A few weeks ago, an activist investor announced a stake in your stock and published a long list of recommendations. I wanted to know your willingness to engage with them and if there’s any ideas in there that you think are particularly important for your strategic direction. One in particular I wanted to know is establishing a margin target for Frito-Lay. It’s been discussed in the past. I just wanted to know, is that something that you consider constructive for setting a path for the future, or you just look at the business and what it needs to do differently than that? Thanks.

Ramon Laguarta, Chairman and CEO, PepsiCo: Yeah, listen, a few questions in your question. Our engagement with Elliott Investment Management has been, you know, we’ve had a couple of interactions, very constructive and collaborative, and we’re trying to understand each other. I think we’re aligned on one thing, which is critical, which is PepsiCo is undervalued, and there’s a lot of opportunities to improve the valuation of the company by, you know, making a few interventions with a sense of urgency and the way we’re doing. I think we both want to create shareholder value. We’re as interested as any of our investors to do this. We’re aligned. Now, of all the ideas that Elliott Investment Management mentioned in their document, most of them are included in our strategy 2030, and we’re acting on it.

I think we’re acting with a sense of urgency on both portfolio transformation, simplification of the portfolio, cost reduction to invest in future growth, et cetera, et cetera. A lot of positives. There’s a few areas where, you know, we need to probably educate each other a bit more. We’re going to have conversations in the coming weeks and months. I’m sure we’ll reach a point where, you know, they will, you know, we’ll listen to their perspective. They will help us, you know, in our decisions to make PepsiCo a better company and to create value for the long term. Good collaboration. I’m optimistic about, you know, how this will drive sense of urgency and will drive positive change for PepsiCo. Good. Okay, this concludes the meeting. Thank you very much to everybody for your engagement.

Again, I would like to thank Jamie Caulfield for, you know, the incredible work for PepsiCo for 33 years and support he’s given me and the management team, you know, for all those years, but in particular the last two years. Thank you, and Jamie, I don’t know if you want to say anything to the team here.

Jamie Caulfield, Executive Vice President and CFO, PepsiCo: No, just thank you. It’s been a terrific, terrific run, and this is a great company. I continue to believe our best days are ahead of us.

Ramon Laguarta, Chairman and CEO, PepsiCo: Thank you.

Operator: Thank you, ladies and gentlemen. Let’s conclude today’s presentation. You may now disconnect and have a wonderful day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.