The operator introduces Mr. Ravi Pamnani, Senior Vice President of Investor Relations, to begin the PepsiCo's 2023 Second Quarter Earnings Question-and-Answer session. Mr. Pamnani cautions that forward-looking statements may be made and that non-GAAP measures will be referred to when discussing results. He is joined by PepsiCo's Chairman and CEO, Ramon Laguarta, and PepsiCo's Vice Chairman and CFO, Hugh Johnston. The operator then opens the call for questions, with the first coming from Bryan Spillane with Bank of America.

Ramon Laguarta discussed two areas that PepsiCo is looking at closely: the supply side, where they are seeing better flow of materials from suppliers and improved labor market, and the consumer side, where they are seeing better elasticities than expected, even among lower income consumers who are optimizing their budgets.

The marketing and commercial teams have been able to strengthen their brands and raise prices due to the low unemployment rate in both developed and developing markets. This has led to positive consumer behavior in the company's categories, allowing them to raise their guidance on both the top and bottom lines. International markets are thriving, likely due to the strong consumer sentiment in countries like Mexico and Asia.

Ramon Laguarta discussed the competitive environment around the world, noting that some markets are affected by currency situations, but overall consumers are behaving positively. He also mentioned that there is rational competition in both the snacks and beverage business, which is expected to continue for the rest of the year. Lastly, he noted that their products remain an affordable treat for consumers.

In response to a question about their guidance, Hugh Johnston explained that the balance of the year guidance is 7.5% revenue and 8.5% EPS. This margin improvement is due to productivity investments they have made over the last couple of years in digitalization, automation, and Global Business Services. This productivity improvement will continue and even accelerate in the back half of the year, although they are still investing in other areas.

Hugh Johnston provides an explanation for the decrease in PBNA margins in the second quarter, attributing it to the lack of a gain from an asset transaction that was present in the previous year. He also expresses confidence in the full year margins for PBNA being up by more than 100 basis points.

Ramon Laguarta explains that Gatorade's performance is likely impacted by the reduced cycle of the G2 DSD, as well as the cold weather in some parts of the country. Despite this, the brand is seeing improved metrics such as inventory on display, service levels to customers and new products such as G FIT, Gatorade powders and tablets, and G Zero attracting new consumers. However, there are some new entrants in the category, such as Prime, that are taking some space with younger audiences.

Hugh Johnston and Ramon Laguarta of PepsiCo discussed their expectations for the company's performance in the second half of the year. They expect high-single digit pricing, with volumes remaining flattish. They believe that Gatorade is performing well and that the G2 DSD will help them better respond to weather changes and other market opportunities.

Hugh Johnston explains that the pricing tailwinds year-to-date are in line with or offsetting commodity inflation, which is in the teens. He states that this sets them up for the back half of the year, which is a bit ahead of their long-term guidance. This could lead to notable gross margin expansion for the full year, unless there are some offsets.

PepsiCo has previously communicated that their margins will be equal to where they were last year, but they are now ahead of that. The improvement in margins will be sustained and driven by productivity from digitalization, automation, and a global business services operation. The company has also learned from their agreement with Celsius that the growth has been tremendous, and they are considering the right structure for PepsiCo longer term. They have also taken into account the Bang and Monster news to assess the potential impact on the growth trajectory for Celsius.

PepsiCo's European business is doing well, with strong pricing. The business mix in Europe is split between snacks and beverages. The company has benefited from relatively easy comps, and believes there are structural changes in the pricing dynamics in Europe, which had been very deflationary and difficult for retailers in the past. PepsiCo is pleased with the investment they have made in the region and is benefiting from each other's capabilities.

Ramon Laguarta discussed the success of PepsiCo's European business in the first half of the year, citing their robust snack portfolio, their growing zero propositions, and their courageous pricing decisions. He also mentioned the team's focus on simplification and digitalization, as well as their productivity levels, which have enabled them to service customers more effectively and efficiently.

Hugh Johnston and Ramon Laguarta of PepsiCo discussed how the company's organic growth was higher than expected due to a combination of better volume and price mix realization. They attributed this success to the teams' ability to minimize elasticity and the company's increased data, digitalization, and execution capabilities.

Ramon Laguarta reported that Frito-Lay is having a great year, driven by strong brand programs and commercial programs, as well as a better supply chain. The recent slowdown is due to lapping against a price increase from last year, but the small store independent business, which has a lot of impulse consumption, is not reflected in reports. Frito-Lay is also seeing positive trends in innovation, smaller SKUs, and big brands.

Ramon Laguarta and Hugh Johnston thanked the participants for joining the conversation and for their investments. They discussed potential distribution opportunities for energy drinks in non-measured channels, such as college campuses, and mentioned that Celsius products can be found in many campus locations already. They encouraged people not to wait until 2024 for the comprehensive rollout of the products, as they are executing on distribution opportunities now.

The presentation has concluded and the audience is encouraged to disconnect and enjoy the rest of the day.

This summary was generated with AI and may contain some inaccuracies.