Pepsico FY 2Q15 Earnings Call Notes

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Increasing growth outlook

“Based on the strength of the quarter, our overall first half results and our outlook for the remainder of the year, we are increasing our full year of core constant currency 2015 EPS growth outlook to 8%.”

Eight years ago we were a decentralized organization in innovation

“eight years ago. At that time, we were in an extremely decentralized organization, operating as a loose confederation of geographic business units, with each largely driving its own development agenda and establishing their own processes”

Adopted a “demand moments framework” for innovation

“we globally adopted the proprietary Demand Moments framework, originally developed at Frito-Lay North America. The framework focuses on the triggers of consumption by examining consumer needs based on the context of the occasion. This created much stronger linkage between consumer and shopper insights in the R&D functions, and has led to our innovation being more incremental to top line growth.”

Clearly there are macro challenges but we will navigate them

“Clearly, there are a number of macro challenges around the world, but we believe we have the right strategies and programs in place, to enable us to continue to navigate successfully through the current environment. The construction of our product and geographic portfolios enable us to continue to deliver strong results. In part, because our balanced portfolio creates a natural hedge against the global macro and political volatility that has become the new normal. And all of this bolsters our confidence in our ability to continue to achieve our financial target.”

Foreign exchange negatively impact revenue and earnings by nine and 11 percentage points

“We expect foreign exchange translation to negatively impact net revenue and core earnings per share growth by approximately nine and 11 percentage points respectively, based on current market consensus rates.”

43 years of dividend increases

“Our annualized dividend is now $2.81, an approximate 60% payout ratio based on 2014 core EPS. This represents the 43rd consecutive year of annual dividend increases and our annualized dividends per share have grown at 10% compound annual rate over the past 10 years.”

Second half comps will be a little tougher than the first half

“we are certainly facing more of an uphill for growth in the back half of the growth. Number two, you are correct, commodities are more of a headwind in the back half of the year than they were in the first half of the year.”

There is some bifurcation of center of store vs. perimeter

“there is some bifurcation between what’s happening in the center of the store, and what’s happening on the perimeter. But from the perspective of the categories we participate in, with the exception of center of the store, where we saw Quaker category slow down a little bit; most of our categories are robust and saw pretty good growth across the quarter”

In conversations with governments to make sure no discriminatory taxes on our products

“we are also in constructive conversations with governments, to make sure there aren’t any discriminatory taxes or discriminatory action on any of our categories.”

The board focuses on talent management for the top couple hundred roles

“talent management is something that the board and I are focused on a lot. I mean, our phenomenal board, spends a lot of time thinking through succession for the top couple of hundred jobs. And one of the things we always looked at is, where is that bright talent across the company that should be lifted up, so that they can be part of a succession process in the company. And every time we get an opportunity, we figure out ways to lift them up, in order to stretch people, in order to really build exciting talent for the future, and that’s what the most recent changes enabled us to do.”

Our base is savory snacks

“our base is savory snacks, and we are a very-very strong player in savory snacks. First of all globally, we still have a lot of growth within savory snacks. We came from a salty crisp snack background, and we are expanding more and more into other savory snacks, be it crackers, be it nuts and seeds, we are expanding into those areas, there is lot of opportunity there.”

We have the opportunity to take away eating occasions from other macro snack categories

“The other area is taking away eating occasions from other macro-snacks category. Its interesting, unlike beverages, in the case of snacks, we can go off and take eating occasions from other macro-snacks, be it cookies, or confectionery or chocolate. And our goal is to focus on what we are doing, but looking at our signs of demand spaces, which I talked about briefly, look at each eating occasion by cohort group, and figure out, how we can leverage our salty snack platform, to go after other macro snacks, be it — replace it with a salty occasion, or do some sort of a salty-sweet combination, for example Stacy’s with cinnamon sugar. It’s based on a pita chip, but it’s certainly sweet when you taste it, and has a much better mouth feel and experience, than if you eat something totally sweet by itself. At least, that’s my perspective.”

Nobody likes cost cutting, everybody likes growth

“look nobody likes cost cutting, everybody likes growth. I think we are one of those companies that are doing a wonderful balance of growing the top line and delivering productivity, and that’s what we want to focus on. Swinging the pendulum too much to cost cutting, I don’t think is a good idea at all, because it just jeopardizes the future of the company.”