PepsiCo CEO (PEP) Indra Nooyi on Q2 2016 Results – Earnings Call Transcript
2% volume growth
I’m pleased to report that our businesses continued to perform well in the second quarter. We had more than 2% organic volume growth in both global snacks and global beverages. While foreign exchange translations continue to pressure our reported revenue results, we delivered more than 3% organic revenue growth led by Frito-Lay North America, AMENA and Latin America.
Focused on five things
there are five things we focused on to deliver in what continues to be a challenging macro-environment. First, consumer-centric relentless innovation; second, connecting with digital age consumers in new ways; third, being a true growth partner to our customers; fourth, flawless end-to-end execution; and fifth, a maniacal focus on productivity.
Strategy has been to expand in the snack category
Look, the macro snack category is a big category. And we’re only playing in the salty snack category, expanding into savory snacks. And our goal, if you go back maybe 15 years ago, and we’ve been consistent in this strategy, we’ve always said, grow the core, add more inch out of the core. We’ve used these words. And that’s what Frito-Lay has been doing, solidify our position in salty snacks and start to step out of the core into other savory snacks and then start to take on other occasions from the overall macro snack category.
Mexico is actually doing well
Mexico is actually doing well. The strength of the dollar, the increased remittances into Mexico doing well, the country actually is one of the brighter stars in the whole Latin American economy. So we feel good about our business in Mexico
The marketplace for soft drinks has fragmented, making distribution even more important
Now, let me just say, the marketplace is fragmenting. Forget Pepsi or Diet Pepsi or the cola category, any new category that’s expanding is becoming niche, more fragmented. And that’s why it was important for us to own the distribution system because once you have control over the distribution system, you can pump a lot of niche products through it, all our craft products, all of those are low-volume products. So we have to learn how to handle complexity, not walk away from it.
The beverage market is larger than just Carbonated Soft Drinks
think, Caroline, and we talked about it in the Q1 earnings call, it is critically important that all of you change your frame of reference in the beverage market from cola to CSDs to LRBs. 30 years ago, it was colas. 25 years ago, it was CSDs. 15 years ago, it was CSDs. It’s been LRB for the last decade or so. And I think the sooner we can shift our frame of reference, the better it is because just beating a category that is in secular decline, just beating that all the time is not a game to play, that’s not a game that is going to guarantee good results. If we play this rich LRB game, multi-category, placing the bets where the growth is and where the consumer is going, I think we’re better off. So my request to you and all of you who are tracking the company in this category, expand your aperture. LRB is the game to play. That’s the game we’re playing and we watch LRB share very, very carefully.
Hugh Johnston CFO
The macro has been more stable than the guidance that we gave
When we give guidance, our intention is always to hit it and perhaps beat it. Now that we’re halfway through the year, I think we’ve seen two things. One, the macros are operating in a consistent steady way, so there has not been a deterioration, which, obviously, is to our benefit relative to our expectations.
Snack foods are recession resistant
frankly, that’s what you’ve seen, is this portfolio now, regardless of economic cycle, regardless of consumer sentiment, regardless of consumer trends in chips, seems to be capable and has been capable delivering good, strong performance throughout all of those shifts.