PepsiCo Stock

Good morning, and welcome to PepsiCo's 2026 third quarter earnings question-and-answer session. [Operator Instructions] 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 of Investor Relations. Mr. Pamnani, you may begin.

Good morning, everyone. Thank you, Kevin. I hope everyone has had a 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 updated business plans, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 8, 2026, 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 2026 earnings release and third quarter 2026 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, Stephen Schmitt. [Operator Instructions]

And with that, I will turn it over to the operator for the first question.

[Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley.

So Ramon, I thought, first, maybe we could just get a bit of a state of the union from you on the revenue side as we approach calendar year-end here. Obviously, internationally, another strong set of results in the quarter. You did have some weather and World Cup boost in theory. We are seeing a volatile environment. So just would love your thoughts on the sustainability of the strong growth that you're seeing internationally and the forward growth opportunities?

And then just shifting to NA, again, from a revenue standpoint, numerous strategy changes this year, volume I don't think has responded as much as some as hoped, clearly in North America. So just look back on the efforts in '26 so far, any plans to tweak pricing or plans from here? We've heard a lot about snacks pricing recently in the marketplace. So just any strategy tweaks going forward?

And then, Steve, if I can just slip in 1 on the margin side. Obviously, the earnings revision in Q4 is margin driven with the top line expectations holding. So just help us understand what changed there. But I think really the context is when you have a big Q4 revision, it may imply further pressure in '27. So just -- as we look out to '27, I know you won't give guidance, but just some of the key buckets to margins as we look out to '27, reinvestment to reinvigorate North American volumes, commodity pressure, given that's a big change for Q4. Any incremental cost savings thoughts. Those would all be helpful just conceptually for '27.

Great. Dara, this is Steve, and thanks for the question. Good morning, everyone. Maybe I'll start with the second question and then kick it to Ramon for the State of the Union where you began your question. So -- before I get into the guidance revision, maybe I'll talk a little bit about the quarter, at least from a highlight standpoint. And the reality is that we're pleased with many aspects of our Q3 performance. Organic revenue accelerated to 3.1%, reported revenue was north of 5%, core operating profit increased 3% and EPS to increase 2%. Importantly, as we look at the health of the business around the world, global beverage volume was up 3%, global food volume was up 1%, and it's actually up 4% if you exclude the grains business in South Africa. And overall, International had really quarter. Organic revenue increased 8%, operating margin expanded 105 basis points.

Now shifting to the North America business. Our Foods business in North America, organic sales improved from Q2 and our beverage business in North America decelerated.

So if I turn to guidance, there are always a number of factors that go into how we think about guidance. The largest changes and you mentioned, we said in our prepared remarks, was margin performance is below where we expected it to be. Input costs are trending higher and mix has been a headwind in particular. But despite these pressures, I think it's important to note that we've decided to sustain key investments around the company to make sure that we stimulate growth and build momentum. This includes A&M, which increased in international. It also increased in North America importantly.

So it's the margin piece that's driving the guide down EPS, but sales, as you mentioned, we expect to be robust. Another mention, we're also identifying structural cost reduction areas, and we're going to be using revenue management tools in the coming months to partially mitigate this margin pressure that we have in the fourth quarter, these benefits should start helping as we turn the calendar year.

So that's how I think about guidance, the revision. You mentioned '27, so maybe I'll touch on that, too. In '27, we have clear priorities. We certainly want North America to grow faster and more efficiently. We're going to continue to fuel the international business and maintain momentum there. And we're going to be very disciplined with costs and capital allocation. So as you imagine, we've been working through our '27 plans for some time. We're just not in a position today to provide a complete view of what our expectations might be, and I'd rather not give a partial view now. So we'll give more detail on our 2027 expectations in Feb when we report the fourth quarter. So I know that was a lot, but now I'll kick it over to Ramon and give a state of the union.

Okay. So you guys got a lot -- the framework there. So -- listen, we're pleased with the acceleration of the business. So going into the year, our priority #1 was to accelerate top line across the company. Now if you think about the enterprise, we grew 3.1% in organic net revenue in Q3. That is the fastest rate of growth since Q4 '23. So clearly, an important milestone for us to cross the 3%. And we like the way that growth came, which was volume led. So if you think as Steve mentioned, a 3% growth in beverages, global beverage volume and 4% in snacks globally, the snacks business, not the foods. We had some large business in South Africa that are very heavy kind of commodity type that impacted the overall global.

So -- good, I would say, very positive threshold, we cross the threshold of 3%. And obviously, it is on its way to the long-term 4% that we want to get to.

Now international was a big driver of that, and we're very pleased with the momentum that we've been building on international now for many quarters. It is not there, you mentioned weather and some -- I think it's much more structural. I think we're becoming much more competitive in both foods and beverages in more markets. The scale of the business now is to the point that we put on the remarks, that is year-to-date, international is already 45% of our profit so that we keep building it. And it's broad. It's broad based. It's in Europe, it's in Middle East, it's in Asia. It's in LatAm. So good performance overall.

Now we're not satisfied with the performance in the U.S. And as Steve mentioned, I would provide some nuance though. The volume bed that we made in Snacks, North America, especially with the price reset, we're happy with the turnaround in the volume performance. If you think about last year, that business was low single-digit negative volume growth. This year, we're low single-digit positive volume growth. That is a major turnaround. And it was -- it is the price, but it's also some of the innovation, some of the new platforms we're building aligned with the portfolio of the future. So good progress there.

We're going to keep investing in those platforms going forward. I think we can accelerate the category. We gained share in volume now for multiple quarters in Foods North America, in Snacks North America, we're starting to turn that into value share as well. So that was the playbook. As you said, less volume growth than what we had initially anticipated. It had to do with the consumer environment. It had to do with some of the commercial execution, that's getting better, and we feel good.

Now we don't feel good about the beverage business. I think in the beverage business, as we put in our remarks, we're competing well in some platforms like hydration, like energy, and we're not competing well in soft drinks. So we're putting all the urgency of the business and the focus in improving our performance in soft drinks. We're cutting cost in many areas of the business where including corporate and allocated including overhead costs everywhere to invest back into the beverage business, also the food business in North America. And we're looking at any other opportunities to improve our execution because I think there's also an element of execution that can improve.

So that is the state of the union there. For us, priority, as Steve was saying, going into next year, is to maintain the top line momentum. That's why we continue to invest in the business, double-digit A&M in both businesses in the U.S. this quarter. We continue to invest in A&M going forward. We want to go enter '27 with a lot of momentum and make sure that we manage the business for the long term, which is what we're doing.

Our next question comes from Bonnie Herzog with Goldman Sachs.

I guess a follow-up on all of Dara's questions. Maybe just a question on PFNA. Curious if you would consider accelerating SKU rationalization and some of the underperforming brands in that business, thinking about maybe in an attempt to redeploy investments behind SKUs that are actually showing signs of improvement or momentum? And I guess, if not, could you just maybe walk us through the puts and takes of your current portfolio and why you believe you have the right brands in place? And then how should we think about you potentially supplementing growth as you potentially pursue M&A in that business to, again, kind of reignite growth?

Yes. I think it's a good point, Bonnie. I think the -- there are two elements or two big vectors of growth in the U.S. Foods business. One is making sure that you provide the right value, right? So affordability, price points, entry points to the different categories, subsegments, making sure that we're competitive in that space with a consumer that is clearly challenged, we don't expect the consumer to suddenly become much more in a much better place in the next 12, 18 months. So value, affordability, price points, giving the people the right format.

The second one is, I guess, what you're referring to, which is the portfolio, the portfolio of the future and how we're evolving the portfolio to satisfy the various demand moments of that business. Now there is -- I think we have been investing in multiple platforms that position us very well for the future. Then the first one is portion control and affordability, and we talked about this in the past. We think that 100-calorie packs, 120-calorie packs, that is critical for the future. That business is already $3-plus billion. We continue to invest. All the permissible portfolio we have over $3 billion as well of permissible portfolio, which is going to be the growth space for the future, I think we have great brands in that space. If you think about SunChips, Smartfood, Naked, simply, pop corners and others that I forget at this point, so that is a great portfolio that is growing. We're obviously launching Doritos protein and some other variants that we see also having very good consumer momentum.

So we're doing both things, trying to make sure the core is still very relevant with the right pricing, right advertising, right emotional connection with the consumer. And then building these new platforms that is where the double-digit growth are including, I wouldn't say indulgence continues to be a great space, right? So if you think about Misvikis with avocado oil or baked with olivo oil, so those are spaces where we're also investing and where we can premiumize the brand.

So I think the portfolio is in a very good place from the -- where the consumer is today or when the consumer is going tomorrow. Now is there opportunities for M&A in small subsegments? We've been looking at that for quite some time, both in Foods and Beverages. We acquired not too long ago. was another good example in the beverage business. And we keep looking at opportunities to complete the portfolio, smaller tuck-in opportunities that we don't -- we never say no. If it's -- it has strategic value, it has financial returns and it makes sense for the levers of growth that we can provide.

So -- but I think we're in a good place from where the portfolio is going. Now we need to put more investment in scaling up those platforms. That's what we're trying to do taking cost from other parts of the portfolio -- of the P&L and investing in those growth platforms for the future.

Our next question comes from Peter Grom with UBS.

Great. So I wanted to ask just on North America and maybe just carbonated soft drinks in general. Remember, it's pretty clear that you are not pleased with kind of the performance of the business. But as you take a step back, can you maybe unpack why performance has fallen short of expectations. And as you think about the path forward, what you plan to do differently?

And then, Steve, just maybe more of a housekeeping question on the organic sales outlook. Approximately 3% growth can mean a lot of different things. So I'm just curious if the right takeaway is that you would expect sequential improvement from the 3% growth or 3.1% growth that we just saw in the third quarter and the fourth quarter.

Yes. I would think about the -- starting from the last point. I would think that way. I think we're expecting sequential improvement as you -- we go into Q4 and especially, as we go into next year. So I'll continue to invest. It's our #1 priority, invest in growth, invest in growth. Steve mentioned, we didn't take any resources away from the business in Q4. On the contrary, we're trying to invest more in growth across the world, international and the U.S. to make sure that we continue the sequential improvement or acceleration of the business on the top line. So that's from the -- how we're thinking about top line.

Now soft drinks U.S., let's start with LRB U.S., right? LRB U.S., I think we're -- one important priority for us this year was to accelerate the hydration business. That business is -- has accelerated in volume and in net revenue. The overall category is very important for us that the hydration category, which has tailwinds given some of the food -- the eating habits and drinking habits of the population. So that was critical. We made that happen. It's working well, and we'll continue to innovate in and in Propel and investing in those brands to accelerate. So that part is a good one for us.

Energy as well. I think the Alani plus sales use makes sense. By the time we get the two brands into the business, and well executed, that will be an important source of growth for us.

Now in soft drinks, we -- as you said, we're dissatisfied. I think there is a -- two things that we're trying to do. One is increased investment behind the brands. So invest more behind Poppy, Pepsi, Mountain Dew and some of the other brands we have in soft drinks. And the second one is improve the execution. I think there's opportunities for us to become a better -- raise the bar on execution in our beverage business, and the team is fully focused. We have great partners in our bottling partners as well. And we're -- that's the focus, execution improvements and more investments in the brands to be competitive with our key competitors that have having increased their investment in the portfolio and it's working.

Our next question comes from Lauren Lieberman with Barclays.

I'm going to do two things because everyone is doing two things. So the first was just in thinking about the 4Q guide and the margin, I just wanted to ask again maybe a little bit differently. If you can try to clarify how much of the margin pressure is incremental investment versus incremental unexpected inflation. So I think that's really important to just understand both what you're doing versus what you're dealing with is an external environment standpoint.

And then the second thing is just the ROI on the spending you're doing. I know, Ramon, you pointed to volumes in U.S. Snacks starting to get better. But like the time to think bigger, if you will, like the innovation platform you've had is massive and super impressive. But everything that you've been talking about of them on is sounds a little bit tactical. So like are there things you need to reevaluate on, how you communicate with consumers, how you're doing your A&P, Bonnie's point on SKU rationalization. But like the innovation is there, but is it time to step back and have bigger thoughts about like how you do things -- going to be so tactical in nature?

Lauren, it's Steve. Let me talk a little bit about margin first. I won't get into granular detail, but I can give you at least a few things on, I guess, cost A&M and tariffs. So one, I would talk about on cost inflation overall, the teams internally have done a really nice job with our hedging programs. They're typically 6 to 12 months and it yielded us from some costs up into this point where we're starting to see these hedges roll off in our -- essential input costs starting to ramp. So in spite of that, we are going to be investing in growth across the company. I think it's important to mention not just internationally, but we want to make sure we build momentum in the North America business.

The piece on margin that is important to model is we did have a benefit in our Beverage North America business in the third quarter related to tariffs. We talked a little bit about in our remarks about how much that was. And so once that goes away, that puts some more underlying pressure on the North American Beverages business that we didn't have in the third quarter.

Sorry, in investments in A&M, we will continue to do that. Obviously, we want to have momentum going into next year.

On the -- on the A&M investment, I think two points there. One, quantity and then quality. I think quantity, we're looking at every cost in the company and making sure that any cost that is not linked to growth is not there, including overheads, including corporate and allocated, including any line that you can think of because we think quantity matters and we need to invest more in growth in the U.S. business, both beverages and food, and they both -- they share.

Now quality is, as you saw, we're making some important pivots in how we're thinking about investing that A&M with much higher return. We just announced -- we announced a few weeks ago a partnership with publishers. That is an important capability for us as we go into this partnership, we'll be able to invest with much more data, much more granularity, understand consumers and be able to talk to consumers in a different way, where I think we're going to get better return on the investment -- not one thing. I'm sure given what I know about the capabilities we both have. So I think both quantity and quality, you will see more investment in A&M, and you see better investment in selling every consumer about our products and selling them in a way that they will be much more enlighted with it. So I think that's how we're thinking about it. Obviously, we continue the journey of increasing the competitiveness in the U.S. and accelerating the categories, which is the role that we need to play for the long term.

Our next question comes from with Jefferies.

I know there have been many questions around this topic, but just to make sure that we understand specifically, particularly because of various media reports of higher pricing or lower pricing or whatever it happens to be, what exactly is the plan? Which direction are you -- what is the correct direction of travel? And that's on North American Foods.

And then on beverages, the word urgency you've used many, many times. What does that mean? Because urgency sounds tactical, as Loren had mentioned, but brand building and all those other things usually take a lot of time and could use a pivot. So just trying to understand what do you really mean by urgency in terms of what you want to do on the beverage side? Both of these questions, of course, are North America specific.

Yes. I would say urgency, means we're going to look at every cost with aggressive lenses and with the lenses that everything that is not related to growth will not be part of the company. So that, to me, is an important mindset and then putting the money against the brands that will drive us growth. So that from the -- then on the executional side, raising the bar on what is expected from everyone in the company in every customer negotiation, in executing in every point of sale, in the levels of granularity and executional excellence that we're going to look in our people. So those is how we're thinking about it.

Now we're also looking at are all the decisions that we've made in terms of how we execute the business, the right decision should we look at partnerships in other ways. So we're looking at every single element of the strategy in terms of executing in the U.S., and we're not taking anything for granted in that space.

Now what was the other -- price in North America.

Price in North America. We're pleased with the -- as I was saying earlier, in Dara's question, we're pleased with how the pricing investment has worked for us in the food business. We were negative low single digit in volume in snacks in the U.S., now we're positive volume and units and gaining share. So that gives us, I think, flexibility in what do we do to absorb this new wave of inflation that is coming to every country, not only the U.S., given energy prices and given agricultural prices. So we're going to see a mix of net revenue management tactics that will impact some pricing, but also mix and all the decisions that we can make around that. And we're going to see a lot of productivity the one we've been doing for many years, but additional areas of productivity to minimize the decisions we have to make in increasing the cost to our consumers.

Now we feel good about the way we're thinking about this. We're putting some guardrails to our people, making sure that next year's pricing is going to be below 25. So we continue to be very affordable. In most of the take home parts of the business. We don't set pricing. Obviously, our customers do, but we have the right conversations, and we have the right partnership in how we drive volume in the category. So we're trying to be very cautious, but there's going to be a set of tactics between net revenue management and productivity to mitigate the inflation that is coming through our various lines of the P&L, as Steve was saying earlier. Do you want to say anything else, Steve?

Nothing.

Our next question comes from Kevin Grundy with BNP Paribas.

Great. Ramon, question on potential consideration for bigger strategic changes that could unlock value. PepsiCo spent a lot of time on North America. I know you're not pleased with where that is at the moment. I think it's clear that the results they have singularly driven the stock price lower because international continues to perform really, really well. So can you comment on the Board's consideration for bigger strategic changes? I think there's an to be made that there's real latent value in your stock price. So whether this is splitting North America and international, which have very different financial profiles now splitting snacks and beverages, which you're well aware, has been discussed for decades among the investment community brand divestitures, bottler refranchising. I did ask in the context that perhaps is a better structure for shareholders that maximizes value. So your updated thoughts there would be appreciated.

Yes. Thanks. Listen, obviously, we're not satisfied with the performance. That means that we have to look at options that improve our performance long term, right? I mean, it's not only about the short term, it's the long term. So we have been talking about how, especially to your point on go-to-market and business model. We're open to revisiting every option. We're working with the team on accelerating some of the tactics on the integration part, so -- where we can eliminate cost. But also, we're looking at -- are there opportunities to expand or accelerate some of the refranchising in some parts of the country where we have good partners and where it makes sense that, that partnership will drive better execution and potentially better margin for the company.

So we're opening all the avenues. Clearly, as you were saying, the performance of the business, requires that we are open and we're realistic with the realities of the marketplace, the inflation, the consumer realities. And where does it make more sense to invest the resources of the company to drive growth long term. So yes, we're looking at everything, and these are important decisions that we'll be making with a sense of urgency and with the strategic midterm long-term vision that we always run the company with.

Our next question comes from Robert Ottenstein with Evercore ISI.

Two quick ones. One, I was wondering if you could give us an update on your efforts to integrate the food and beverage business in the U.S., I think you were piloting something in Texas, and I think it's been going on now about 8 or 9 months. So I'd love to get an update on that. And then second, you're doing more and more with Carlsberg internationally. And I guess it's working well. But I'd love to hear what you've learned from that experience working with Carlsberg and particularly, a beer company and how you've been able to maintain strong execution?

Good. So listen, we've been with beer companies around the world for quite some time. ABI, we have partnership in Brazil and Argentina and some other parts of the world. And with Carlsberg, we've had relationships for many years in Norway and Sweden. So this is an expansion of a strategy, which is in countries where we have business that competes well, but it's not the leading business, merging with the resources with a beer company makes a lot of sense. It gives us presence in the on-premise channel, and it gives us very good execution scale in the home channel. So this is working. Carlsberg has been an incredible partner. The latest example of that partnership is the in the U.K., the Britvic acquisition they made, and that has been a very successful investment for Carlsberg and also for PepsiCo, as we keep growing share in the U.K.

Now we've expanded to other geographies, the strategic, I would say, we're both together for the long term. And we believe this is a win-win and the resources that have been invested on both sides is great. So we'll continue with Carlsberg, but we -- it's the same philosophy we have with many of our bottlers globally.

Now on one North America, we keep working not so much the strategy anymore, but the execution of this tactic. And there is a lot of positive news. We will update you to all the investors in a future meeting. Now the integration is working well on the physical side with warehouses and the transportation. Now we're into the details of delivery into the small shops, the bigger shops. So clearly, there is a lot of value we're seeing, both for the customer and for us. This will apply to some parts of the country, as we said. I think long term, this will apply to some parts of the country. Now there are other parts of the country, well, this will not apply and that's the comment I made earlier about, can we accelerate refranchising in some other parts of the company -- of the country and take value earlier. So again, this is the hybrid approach, the nuance approach by geographies. And this is -- the team continues to, I think, learn and execute the details that matter in this kind of transformation.

Our next question comes from Andrea Teixeira with JPMorgan.

I was hoping if -- and I do appreciate I would say, more of an open conversation about resisting the refranchising in the U.S. And then the One PepsiCo commentary you just gave to Robert. When you said urgency, how is the shape and form and to your point by hybrid, the complexity of your system and the many partnerships you have? Who we should be thinking? How we should be measuring success? And then the timing of it, it seems like it's going to be like a multiyear as it was, frankly, with all the companies in the industry. So how we should be thinking? And what -- in terms of like potential savings for more the savings, I would say, synergies in terms of execution, the eye on the ball, the last mile your ability to obviously check the coolers and any AI that you've been using for productivity that could illustrate an acceleration of that execution and potentially convert into savings given the -- obviously, the DSD system now with higher cost of service. It can improve that. And perhaps if can complement on that when it comes to large customers and accounts, how that system, the hybrid system will work better for you than, I would say, a full refranchising. I know it's a lot in there, but just to think about strategically now and how fast we could see the results coming through?

Andrea, it's Steve. Thanks for the question. Maybe I'll just talk a little bit about urgency. The sense of urgency around the company, as you would expect, is very high and all that we're doing and the business reviews and how we're operating and our attention to detail on costs and looking at other parts of the company, whether even that's corporate and unallocated to make sure every dollar we're spending on shareholders' behalf is providing a benefit to the business and a return that we'd be proud of. And so -- there's a lot in the question that you asked, I don't think I'll go through all of the different details. But just you should know it from a sense of urgency standpoint, just in the short time that I've been here, you can see it shifting gears in all that we're doing.

Yes. And then if you think about growth, margin and long-term marketplace performance, we're looking at execution as an important lever. And so everything you said around where can we execute better as a combined business grow from the growth cost or where we can leverage a partner. I think we're obviously looking at all of it at this point. And the solution will be a mix of solutions for different parts of the country. The key point being growth, marketplace execution, competitive performance and margin and we'll get to that when the moment comes.

Our next question comes from Michael Lavery with Piper Sandler.

Just wanted to come back to pricing, but on the North American Beverages side. And just appreciate, of course, aluminum costs are up, diesel, the tariff refund goes away. And there certainly is the case for pricing there that it sounds like you're making, but -- how do you balance that with the need to compete more effectively that you've also called out? And just help us understand what your pricing approach is and how we should think about volume growth expectations?

Yes, I think the same answer I gave to the food business. I think there will be a mix of tactics on net revenue, trying to provide as much value as possible to consumers in the right occasions and the right -- moments with the right brands and then continue to go very aggressively at productivity, not only -- I mean we've been on productivity from multiyear, and we mentioned automation, digitalization, standardization of the company network rationalization that you've seen in some of the beverage business with some asset divesting. But we're even accelerating that even with more structural productivity and making sure that all the money that is not linked to growth disappears from the company, all the duplications, I referred earlier in the call to overheads, to incorporate and allocate it, things that don't make sense, make sure that we -- with a sense of urgency, we pivot those resources towards growth and making sure they were affordable that we capture the opportunities for net revenue management and growth in the business.

Our last question comes from Peter Galbo with Bank of America.

Just two really quick cleanup questions from me. Steve, I think just in the context of the Q4 kind of guidance reduction, maybe you can just give us a sense order of magnitude, how much kind of the inflation expectation moved up that drove that? And in that context, I know you don't want to get into '27, and we're all trying to kind of develop a framework to think about it. But just as some of these hedges kind of rule and obviously, you're working through the plan, just -- if we're constructing a narrative for next year? Is it very much the case of, a, maybe expect a bit more of that pressure, at least in the first half of next year? I just want to make sure that we're kind of trying to level that expectation as best we can at this point.

You're welcome. The -- look, the piece that I would assume is commodities are ramping up, right? And we'll see some of that in Q4 as the hedges roll off. Our hedging program again is 6 to 12 months. We'll give you a more complete view on how that all comes together in February. But as a general trend, commodities continue to ramp up.

Okay. So listen, thank you for the conversation today, and thank you for the investment in PepsiCo and the confidence you give us by investing in our company. Thank you. And -- see you all around. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good morning, and welcome to PepsiCo's 2026 Second Quarter Earnings Question-and-Answer session. [Operator Instructions] 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 of Investor Relations. Mr. Pamnani, you may begin.

Thank you, Kevin, and good morning, everyone. I hope everyone has had a 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, July 9, 2026, 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 second quarter 2026 earnings release and second quarter 2026 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 CFO, Stephen Schmitt. [Operator Instructions]

And with that, I will turn it over to the operator for the first question.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs.

I had a question on PFNA. Your volume was flat in the quarter despite what seems to be stepped-up affordability initiatives and innovation. So hoping you could spend some time helping us understand the changes you've made, maybe what's working, what's not working? And then whether you need to lean in further maybe on affordability or maybe innovation to drive better volume growth?

Just me -- just step back for a minute and give a full company perspective. There's a lot of things we feel good about the business, and there's a few things that we're going to be very focused in the second half to accelerate the business. So if you step back, the company, the first half reported almost 7% revenue growth. And we've grown global volumes 3% in foods and 2% in beverages. That's the fastest growth in volume since 2022. Included in that those volume growth is the volume growth in the U.S. foods business, which it was very strategic for us to get the category back to volume growth and to get the -- our business to gain share of volume in the category. So we feel good about that particular turnaround, and it's -- we feel good about how the business is performing.

There are 2 pillars to how that happened. One was, as you mentioned, affordability investments and the second one has been the growth on the permissible part of the portfolio and the portion control part of the portfolio. That part is going very well. Now on the affordability part, we feel good about the investment. I think in the second half of the year, we're going to have to optimize the return on investment on some of those pricing investments. It depends by channel, by customer and teams are learning. But I want you to step back and take the bigger picture that a category that was negative in volume now is positive in volume. We were losing share in volume. Now we're gaining share in volume, and that is all very, very positive. And it was the first strategic intent that we had early in the year when we decided to lower the prices of the business. I don't know, Steve, anything else from your side?

I think that pretty much covers it.

Our next question comes from Filippo Falorni with Citi.

So Ramon, you mentioned in the prepared remarks that in the U.S., consumer behavior clearly were impacted by rising inflationary pressures in the quarter. I was wondering if you can give us an update on what you've seen more recently? Have you seen like an improvement in consumer behaviors as gas prices and some other inflationary metrics have come down? And then as we think about the back half, before you talked about a potential to get to the higher end of the organic sales range. Can you give us an update on how you're thinking about the back half at this point?

Yes. So I think the -- obviously, the Iran war and the impact on gas prices has been meaningful, not only in the U.S. but across the world. Our international business, as you saw, continues very strong, and we were able to grow 7% accelerating. In the U.S., we're seeing the consumer changing behaviors, basically an acceleration of some of the behaviors we saw in the past. Probably some channels, more of the impulse channels have been impacted where there is more of a correlation with the price of gas, certain convenience stores and some other independent. We've seen a slowdown of the conversion of traffic into purchases. So we're seeing that.

Now will it change in the coming months? It all depends on the price of gas. So clearly, that's something that is beyond our control. We continue to invest in affordability. In those particular channels, we're working with our customer partners in solutions to convert more of the traffic in the store, bundles, linking to meals, solutions to address that particular channel. But no, we're not -- that is the only element that we're seeing in the last few months.

Now we continue to see, as we look at the second half of the year, a very strong international business, and it's continuing to perform well into the summer. We see an acceleration of our U.S. business, both in the foods and the beverage business. And we continue to have a line of sight to the low end of our long-term 4% to 6% in the second half of the year. We were fighting for that. We see a lot of green shoots in our portfolio transformation. We feel good about our permissible. We feel good about some of the innovation that we launched. We're going to scale them in the second half. And we see our affordability investments to return better for us in the second half as we optimize the tactics for different channels, different consumers.

It's Steve. The -- just maybe a little bit on guidance since we talked a little bit about that. So if we think about guidance overall, you saw that we reaffirmed our guidance for the year. If I take a step back and look at the performance of the whole company and to reiterate some of what Ramon said a minute ago, the overall net revenue of the company grew 7% in the first half of the year, and Ramon just talked about the volume growth that we're seeing globally that makes us feel really good about the health of the brands. Reported EPS grew 6% in the first half. Constant currency EPS grew 3%. We continue to see strong international performance and a softer North America business than we expected in Q2. And so how does that play out for the rest of the year? So as we look at the second half, we continue to expect the international business to remain strong.

We expect the North America business to gradually improve, but a more moderate pace than we thought coming into Q2 as Q2 was less than what we expected. We do expect some more pressure on the business from a commodity standpoint, but we also expect refund claims for tariffs paid last year to help offset some of the commodity pressures that we have and allow us to continue to play offense. And the refund claims on the tariffs paid last year will be about a 1 full point of EPS growth for the year. And the other piece is we expect to keep pushing productivity on the business. So we've taken costs out. We'll continue to do that.

We have more work to do here. I think what's important for you to know is we're not making decisions that hurt the top line in our assessment. We're going to continue to make investments in growth. The North America advertising and marketing expense is projected to increase in the second half versus prior year as an example. So we're going to continue to play offense. And so when we add it all up, we're in a position to reaffirm our full year guidance. And as Ramon said, it may be towards the low end of the EPS range that we've given.

Our next question comes from Dara Mohsenian with Morgan Stanley.

So obviously, strong international results in the quarter, but I wanted to focus on North America a bit. We talked about the sequential improvement in volume in PFNA in Q2, but I don't think it was to the level you expected. And maybe you can also comment on PBNA, where it looked like the volumes were also weaker than expected. And just was hoping for a little more of a short-term report card. Do you think that's less payback on some of the initiatives you put in place? Is it more of the general consumer environment? But really, what I wanted to focus on is more longer term, just your perspective on the level of spending behind that North American business as we look out longer term? Do you think to sort of revitalize organic sales growth in this environment? You might need some level of greater spending, a bit of an earnings reset as you look out? And just how do you think about investment levels behind the business looking out given both the short-term performance you're seeing in the consumer environment?

That's a good question, Dara. The way we think about it is we still see the international business is obviously continue to be very strong. And this is a business now is going to cross $40 billion in this year. International beverage volumes is 2/3 of the total company volumes and international foods volumes is over 50%. So clearly, the international business is becoming a very scaled part of our business and profit accretive. So we're creating a diversification in our business that long term will give us a lot of rewards.

Now when you focus on the U.S., we continue to think that the 3 pillars that we said we were going to help us transform and accelerate our growth in the U.S. One was affordability investments, make sure that our brands are in consumers' lives in the portions and prices that consumers can afford today. That's one vector; continue to transform the portfolio at a faster pace following the new dietary habits and food habits and food and beverage habits of consumers; and the third one was accelerate Away From Home as incremental occasions for us to capture new occasions for our brands. The portfolio transformation is working very well. We feel good about the nonsugar part of our beverage business. We feel good about the functional hydration. We feel good about our energy business, and we feel good about some of the innovation that we're going to scale in the second half of the year. So that part is good.

We feel good about the permissible portfolio in foods. It's already $3 billion and growing almost double digit, the portion control. So all those elements that we explained quite well in our prepared remarks, we feel good. And I think that is really the long term of the business as you see how consumers will engage with our categories. The Away From Home business continues to be a priority internationally and in the U.S. It slowed down a little bit in Q2. We think that is going to help us accelerate in the second half, but it's a strategic opportunity where we're innovating, creating new business models and adding some incremental locations.

Now the affordability part, which is the one you're referring to, it's -- we accomplished what we wanted to accomplish, which was to get volume back into our categories in our core brands. And that was not an obvious thing to do, and we managed to do this in the first half of the year. Now we're optimizing the return on those investments. And what we learned is that, yes, because of the consumer environment and the fact that gasoline prices were higher, consumers felt a little bit more the economic impact. But we think that we will continue to optimize those investments for grocery, high load, there's one type of investment for everyday low price, other type of investments, et cetera. And the system is getting much knowledgeable and much more intelligent in how we get the best return from those investments.

Now what was different this quarter that we were not planning is the performance on the impulse channels. And that is something that we're working on, to tell you the truth, in the last few months to try to get more conversion between people getting into the gas station and converting into purchases of beverages and foods. And that's something that we're working with our partners. That is new. The gas prices have impacted. The gas prices will at one point come down and then that will become hopefully less of an issue second half of the year or early into next year. So that's the full picture. We don't think we need any sort of reset because we have a very strong productivity, record productivity in the first half of the year. We're going to add new layers of productivity second half of the year to be able to fund all these growth investments, be it price, be it portfolio transformation, all the growth into Away From Home, which will drive the portfolio acceleration. So that's how we're thinking about this now. Steve, any...

I think you covered it well.

Okay.

Our next question comes from Andrea Teixeira with JPMorgan.

On the guidance for the second half, you're now adding about, I believe, $0.07 to $0.09 in EPS from the tariffs and reinvestment. And then -- and you also mentioned that EPS will be more backloaded into the Q4. So I just want to double-click on what Ramon just said about the affordability pillar. Should we expect more price rollback similar to what your biggest customer in the U.S. has recently announced rolling into other retailers? And if so, can you give us some examples of how these reinvestments have converted into better volumes? You just talked about the CNG, the convenience and gas.

Anything you can point out to one of your biggest partners that would allow us to think about like volumes finally reflecting in some of these channels in Away From Home? And when you think about the $0.07 to $0.09 reinvestment, so it implies more flattish 3Q. I just want to double check that math. And if that's the case, how you -- we should be thinking? Is that mostly to absorb the commodity pressures that you highlighted or the A&P investments or AM investments? Or should we think about the affordability price investments being the bulk of it?

Andrea, it's Steve. Thank you for your question. It's good to hear from you. I think on the first part of it, we're going to continue to run our play. We have a strategy that we believe in. Ramon talked a little bit about maybe we'll likely have to make some tweaks based on what we're learning from a value standpoint, but we're going to continue to run our play there. On the impact to -- from the tariffs, maybe I'll talk a little bit about Q3 and then Q4 because you mentioned both. Look, on the -- if I talk about Q3, and I don't like to give specific guidance on quarters, but I think it's relevant to give you a little bit about the timing since I shared some in my prepared remarks.

On the positive side, we continue to expect international to be strong. And we do expect, like you said, about approximately 1 point of EPS benefit from tariff refund claims likely in the quarter. We expect a gradual improvement in North America, and we will be using the tariff, essentially the refunds to help offset some commodity inflation that we're seeing and allow us to continue to play offense in the business. So that's how we're thinking about that. Also unique to Q3, we expect to have a higher tax rate year-over-year than what we've seen so far this year. So that should go into the math. There will be timing of certain costs and investments that we expect to impact Q3 more than Q4. So we'll continue to focus on productivity. We expect more productivity in Q4 and Q3, but that's kind of how we're thinking about the overall math of the back half.

Yes, Andrea, if you think about the big picture, the -- clearly, the impact of the gas prices or the oil price in our cost of goods globally and the impact of higher gas prices and demand, these are new elements that obviously we're looking at to compensate with higher productivity. The tariff refunds comes obviously very handy and some other trade-offs that we have to make in the business. So these are normal trade-offs that we make during the year because there's new data points on some elements of our P&L and that we have to compensate with others. So that's how we're thinking about the overall pool of money that we have available to continue with our guidance, which is the higher order deliverable now, be it the high growth and the EPS numbers that we gave you earlier in the year.

Our next question comes from Kevin Grundy with BNP.

I want to come back -- I'm for beating the dead horse here, but I wanted to come back to the North America food performance, ask from a little bit different angle, maybe play back some of your comments, Ramon. And specifically, the thrust of the question is around performance currently versus the strength that you saw in the test markets back in the fall, where there's a lot of enthusiasm, both from a PepsiCo perspective as well as from a retail perspective as best we gather. So can you help us sort of delineate between the macro factors? You talked about tighter consumer budgets and higher levels of inflation versus more company-specific factors and how that looks versus, say, 9 months ago or so when you performed -- when you did test market work. And I guess on the call, I'm hearing better -- you're looking for better ROI on some of the price investment, maybe better execution in the impulse channels, but really just trying to gauge the key factors, the big areas that have changed since the test market work versus what we should expect now going forward and why things may get better.

Yes. The -- I would say the higher order is we've been able to accelerate volume growth in the category. Salty snacks is one of the few categories that is growing volume in the overall food space in the U.S. So that was a positive. That was the #1 intent. The second one is for us to be a driver of that volume. We're gaining share of volume in the U.S. in salty snacks, which was also the other objective. So that's the number one.

Now is the -- is the volume as much as we expected? No, not in Q2. And we -- it's a couple of elements. I think the consumer is worse than what we had anticipated and driven mainly by gas prices. Second, the execution of the price investment in some customers have had some delays, I would say, because of multiple commercial reasons. That has been solved. So we'll see an acceleration in the second half. The consumer reaction to the investments is pretty much along the lines of what we had initially anticipated. So I wouldn't question the strategic logic of investments.

There are tweaks that we have to make commercially and there are obviously different circumstances in the U.S. consumer budget trade-offs that consumers are making given the some of the inflation -- recent inflation, especially on gas prices. So that's where I would leave it here. We remain focused, as Stephen said -- as Steve said, on continuing the playbook. We continue to invest on our portfolio. We continue to invest on our affordability. We continue to invest in Away From Home. And we think that the food business in the U.S. will continue to grow volume and grow net revenue in the coming quarters.

Our next question comes from Peter Grom with UBS.

Maybe there's been a lot of focus on North America this morning. So maybe just pivoting to the international business. Ramon, maybe you could just give us a walk around the world in terms of what you're seeing around category growth, health of the consumer? Were there any notable differences in any key regions as you move through the quarter here? And then, Steve, maybe not to get too specific, but when you speak to international growth remaining resilient in the balance of the year, should we be extrapolating the growth that we saw in the second quarter for the balance of the year?

Yes. So yes, thanks for putting the international business at the center of the conversation. Yes, I mean this is a business that, as you know, we've been investing for the last 5, 6 years, and it's now, as I said earlier, a big part of our volume globally and a big part of our revenue and profit globally. So this is clearly a success story for the company and will continue to be a big driver of growth for us in the coming years given the per capita and given the share of market opportunities that we have globally. The -- around the world, I would say, going into the quarter, we were a little bit concerned, obviously, with the performance around the Middle East and some of the Asian markets where the gasoline prices were more obvious.

The truth is that all those markets have remained very resilient. If I think about Vietnam, Thailand, China, some of the markets where the gas prices were elevated. And the same with the Middle East. Our Middle East business continues to perform at a very good level. We're seeing that our procurement global capabilities and the agility of the business is proving to be an advantage for us in some of the markets where we're pivoting faster than competition in terms of raw materials availability and agility to compensate for the inflation.

Europe remains resilient, more -- pretty good. Clearly, the World Cup is helping and the fact that we're sponsoring the World Cup in our food business is helping us to activate the category in a better way. It's creating occasions. We're capturing and we started Q3 very strong in international. Latin America, a little bit less growth than in the rest of the business, as you saw, but clearly trending very positive and the World Cup obviously having a very big impact in that part of the world. So overall, broad good performance. Part of that is category acceleration. Part of that is better share of market. I would say better in beverages than in food. In food, we still have opportunities to improve our share of market in some parts of the world. But we continue to see the business trending well throughout the summer and into the winter.

And Peter, just to answer your question on what we would expect in the second half, as I look at the business, the signs are pointing towards continued strong growth. Ramon mentioned the volume growth that we've seen, and that's a pretty good indicator of the health of the business in international. The -- maybe one thing to call out is we do expect some commodity inflation, probably more so in EMEA in the back half of the year, but the teams have been very proactive in mitigating some of the inflation that we expect to come through. And one thing that just to point out to demonstrate not just the top line growth of the international business, but in the second quarter, operating margin grew by a full point. And so we feel good about the top line, and we also feel good about the efficiency of how sales are running through the P&L.

Our next question comes from Lauren Lieberman with Barclays.

Just want to talk a little bit about the margin pressure that you saw in PBNA this quarter and how to think about profitability over the balance of the year, just knowing the ongoing focus on improving margins here, but then you've about the realities of higher inflation. And I'm assuming this is also an area where there will be some incremental reinvestment to support your volume ambitions. So just talking a little bit about profitability in PBNA.

Sure. I'll take that. The -- if you think about the PBNA business from a margin perspective, operating margin was down about 90 basis points in the quarter, but that was driven by gross profit rate. The gross profit rate decline, I'd call out 3 things. About half of the rate decline was driven by the business we have through Alani and the commercial arrangement we have there. That's about half the gross profit decline. The other pieces would be more around the convenience and gas channel that Ramon was talking about, that was particularly soft in the quarter as well as some of just product mix overall. Those would be the 3 things that I'd call out.

And on the G&A side, the team continues to push the productivity envelope there. Going forward, I think as Ramon talked about, we need to see some improvement in the convenience and gas channel. And hopefully, we'll get some tailwinds from gas prices to do that, and we'll continue to push the productivity side.

Our next question comes from Michael Lavery with PSC.

Just wanted to come back to PFNA and if you could add some color on just shelving and distribution updates. I know at the beginning of the year, you were expecting some upside. And curious if you could just maybe give us a sense of timing, how much maybe still has to come? How much might be permanent secondary displays or maybe just temporary ones and just how to think about how that unfolds?

Yes. I would say the space increase that we had initially planned has been coming throughout the year. There's still more to come. There's been some channels where it's taken a little bit longer to execute that space increases, but we will see those coming in the second half of the year as some of the commercial conversations are coming to fruition. So I would say increasing permanent space, the perimeter space, as I said earlier, is going to come more in the second half of the year, particularly in some channels where we had to come up with some different solutions with the customers. But this is -- long term, this is going to happen. I mean, long term, I mean second half of the year, and we should have some acceleration in the return on investments in those particular customers.

Our next question comes from Steve Powers with Deutsche Bank.

I guess maybe a little bit of a follow-up on that, Ramon. So from the outside, and I think that's what the prior question was getting at, it just seems like a lot of the initiatives that were discussed coming into the year, especially along the lines of affordability and package and product innovation, appear largely in the market. And I guess the go-forward question there is, is it more about optimizing and scaling the efforts that you've already put in motion? Or are there additional actions that could -- that remain ahead that can serve as catalysts? Shelf space is part of that, I guess. But anything more along the lines of...

Yes. I would say we're in the journey of the 3 pillars that I mentioned. On the portfolio transformation, most of the innovation that we launched is working quite well in Food North America. We're scaling up Naked. We're scaling up Doritos Protein and some of those new platforms that will contribute to the overall permissible portfolio growth and the portion control. In the portion control, we made some investments in opening price points for multipacks and variety packs that are also working very well. So I think portion control portfolio transformation, that part, I think, is well in its execution, and we're scaling up those platforms.

The Away From Home acceleration, I'd say we took a -- there were a couple of elements between supply chain and customer execution in the Away From Home part of the business that slowed down in Q2, now it's accelerating in Q3. That will be a pillar of acceleration. On the affordability investments, as I mentioned, there are channels where the investments are working very well. And there are other channels where we had to make some tweaks, and we're executing those tactical mechanics of the value to the consumer, and that is being put in place, and we'll see the benefits in the second half. So that's more or less in the overall picture of the 3 pillars of the food business in North America acceleration. That's where we are.

Our next question comes from Peter Galbo with Bank of America.

Steve, just to put a finer point on your prepared remarks, you talked a bit about the gradual rate of improvement in North America for the second half. I just wanted to understand if there's big differences in terms of the 2 segments and the rate of improvement or if they should look relatively similar as we think about the back half of the year.

Sure. Thanks for your question. Look, if I had to take North America and dissect it a little bit, I would expect more profit improvement faster from the PBNA business than in Foods as we make the value investments and the tweaks that Ramon talked about on how that ripples through the system. So that would be the additional color I'd provide. And then in Q4, obviously, I would expect more better profit performance than in Q3.

Our next question comes from Robert Ottenstein with Evercore ISI.

Just kind of stepping back, a little bit more of a maybe a strategic question. I mean the difference in performance, right, between the U.S. business and the international is pretty stunning. And you noted that in a lot of markets around the world, higher gasoline prices were an issue. To what extent do you think that, hey, the U.S. market is just a pretty mature market. And the rest of the world, there's much greater opportunity. Does it make sense or maybe you're doing it, we don't really have a view into it, but are you perhaps overinvesting in the U.S., underinvesting internationally given the growth potential of both of those markets? And you noted that the international business now is margin accretive. So that's kind of the big picture question. And then tied to that, perhaps is maybe if you could give us an update on the integration testing that you're doing in Texas as a way to lower your cost basis in the U.S.

That's great. Robert, thanks. Yes, the 2 are related, but in a way, we've been investing in international for many years. And one of the -- obviously, the things we're very careful about is make sure we don't starve international of the capital or of the investments to continue to grow that business because as you said, if you think about the company 5, 10 years from now, that will be the biggest source of growth, and that is where the biggest opportunity is for us to continue to expand our brands and develop our categories.

Now the U.S. is critical for us in the short term and the long term. And we believe that both keeping our brands in consumers' occasions that we have today, but also providing new offerings, both in foods and beverages that cater to the new trends in food consumption in the U.S. and also expanding our Away From Home is a way for our North America business to continue to be a compounder for us at a good pace. And it's not currently we're growing at 1%. It's more towards the 3% levels that we think the U.S. total business can grow in the future.

Now to fund that growth, we don't want to starve international. Therefore, some of the big productivity initiatives we have in the U.S. are precisely for that to make sure that we can fund the transformation of the U.S. business without starving the international business. To those points, I think automation, we are expanding automation through our business. We're expanding some of the digitalization that would make us much more effective and productive. And one of the pillars that you referred to is how do we combine the scale of our 2 American businesses to change the cost structure of the overall business, especially on the logistics side of the business, right, the warehousing, the transportation and delivery. And we're making good progress.

We'll have an update for you with more detail later in the year, early next year. But I would say where we're testing in Texoma, we're seeing mixing centers being a big idea for us, and that is scaling. These are combined mixing centers where we put the inventory from the 2 categories that gives us a lot of flexibility to service our customers and lowers our cost. Now we're testing incremental ideas like combined delivery, combined fleet, those are big, big transformations and it requires systems, requires assets, but all of this is in motion and with positive return so far.

Now there are other transformations that we're doing in terms of integrating our G&A and integrating our systems that would allow us to have a lower cost business that is more affordable and can invest in the growth spaces in the U.S. So great question and one of the clear strategic funding resourcing decisions that we have in the company. And what we want to tell you is that we are not starving the international business to fund the U.S. business. The international business has enough capital, enough A&M, enough talent investment to continue to be a great source of growth for us and a compounder at the levels that you've seen for the last 5, 6 years.

Our next question comes from Robert Moskow with TD Cowen.

There was an article in the press about 6 weeks ago about a 10% to 20% price increase that you're taking on Frito-Lay smaller bags. And I suspect that, that is really for the convenience channel. And now today's results indicate that convenience has been weak. In terms of the investments you're making, are you taking steps to kind of cushion the blow for consumers so that affordability doesn't kind of get worse in that channel from here?

I mean that channel is critical for us. And the way we're trying to increase the incidence of purchase in that channel is through bundles and some other incentives for purchase that we're actually partnering with our customers across the country. And that -- we see the benefit when we have good offers and bundles, beverages and foods or foods and foods or snacks and foods, we see that being a great accelerator of the performance of the different customers. So we're not trying to raise prices in the single-serve business to pay for the investments in the take-home business. That's not what we're trying to do.

Our next question comes from Chris Carey with Wells Fargo Securities.

Can you just give us a sense of performance and opportunities of some of your recent acquisitions, perhaps most specifically Siete and poppi. And in general, give us a sense of how you're viewing the M&A environment, willingness for additional acquisitions and how in general, that factors in your medium-term plans?

So both Siete and poppi are doing well. Poppi, we had a -- the transition between the distributor system that poppi had and our system had a few -- obviously, there's a big transition. There's a lot of distributors, and we had a bit of an impact in the first part of the year. Now that is pretty much solved. The business is flowing through our supply chain, and we're seeing the benefits of that in additional consumption points and additional customers, and that will continue. We're seeing poppi growing again at a good pace.

Siete as well, Siete was integrated earlier. We had some issues with some of the ingredients in Siete that impacted the performance of the business in the April, May time frame that has been solved as well. So we -- they are both very critical parts of our strategy to transform of our portfolio. And we mentioned we're going to be innovating with our brands into new spaces, but there will be spaces where we continue to think that buying a brand and expanding that brand within our system is a great return.

And Siete and poppi are good examples. We're also looking at partnerships like the CELSIUS, Alani Nu. That's another way that we're using to expand our offerings to consumers and to leverage our capabilities, be it go-to-market, be it others to provide consumers opportunities in spaces where it would be hard to scale an innovation for ourselves. But as you saw from our prepared remarks, we're innovating with our brands in many of these new spaces and leveraging our R&D and our brands and our teams to provide new solutions, be it new packs, new functionality, new occasions that continue to add business to our brands in the U.S.

Our last question comes from Kaumil Gajrawala with Jefferies.

I guess I'm just struggling a little bit to understand what optimizing return on investment means. Does that mean that perhaps some discounts were not working and they're not worth doing anymore? Or is it something else to drive more volume? Just sort of I understand it conceptually, but not practically in terms of like what's actually changing and what the goals are for that? Is it a profit? Is it intentions for ROI for profits or intentions for shifting where you're deploying capital to drive volumes faster than whatever how they're growing now?

I think it's trying to get more volume from the investments, Kaumil. And there's high low customers, there's everyday low customers and the mechanics, how you can maximize the return on the trade investments or offers that you make to the consumers can drive more volume or less. So that is how we are -- what we mean by optimizing the return on the investment, and it will -- it's a very specific customer by customer, holiday by holiday, beginning of the month versus end of the month, all those details and how we execute that with our customers. And it's simple on the everyday low-price customers, a bit more complex on the high low, and that's where we're trying to tweak.

So thank you very much all for your conversation and for joining us today and the confidence you're placing with your investment in our stock. Thank you very much, and have a great day.

Good morning, and welcome to PepsiCo's 2026 First Quarter Earnings Question-and-Answer session. [Operator Instructions] 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 of Investor Relations. Mr. Pamnani, you may begin.

Thank you, Kevin. Good morning, everyone. I hope everyone has had a 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, April 16, 2026, 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 first quarter 2026 earnings release and first quarter 2026 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 CFO, Steve Schmitt. [Operator Instructions] And with that, I will turn it back over to the operator for the first question.

[Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley.

You guys are first up in large staples, so I thought it was appropriate to start with just an update on any impacts from the Iran conflict that are now contemplated in guidance and how that ties to your full year earnings visibility. So first, maybe, Steve, on the cost side, just can you highlight what's changed in terms of your cost assumptions? Any sizable pressure points individually as you think about the cost situation?

And also if you're more locked into this point on cost with hedging and contracts or a bit more open ended for the full year? And I'm presuming costs have gone up. So what are the offsets internally as you think about 2026 earnings visibility? And do you think you still have that visibility even with the external volatility? And then, Ramon, if I can slip a second one in, maybe you can just touch on international demand.

Obviously, another solid quarter, continuation of momentum there. But in theory, there's also some macro risk to demand post Iran. So if you can touch on the international regions if you're seeing any impact from the conflict later in March or April so far, that would be helpful. And again, the juxtaposition of sort of internal momentum versus the external volatility and if you think you can drive continued momentum going forward?

Dara, it's Steve. Thanks for the question, and good morning, everyone. Obviously, we've been spending a lot of time here. A few things maybe. The -- we've had no major issues from a supply chain standpoint. We're seeing really nice continuity there. The teams are managing it well. I think in times like these, the scale of PepsiCo is really an advantage. I really want to thank our supply chain and procurement teams for the work they're doing. I know they're working around the clock to manage this, and they're doing a really nice job making sure that we continue to service our customers.

We do have some systemic hedging programs in place. That does give us some near-term visibility here. We typically have about 6- to 12-month hedges in place. Now our assumption is that inflation will come. The order of magnitude, we're still working through, and I think a lot of that is still to be determined. And the way I think about it from my experience on how you manage inflation would be kind of 3 ways over time. One, you grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price pack architecture. We'd like to do the majority of it through the first 2. But I think the reality is, depending on the magnitude and time that we have inflation will likely play in all 3 areas to combat the inflation that we'll see.

From a visibility and guidance standpoint, our assumption is that we can mitigate what comes our way this year, and that's really reflected in our assumptions on guidance. And as you might expect, we've started to begin our work on 2027 scenarios, but we're still working through that, and we don't have anything more to share on that today. But Ramon, maybe you take the second part.

Yes. Dara, so I would emphasize Steve's point that at this point, in the play, the scale of PepsiCo and the resilience we've built over the last few years, especially after COVID, on our supply chain. We built a lot of redundancy in terms of our key materials and multiple supply points for our key materials. So that's giving us an advantage. Obviously, our hedge program. And as Steve mentioned, the seniority and experience of our leaders on the ground make a big difference because they provide agility, they provide good, good common sense on how to deal with situations, protecting our people, but also driving for growth in moments of complexity.

Now with regards to the international business, as you saw, is very strategic to our long-term growth strategy is one of the key pillars. It's been accelerating. And actually, to your question, it continues to accelerate. So we haven't seen an impact on demand in the last -- since the war started. We have very strong commercial programs. Actually, I would say in some markets, we're seeing benefit because we have better supply chain than some of our competitors, especially in the food business. So nothing to -- remarkable at this point.

We're executing our very strong commercial programs for the summer. The World Cup is a big driver of execution and innovation during the summer, and the teams are full speed executing that, along with some other transformation of the portfolio. So the international business is very solid, continues to accelerate. And in our guidance, we haven't assumed any impact because we're not seeing any at this point.

[Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan.

I was hoping to see if you can talk about PFNA a bit more in detail, and congrats on the volume inflection. Can you talk to us about like how the programs have been progressing as we go through the quarter? And how sustainable do you see this performance if you had -- I mean some of the investors may have asked if you had some benefit from shipping ahead of the shelf resets and then the winter storms as well? And if you can comment on that? And how has the repeat rates been in your view for the refilling of those orders?

That's good, Andrea. So if you step back for a minute, early last year, in the spring time, we define the new strategy for the company, focused on growth and very strong productivity to fund the growth. The company has been executed across all the different sectors, this strategy with rigor and a sense of urgency. And we've seen results in Q4 and continued sequential improvement in Q1, as you saw.

Now, when you go down to the North America Foods business, this was a holistic commercial study focused on growth. There was some additional value to the consumer. There was more space. There was a restage of some of the key brands like Lays and Tostitos. There was a lot of innovation to accelerate our, what we call permissible and functional. And there was a repurpose of funds towards away from home to accelerate away from home. All of that is delivering for us. So when you see the 2% volume growth is a combination of all these elements, more value in some of the core brands, multipacks and multiserve is one lever, but it's a much more holistic. We feel good about where we are at this point in the journey, still in the process of all the shelf resets and launching the innovation I would say. By the end of Q2, we'll probably be almost completed in that process. But the early reads are quite exciting.

Now if you think about 2% volume growth, about 4% unit growth we have increased 300 million occasions in Q1 in the food business, 300 million new occasions to our business compared to Q1 of last year. The away from home business is growing 3x the average of the company. The permissible portfolio is growing double digit in some of the brands. So clearly, all the structural things that we're trying to do are working. And most importantly, we don't talk so much about it, the productivity decisions that we took early last year are giving us that flexibility and optionality to invest in the food business in a way that we couldn't do earlier. So -- and actually, the cost for North America Foods went down in Q1, which is a remarkable achievement by the team.

So we're good. We're feeling encouraged also by the results in the last few weeks, where we got positive share. Not only in volume, we've had for quite some periods already, but now we have positive share in value as well, which is one of the KPIs that we set for ourselves early on. So good progress. We'll continue to update, but the execution is -- we're in the middle of this reset execution, but feeling very good about how the brands are reacting, how the customers are supporting and how the teams are executing in the marketplace.

[Operator Instructions] Our next question comes from Bonnie Herzog with Goldman Sachs.

I had a quick follow-up on PFNA. I just wanted to verify that you still expect to deliver both organic revenue growth and core operating margin expansion this year for the business. And then I do have a question, I guess, on the volume pressures you're seeing at PBNA. I assume your volumes have been pressured as you continue to roll out smaller pack sizes for affordability and then you're leaning in on your price pack architecture initiatives. But I guess, hoping for some color on what's continuing to pressure volumes and maybe your strategy to drive better volume growth this year. I guess, should we assume PBNA volumes will be negative this year, but declines will moderate and improve for the next few quarters?

Thanks, Bonnie. This is Steve. Let me talk about the PFNA, I guess, margin question, I think you asked. If I take a step back, if I look at the total company, core operating margin increased about 10 basis points. We did have a property sale gain from last year in the PFNA business that negatively impacted that. So it would have grown, expanded a little bit more without that. We had organic revenue increase, 2.6%, core EPS increased 9%. So we're pleased with how the total company performed.

For PFNA specifically, we're going to continue to play offense. We're investing in value. We have exciting innovation. We're supporting that with additional advertising and marketing, and we're growing volume and sales. So we affirmed our guidance today. We'll manage margin as a total company, but we want to give ourselves as much flexibility as possible within the segments to do what's necessary to hit our guidance overall.

Yes. And Bonnie, on the North America Beverages business, we've been -- we're talking about this case pack water transition to a third party. That's still part of the numbers in Q1. It will -- I think it lasts at -- in. So we only have 1 more month to lap. If you excluded that transition, the volume is actually almost flat. And we expect that, that acceleration will continue in the coming periods.

Now what's exciting about PBNA at this point is the business grew 9%, right, 9%. Now it's a combination of organic growth, revenue growth of 2 plus 7 points of additional platforms that are now in our distribution system. Some of that is business that we acquired like poppi, some of that is an increased portfolio of energy brands that are generating growth to our business. So we feel good about the 9%. We feel good about the acceleration, the 2% inorganic, and we feel good about the fact that we have flat volume as case by water and that, that progress will -- that acceleration will continue in the coming quarters. Our expectation is to have positive volume growth case pack water in the coming quarters.

[Operator Instructions] Our next question comes from Lauren Lieberman with Barclays.

I wanted to maybe get a little bit more granular, if we can on some of the trends in the PFNA business, knowing that Nielsen scanner doesn't capture everything. One thing that stood out to us is Lays. Lays is one of the businesses where I think you moved earliest, you had the Great Super Bowl commercial, refreshing the visual imagery, emphasizing simple ingredients, price adjustments and so on. And that business well is improving, it still looks pretty weak in aggregate, volumes bumpy, but still generally down and organic down pretty significantly.

So I just wanted to talk -- hear your response to that kind of next steps. I would think that's the business that's the toughest in terms of kind of mainstream competition and less differentiation. But you're the furthest along there. So just maybe your perspective, what I might be missing on how that turnaround has been progressing from your perspective.

Yes, Lauren, it's good. The Lays brand is part of, as I said, a more holistic restage of the full business. We're well under -- this is a global brand restage, so Lays is being restaged globally. Is performing very well globally. It is performing well in the U.S. We grew volume this quarter in Lays in particular. But if you step back and say, okay, what's happening at PFNA, we grew volume 2%. We grew occasions units 4%, and we grew 300 million occasions in the quarter versus Q1 last year. That, for us, some of the success metrics that we're looking at.

The other set of KPIs we're looking is household penetration, and we see household penetration gains across all our core brands. And on top of that, we see our permissible portfolio growing, in some cases, double digit, brands like SunChips, Smartfood, and some others. So holistically, we think we're in a very good place. The fact that we're back to gaining share in the last 3 weeks, we use IRI. We don't use Nielsen internally. That's the data point that we have. In IRI, we're gaining share of in value terms, in the last few weeks, and we've been gaining volume share now for, I think, 3 or 4 periods.

So overall, we think that the consumer is back in our brands. The consumer is coming back multiple times to our brand responding to our holistic value plus execution plus advertising plus innovation strategy. And there will be more -- as we execute the full space transformation and innovation execution, we'll see -- we're very optimistic about the sequential improvement of that business. And we think we're on track -- actually a little bit ahead of where we thought we would be by now.

[Operator Instructions] Our next question comes from Kevin Grundy with BNP Paribas.

Congrats on the progress in the quarter. Wanted to ask you both on the organic sales guidance and your expectations for the back half of the year. So I think the existing commentary was that is successful with North America Foods and International continues to progress well, et cetera, you could deliver toward the higher end of the 2% to 4% in the back half of the year. You sounded good on international to me, maybe even a little bit better despite the conflict promising with the return to volumes in North America Foods and same on with beverages.

So I just want to see if that is still the expectation that the exit rate for the year is going to be closer to the lower end of your long-term guidance of the 4% to 6%. So your comments there would be helpful.

Sure. Kevin, this is Steve. Maybe I'll start. Really no change in the guidance from the top line standpoint. We guided 2% to 4% and the upper end of that in the towards the back half of the year, and that is a good estimate as we can give you at this point in time. In terms of the progress of the financial performance over the year, I think in the last call, we talked a little bit about the year being balanced between the first half and second half. And I still think that's as good of an estimate as we can give you at this point in time.

Yes, Kevin, I think the if you look at all the execution of the hungry and thirsty for growth strategy across the company is very positive. So we see an acceleration, international continue that. We've seen momentum in PBNA, both organic and reported. So that is good as well. And sequential growth in PFNA. As I said, probably a little bit ahead of what we thought at this time. So nothing has changed for us to give you guys a different guidance on how we see the business evolving and where we plan to be by the end of the year. .

[Operator Instructions] Our next question comes from Filippo Falorni with Citi.

I wanted to ask a follow-up on PFNA, especially on the innovation and the distribution gains that you're expecting. Ramon, you mentioned you should be mostly done by the end of Q2. So how should we think about the relative size of distribution gains and the contribution from innovation in Q2 versus Q1. You have a lot of products shipping in Q2, like the protein, Good Warrior, Smartfood, good fiber. So I was just curious like your plans into Q2 in terms of innovation contribution and then the distribution gain, should we see an acceleration into late April and May? If you can comment on that would be great.

Yes, Filippo, I think we are obviously different launches, different stages of ACV that we have. But if you think about the majority of our innovation is, let's say, 40%, 50% ACV at this point. So we should expect that we accelerate that in the balance of the quarter and into the summer. The same with the planogram resets were probably 50% more or less in the process of transformation of the space for the year. The space gains that we are getting from our retail partners are pretty much as we expected. Some customers a bit more, some customers, a bit less, and we continue to work with them in a win-win programs for the summer where this category is very relevant to consumers.

So that's more or less the journey that we're in and why we think that we would be accelerating the business in the summer. I mean, towards the summer.

Our next question comes from Michael Lavery with Piper Sandler.

Can you just maybe unpack some of the top line in PFNA a little bit more? And maybe elaborate on the timing of some of the price adjustments. Obviously, we see the segment price down, but just modestly in the first quarter. How much more is in place versus maybe still to come? And then just on some of the category assumptions looking ahead, some of the SNAP revisions and cuts are still quite early. Anything you're seeing or how you're factoring that into guidance and just maybe some thoughts on your expectations for GLP-1 impact.

Maybe I'll -- this is Steve. Maybe I'll take the SNAP question. We did have 8 states. They were 8 states that began restriction in the first quarter. It's mainly beverages and candy. I think it's too early to come to any definitive conclusions right now in terms of impact. It's obviously something we'll watch closely, see how customers balance that funds with other discretionary income for purchases over time. I think the LRB category overall remains robust, and we'll continue to monitor it.

Yes. And on the -- to complement what Steve said. On the food side, we're seeing the Sabra snacks category accelerating with -- part of that is our efforts, obviously, to bring more consumers into the category. Our retail partners are working with us in that journey is a very relevant category to everybody. We're seeing that category accelerating. In many parts of the world, snacks, Sabra snacks is growing ahead of food in the U.S., some weeks is already growing ahead of food, which is a good sign, and we're gaining share of that category.

So overall, we see LRB consistently growing above food and beverages, and we've seen Sabra snacks continuing to accelerate and eventually stabilizing and growing ahead of food and beverages, which has been the historic norm in the past. That is one of the -- we've always thought that as, as leaders of the, Sabra is a category, one of our key objectives, make sure that the category is healthy, and we continue to bring consumers into the category. Some of them had lapsed. They're coming back, innovating to bring more families, more consumers into the category. So that's the assumption for balance of the year. And so far, so good. As I said, we've brought in a lot of consumption occasions into the category in Q1, and we see the same trends in Q2. .

Our next question comes from Robert Moskow with TD Cowen .

You talked about your market shares in PFNA. I want to know if you could talk about it in PBNA also. Is it fair to say that on a value basis, those shares are still in decline. And is that part of your strategic review? Will you be evaluating how to improve market share as well as what I think we're all focused on the bottler network?

For sure. I mean, obviously, market share is a key. -- let's step back for a minute. PBNA is growing 9% total business, right? So we're growing at an accelerated way, including energy. So we see ourselves participating in the energy portfolio through our CELSIUS investment and our distribution of CELSIUS, that's gaining share. We see ourselves, obviously, very statistically leading the functional hydration category and that category is accelerating. For the first time in several years, we see functional hydration, including sports and the rest of functional hydration growing ahead of LRB. That's a key objective for us as well. .

We see Gatorade and Propel gaining share there. We still have some work to do on accelerating the coffee business and accelerating the tea business, where we're also leaders. Some of the innovation that we have in the Starbucks portfolio is intended to do that. And then in CSDs, we continue to have good growth in modern soda, which is a segment that keeps accelerating. Our poppi business is starting to accelerate now, and then obviously, we have opportunities with Mountain Dew that we have highlighted for quite some time.

Now some of the innovation that we've put on the market early innings, but both the Dirty Mountain Dew and Baja and cabo, different flavors on the Mountain Dew are starting to grow the brand, which is very encouraging for us. And then on the Pepsi business, we're lapping some of the events that happened last year. We continue to see no sugar Pepsi growing ahead of competitors, and we are optimizing pricing sizing on the rest of the business to participate in a better way in the -- during the summer period. So overall business, we feel good about the 9% top line growth and how we're participating in different segments of the category to drive the growth for PBNA.

Our next question comes from Peter Grom with UBS.

I wanted to ask a follow-up on PFNA. You mentioned in the prepared remarks that you expect sequential improvement for the division in '26. So I just wanted to clarify if that was a broad-based comment, or should we expect organic sales to continue to show improvement relative to the 1% growth that you delivered this past quarter? And I guess, if it's the latter, can you maybe provide some guardrails around what to expect as we think about the balance of the year?

Yes. I mean our current assumptions is we continue to accelerate organic -- I mean first volume, we'll continue to grow volume, which is consumption units into the brands, Consumption Act. We'll continue to accelerate organic and reported revenue growth. becomes organic as of next quarter, I think. And then we'll -- our intentions and how we're thinking about the balance of the year is growing our profit growth in North America Foods again. That's how we're thinking about the business sequentially.

Now Steve mentioned that we're going to manage the business as part of the broader portfolio, we're going to continue to be on the attack trying to make sure that we stabilize the top line, and we continue to make this category the Sabra snacks category growing ahead of foods and making this a place where both us and the retailers want to invest and continue to grow for the future.

Our next question comes from Steve Powers with Deutsche Bank.

Ramon, recognizing that it's still early in the PFNA momentum rebuild. I guess, have you seen any meaningful change at all in competitive intensity, whether pricing promotions or on shelf behavior? And I guess, given the incrementality of your building cost inflation. How do you think the food industry broadly will balance? What are clear consumer affordability concerns with -- the producer needs to offset costs. Is there a chance that, that could interrupt your own affordability investments? Or I guess, conversely, does that -- are you looking at that as a potential natural limitation on the risk or more aggressive competitive pricing response to your own actions as we build through the year? How are you thinking about those dynamics?

Yes, I'm sure there will be -- as we enter the high season for the category in the summer with all the big holidays, I'm sure there will be more competitiveness in the category. And -- but we have our plans for this. It's not only price. It's trying to provide that. The growth strategy for Frito is not only price. Price is one element, obviously, that is very relevant for many consumers to get back to our category, but its innovation, its execution is making sure that all the elements in retail and away from home continue to be successful.

Now with regards to the productivity story that we have, I don't know if our competitors have the same productivity story, but we've been focused on reducing cost, cost per unit and overall cost for the food business and all the North America business and across the company, actually. And that has been a very successful strategy for us. We still have a lot of non-executed drivers of productivity in the coming quarters and years that would help us continue to give consumers the right value and compete probably in a better way against the other food manufacturers.

So that's how we're thinking about the next innings in the journey. And we'll see how inflation behaves as Steve said earlier, we're going to play a full portfolio and want to make sure that we win in the marketplace with PFNA, whilst we continue to deliver the overall profit growth targets for the full organization.

Our next question comes from Robert Ottenstein with Evercore.

So most of the focus today has been on the top line. I'm wondering if we could kind of dive into and you just started to touch on it a little bit the productivity programs. I think you mentioned that you're on track to having perhaps a record year on productivity. So can you talk about maybe the major buckets for productivity what you're doing maybe differently this year than in prior years because you've obviously been focused on productivity for a number of years. And then how you see that productivity gain scaling up through this year and into next year? .

Sure. Thanks for the question. This is Steve. Well, productivity is one of these never-ending battles that we're going to have. We are benefiting from some of the moves from last year, the reduced headcount, plant closures, reduction in SKU count. It's encouraging to see key metrics like cases per hour and our supply chain continue to improve. So we've got some things that are really working in our favor that allow us to play offense as much as we have to grow volume. We're going to continue to remain very focused on customer service measures while we do this and reduce expenses.

I think overall, we have more work to do on the total company cost structure. It's little things that we'll look at like just different things in the supply chain. It's like whether overtime hours are trending the way we want. The little details of how we're operating to make sure that we get the operating metrics really in line with where we need them to be to drive the productivity overall in the company. But we have good progress there. We have lots of work to do, and it's a big part of our strategy to make sure we continue to play offense.

Yes. And also, I would add some of the big drivers that we've been talking about in the past, we continue to execute. So global shared services, deploying technology across the company and AI, both in our supply chain, but also how we do transportation, how we optimize routes. If you think about in many countries around the world, we're moving to digital ordering systems where we reduced the number and the time that our salesman expect to take an order. And so we're leveraging technology in a very holistic way and AI and data to drive efficiency and transformation of cost. Not only efficiency across the system, both supply chain and go to market, the 2 big buckets.

We're also optimizing our advertising and marketing. We're getting better at the multiyear journey on return on investment on marketing and trade. So those are big -- 2 big demand budgets that we're optimizing. So if you think about where we are in the journey, we're in the multiyear journey, and we're executing all these strategies across all of our anchor markets, obviously including the U.S. And we're tested on learning, the idea of can we create more value, both growth and cost by integrating more of the supply chain in the U.S., and we're live in some tests in Texas, and we're going to deploy that in some other states. That is another vector of cost transformation going forward that we're going to learn more in the next few quarters and update you guys later in the year, early next year.

Our next question comes from Kaumil Gajrawala with Jefferies.

Ramon, you had mentioned the very substantial increase in the number of occasions. Can you maybe dig into that a little bit more? Who are these consumers? Or what are those occasions? Are they different from the core? It sounds like it was obviously quite a success so far. I just like to learn more about what's behind it.

I'll give you a couple of examples, Kaumil, and so you can get a sense. Obviously, by optimizing the value in some of our multi-serve and multipacks, both in Lays, Doritos, RUFFLES, et cetera, and also in Gatorade, we are bringing lapsed consumers into the brand. So these are consumers that had left the brand, either moved to stop buying the category or moving somewhere else. So that is kind of growth in the core.

At the same time, if you think about the consumers that are coming into the category because of innovations like Naked or we're seeing already some in some of the innovation from Gatorade with no artificial, low sugar. We're seeing consumers that were not in the category, but because they love our favorite. Now we're offering solutions with no colors, no artificial colors, no artificial flavors and they're coming back to the category.

So 2 types of consumers coming into the category because both of a stronger core and also innovation that drives incrementality to the category. And I think we're going to continue to play both levers. The other -- obviously, that applies to both foods and beverages, and we will continue to do this not only in the U.S., but also in our international markets where we're starting to deploy some of the innovation from the U.S., and we're seeing also an acceleration of the category, especially developed markets in Europe.

Our last question comes from Chris Carey with Wells Fargo Securities.

Just back to PFNA way back to the beginning of the call on Bonnie's question, did you change your investment targets or goals for the business this year? And if so, where are you seeing greater opportunity to invest? And Ramon, you flagged the World Cup as an activation event. What does a World Cup activation look like for PepsiCo, perhaps specifically for Frito, how is it different versus past events? And are you embedding any of that uplift in your outlook?

Chris, it's Steve. Thanks for the question. The comments I was making earlier, I think to Bonnie's question, is that we just want to give ourselves as much flexibility as possible to manage all of the sectors and all of our businesses to hit the numbers that we've given you with our guidance. So that's what I was just trying to illustrate is that we want as much flexibility. There's a lot happening in the world that we need to manage and navigate through. And so we're going to give ourselves as much flexibility within the business to make the decisions that are right for the total company.

No, listen, and World Cup is -- obviously, we're sponsors on the food side across the world. And this is obviously a very big opportunity to engage consumers. This is a real passion point for many consumers. I mean, I'm a big fan of soccer and I see how we feel at that moment. Now it's very holistic. If you think about innovation, we're going to have flavors from around the world, being executed in every market. Obviously, there's space gains, there's activations. But most importantly, from the consumer occasions point of view, we are working on no Lays no game, which is kind of an activity that -- or a campaign that we've been executing globally for quite some time, we'll double down on that with some of our global football players. And the idea is link Lays to the occasion of sports watching and making sure that when there is gatherings of consumers watching the game, this is activated.

We're going to personalize, obviously, for different -- we know, more or less, who supports what team and then we're going to be able to personalize the communication to consumers. We're going to have fun of the match. So we're going to have different activations in every game where our Lays brand will nominate funds of the match. We're going to have Quaker participating as well in the event as the players walk into the stadium, the children will have Quaker brand, and that's going to be part of the restage of Quaker globally. And then obviously, we have partnerships with our retailers and quick delivery partners around the world to make sure that we capture those occasions in the moment and the consumers have the opportunity to order Lays and to order some of our drink combinations to enjoy the game with friends.

A lot of occasion development, a lot of brand awareness, a lot of personalization and some innovation to drive excitement across the world, obviously, space gains and retail partnerships. So it's a very holistic activation across the world. I think especially for countries where per capita low. This is a huge idea for us to bring new consumers into the brand and also to develop frequency and some new occasions. So we're excited, and we can already see the some of the acceleration in some of the international markets because of this activation. So thank you very much for your questions and your support and thank you for the confidence you've placed in us in PepsiCo and look forward to further conversations in coming quarters. Thank you very much.

Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Good morning, everyone. So, it's a pleasure to welcome PepsiCo back to CAGNY this year. Joining us today, we have Chairman and CEO, Ramon Laguarta; and Executive VP and CFO, Steve Schmitt. Also, please join me in thanking them for providing us with all of the amazing snacks and beverages today. So PepsiCo is the world's largest convenience food and beverage companies with more than $90 billion in revenue. PepsiCo is on a transformation journey to improve its competitiveness and financial performance by refreshing its existing portfolio, including Lay's, Tostitos, Gatorade and Quaker as well as introduce an expansion -- expansive slate of innovation, sharper affordability initiatives at their North American food business.

So with that, I'm going to turn it over to Ramon to hear more about their efforts. Thanks.

Thank you. Good morning, everybody, and thank you, Bonnie, for your introduction. Hopefully, you guys had the opportunity to try our products. They're there for you. They were running fast. So thank you. Before we start the presentation, let's read the safe harbor statement. Great. So we'll spend about 35 minutes between Steve and myself. We'll cover a little bit of PepsiCo. Most of you probably know the company, but who we are. And then what are we doing to accelerate the business performance? A couple of messages for you before I go into the details.

One is we're playing offense to transform the company, to accelerate the revenue growth, to get back to our algorithm as soon as possible. Two big elements. One, we're transforming the portfolio for the long term, and I will focus a lot of the presentation on our innovation strategy and also how we're elevating away from home as an opportunity to capture many more occasions. And the second message, we're in a multiyear acceleration of our productivity. Last year was a record productivity year. This year will be a record productivity year for us. And that gives us the optionality to invest and to accelerate the business margin and we committed to externally.

So let's talk a little bit about PepsiCo. Bonnie mentioned, we're one of the largest food and beverage companies in the world. Last year, we closed about $94 billion and $15 billion in operating profit. We have a portfolio of over $30 billion -- 30 brands that are over $1 billion. Very strong position in convenient foods around the world, about 58% of our revenues are with leadership in savory snacks, but also our food business place in many more occasions throughout the day and a very strong position in LRB.

In some countries, we're leaders, some countries, we're strong #2, competing well in this category. We're very diversified. We play in 200 markets, which gives us the opportunity to balance to hedge one market against the other as we -- as the year progresses. Now our North America business is a $56 billion business, almost 50-50 foods and beverages. It has an operating profit of $10 billion, a combined margin of 18% and has been growing for us very nicely at 35% over the last -- since 2019, over $14 billion in growth during that time period.

You're familiar with many of our brands. A lot of them are, as I said, over $1 billion brands. They help us to participate in multiple categories, have a strong presence in faster-growing segments of our categories. Some of them are multibillion-dollar brands playing globally. Some of them are new billion-dollar brands like in the chart, Propel and SunChips are new $1 billion brands this year. And some of them are smaller brands in our portfolio that are growing very fast and will become eventually billion-dollar brands like poppi or Siete or Sabra.

Now international, and I will not talk a lot about international today, but it's clearly a jewel in our portfolio. It's been a business that we've been scaling over the last 10 years. It continues to grow at mid-single digit. We continue to build scale in many of our geographies around the world. Those businesses are becoming more profitable. If you look at the operating margin of our international business, it's 18%. It's 3 points higher than 3, 4 years ago. And the business keeps growing very nicely at 48% combined growth since '19, that's $12 billion.

And as you can see, geographically, we're quite dispersed in Europe, in Latin America and also parts of Asia. If you think about the opportunities for us, given the per caps, given the demographics of this business, given the scale that we're building and the capabilities that we have in all these markets, we expect international to continue to be a great source of growth for us, a great compounder, and we keep generating even more margin in the future. Now summary of our performance since 2020. We grew our net revenue -- organic net revenue growth 7%, above our long-term guidance. Clearly, the last 2 years were below, and we're working, as I said, very intensively to accelerate that performance.

And our EPS growth was in line with our long-term algorithm and 8%, so growing 47% since 2019. So now let me move into what are we doing to accelerate our business, make sure we have a business that generates consistent top line performance and accelerates the profit as well. Now there is a consumer context and there is a macro context for us to think about how to play the business. Now there is clearly a few consumer trends that are very relevant for our business. Consumers are putting -- giving more importance to health and wellness and functionality in food and beverages.

Consumers at the same time, are becoming more diverse, which means that in multiple markets, we have to play to multiple cultures as we develop flavors for our products or taste. Consumers are shopping differently. And clearly, omnichannel is growing very fast. And consumers are spending a lot of their time and a lot of their calories outside of home, which creates a big opportunity for away from home. These are all changes that will create data insights for us as we evolve the portfolio, and I'll talk about the portfolio later and also the capabilities that we build to have better customer service and making sure that our partners are growing with us.

Now on the macro side, there's a few trends that are also relevant for us as a global company. Geopolitics clearly play a role in how we're thinking about the resilience of our supply chain and technology also obviously informs the way we run our operations, and we create new capabilities to be more competitive. So in that context, though, our categories remain very attractive categories. These are categories that are very large, about $1 trillion combined. That's only the retail part of our categories.

If you think about our convenient foods and LRBs, if you add the away-from-home, it's almost double. These are categories that are growing at a very healthy mid-single digit globally. And our participation in those categories is very small. It's only high single-digit share of market if you take all drinking occasions and convenient foods, which clearly tells you that we have a long runway to grow and that those are good categories to participate. And if we have the right portfolio, the right capabilities, we'll be able to capture the structural growth over time.

Now -- what are we focusing on? And this is probably the most important chart in the presentation. What is the company focusing on to accelerate growth, to improve productivity and to have a sustainable, resilient supply chain. So this is where we're going to spend most of the time. The company is very focused on accelerating revenue growth by transforming the portfolio and building the Away-from-Home business. Two simple priorities. The whole organization is very focused on. I will tell you what are the details of that.

Second, we want to become more efficient and more capable, 2 big levers on top of the things that we've been doing for the last few years. One PepsiCo, maximizing the scale of the company across everything we do from procurement all the way to consumer understanding, consumer execution and then adopting technology into our processes in a way that we become more capable, more efficient. We've invested a lot in the data backbone. We've invested a lot in systems. We've invested a lot in capabilities that now we can really take advantage of technology in a way that we couldn't do before.

And the third pillar, very important for us, we're an agro company. Without agriculture, we cannot really provide any products to consumers. It's positive agriculture, making sure the farming is done the right way that we invest with our farmers to be resilient and also positive value chain. And there, we're focusing on plastics, we're focused on reducing waste on plastics, and we're focusing on water. Water is a scarce resource around the world, and we have continued to invest in making sure that we have enough water, we give back to nature the water that is required.

Now let me take you through the faster pillar, which is probably the most important. And it encompasses -- it covers 2 things: innovation to make sure that our brands connect with consumers and the new needs of consumers around the world; and second, building new occasions because our brands can participate in many more occasions away from home, especially, but also in some occasions in home around mini meals and convenient meals. Now the first thing we're doing is restaging our large brands. Two years ago, we started with Pepsi. We changed the packaging of Pepsi. We focus on non-sugar. That has been extremely successful for us. If you think of our performance of Pepsi around the world for the last 2 years.

This year, we're going after 4 of our top brands, Lay's Tostitos, Gatorade and Quaker. We're going to do this through the year, and we're going to do this globally. These brands are over $15 billion for us in total. What are we trying to do? Lay's and Tostitos, 2 of our largest food brands, we're trying to change the food in the brand, making sure there are simple ingredients based on nature, the best potatoes, the freshest potatoes, no artificials, no colors. That's on one side, new cooking methods, alternative oils, olive oil, avocado oil.

And that is something that consumers are already looking for. Tostitos as well. Tostitos is we're going to be talking more about the Masa, how we produce, how we manufacture, how we cook the Masa in Tostitos. We're changing the image. We're making it more natural, no artificials. Now Gatorade, there's an insight that you guys know, about 75 of us are dehydrated sometime during the day or most of the day. Now that is an opportunity that we're going to be trying to solve with Gatorade and Propel.

Gatorade, in particular, will take the science of sports and we'll make it available to everyday occasions throughout the day for every consumer, no matter where we do sports or don't do sports. We're going to provide solutions in liquids, solutions in powders, much more functionality, and that is a huge opportunity for us as we address the hydration opportunity.

Now Quaker is another jewel in our portfolio. Quaker is a brand that is one of the most trusted food brands in the U.S. It's a brand that can be a great source of fiber, great source of protein, great source of nutrition for consumers. And we're going to be relaunching Quaker to provide benefits around gut health, heart health, energy and weight management in a way that very few other brands can do on the go and in-home consumption, and this will happen in the second half of the year.

Now on top of that, let me just spend 2 minutes on Lay's. Lay's is the one that we started. You probably will see some packaging out there. We were very prominent in the Super Bowl. The idea of Lay's is we have the best potatoes grown by farmers everywhere in the world, the freshest potatoes we can get from the farm to the consumer in a very short period of time. We want the consumer to understand that. We want the consumer to understand that we have no artificials, that these are natural products that is cooked in our factories at scale in a way that is like doing it at home. So these are all messages that Lay's will be resonating with consumers.

We want to have cooking methods like Baked or Kettle. We will have olive oil, we'll have avocado oil. We have multiple partitions of the brand that I'm sure consumers will love as we go forward. Now we are -- we have the sponsorship of FIFA this summer. We're going to leverage that event to maximize trial of the brand globally, and this will be a big source of growth for us as we go along this year. Beyond that, we're also -- as you probably have heard from multiple interactions with us, we're accelerating our innovation to make sure that our brands participate in new territories where the consumers are telling us, I prefer food or beverages in that space.

Now you have some examples here. We've been working on sodium -- reduced sodium for a long time. As population age, we think this will be a great space. We're having not only less sodium in our products, but also specific offerings with reduced sodium. We keep pushing Zero Sugar as a big growth lever, whether it's with soft drinks, with sports drinks or some others. Now low sugar is also a consumer preference. So we will be participating in low sugar with poppi, Pepsi Prebiotic is a low sugar, and we're launching a Gatorade with no artificial and lower sugar is hitting the markets now as a big idea.

Now no artificial colors and flavors is a big consumer demand. So we are eliminating artificials in our brands by the end of '27. But already, we're launching new innovation that has either no artificials, but even no colors. If you think about Naked and you have the opportunity to try Naked outside, it's been a great innovation that helps moms in this case, give to the children a product with no artificials, and that has been a huge incrementally to the brand from the data we have. It's still early, but we think this is going to be a very incremental way to grow the category.

We're using alternative cooking oils, as I mentioned, olive oil, avocado oil. The consumers are willing to pay more. They're willing to experience with their brands -- with our brands in those segments. And then portion control, something that we've been talking a lot. We think portion control will be critical for our categories to continue to increase frequency of consumption. Consumers are telling us, I love your products, but I want it in 100 calories. I want it in 125 calories, 150 calories. We're expanding that. It's public -- the number that 70% of our units in the U.S. are already in single serve for the food business, 70%. That's something that has grown from very low numbers to 70% in just a few years.

We'll continue to innovate in multipacks. We continue to give consumers the right portion so that they can stay in our categories for the future. I think the beverage category has done a better job historically. So we'll continue to drive that trend. Now there's a lot of consumer spaces that are going to grow multiyear because consumers see the need of this nutrition in their bodies, and we will offer those solutions. Clearly, energy has been growing for many years. So we're participating in energy with CELSIUS, Alani Nu and some other brands globally.

Protein is clearly a big trend, right? And we're participating with some innovation that you see there, the relaunch of Muscle Milk, coffee and protein. Those products are hitting the market. Doritos protein will be in the market in the springtime. And then some solutions like Propel powders where we have fiber and protein at the same time. And obviously, that's higher nutritional density. The 2 trends that we plan to capture at scale are fiber and hydration.

Fiber is the #1 deficiency really in our diet is fiber. It's not only in the U.S., but in majority of countries around the world. And we think we have a huge right to succeed with fiber, whether it is products like SunChips, Fiber Pop, Smartfood, Stacy's and some others, but also giving whole grains in our large brands, whole grains being a big source of fiber. So you will see us innovating both in fibers and in whole grains with our food portfolio. And we believe that this is going to be a big multiyear opportunity for us.

And as I said, hydration is a big opportunity. We're all dehydrated. We need to drink from the moment we wake up to the end of the day, we need much more liquid in our bodies and not any liquid. We need certain levels of functionality, electrolytes and some other solutions throughout the day, depending on the activity we're performing. We think that with Propel and Gatorade, we're very well positioned. We're going to take the science of sports into the science of every day. We're going to have medical, medical communication, educating consumers on the needs for hydration. And this will be another multiyear growth opportunity for us.

So fiber, hydration, protein and energy, 4 big areas of growth, higher value per consumption and areas where we will participate, you'll see a lot of our innovation coming in that space. Now affordability, we talked a lot in the last earnings. We think there is some friction with consumers, especially lower-income consumers and middle-income consumers around the world, not only in the U.S., and we're adjusting our offerings to make sure that it's very surgical, it's disciplined execution, disciplined use of resources to maximize the ROI, but keep those consumers in our brands and reignite the volume of the category.

So that's our innovation, and there's a lot of good reasons to believe that, that is working for us, and we see it in our numbers. Now the other big idea for us is away from home. If you think about our business, we're very well developed in in-home and retail. That's a pretty strong part of our capabilities. We're less developed in away from home and in some of the occasions that consumers are telling us, hey, we're more and more moving there because we don't like to cook. We don't like to spend time on preparing our food. So obviously, there is -- you seen the 4 buckets on the left, this is about our current products being available, being more present in more outlets. That's kind of simple for us to do.

We're putting more feet on the street, more capabilities, better technology, so we can have better solutions for consumers to consume our products outside of home. Now there are 2 areas where we think that we can also participate in more elevated experiences where the consumers are willing to pay more and it's part of their repertoire solutions. One is crafted beverages and the other one is mini meals, ready-to-eat meals throughout the day.

And I'll give you a couple of examples. The crafted experiences, we have some tests going on already for some time where we have this concept Drips by Pepsi. Basically, it's a menu of solutions, both on the indulgent side, but also on the functional side where we can give our customers or we can have our own consumer-facing model where we provide our best drinks, sun syrups and some functionality in the form of powders or foam or whatever, and the consumer can have a set of solutions that they don't have with our ready-to-drink portfolio.

This is something we're going to -- we're betting on. This is something that we're building more product solutions, better menu solutions. And we see our customers very excited, and you will see a more scale of this year in the market. The second one on the food side, and I'll give you a concept here, Doritos loaded. Doritos loaded is a Doritos where you add protein, the form of meat and then veggies, you create your own personalized combination.

And we're creating new product solutions, but also new business models to make sure that consumers can buy our Doritos Loaded, a mini meal, perfect solution for the day in different ways. Now we have brand experiences. So just make sure that the consumers are aware of this. Food Trucks, imagine a Formula 1 event. So we have Doritos Trucks there -- so we have Doritos Loaded, consumer awareness, Instagram, et cetera.

We're building scaled D2C solutions. For example, we're testing a couple of European cities to use a spare capacity in restaurants that they manufacture or they cook our Doritos Loaded and aggregators go and deliver. So these are solutions we're testing in a couple of European cities. Also, we're seeing a lot of interest from some of our customers to have a store within a store in their supermarkets or the bigger store to provide that ready-to-eat solution to the consumer.

We obviously have our away-from-home partners, QSRs and others that they want us to give them the solutions to give a Doritos Loaded to the consumer. We're going to have retail solutions as well where the consumer can buy that. And if they have a party, they can give their friends the full kit. So they have the Doritos, they'll have the salsa, they'll have some other elements and the recipes so they can create their own meal. And obviously, the biggest idea for us, if we get these consumers to prepare their own Doritos Loaded, obviously, the sales of Doritos will go up.

So these are opportunities. I'm giving you a sense of how we can do this across multiple touch points and generate additional value for our brand. In this case, Doritos, we have solutions for other brands as well. Now we're also testing mini meal solutions with some of our platforms. So Sabra, Siete and a brand that is very popular in Europe, veggie brand that we're going to start testing in the U.S. These platforms give us solutions to create mini meals. Quick, nutritious, small 200 calories, 250, 300 calories, solutions on the go for consumers because that's the lifestyle of the new generations.

So you will see us innovating in Sabra, Siete and launching Alvalle, which is a tomato soup, but also warm soups for convenient meal solution. Now that's the portfolio and Away-from-Home. Hopefully, it gave you a sense that, yes, we're going to be accelerating our growth. Yes, we're going to be on our long-term algorithm by the end of the year and that we will continue to grow at that level going forward. The second pillar is stronger. And stronger is critical for us to be faster. Productivity is critical. Productivity is the only way we can fund the investments that we need in the growth. And we've been doing a pretty good job.

If you look at this chart, 2021 to 2025, we've doubled our gross productivity along multiple vectors. We're doing things more efficiently. We're redesigning work. We're redesigning the organization. We have global capability centers servicing the company in a much more efficient way. We're digitalizing a lot of our processes, value engineering our products. I mean, all the things that we've been talking about, including network optimization, and you're familiar with we closed some factories for beverages and foods in the U.S., but also in some parts of the world.

So a lot of activity, a lot of focus, multiyear strategies across every single market to become more efficient and accelerate our productivity. We are ready for a much faster implementation of the technology in everything we do. We've been investing for 5 years. Our data is in the place that it needs to be. We have the backbone, we have cloud. We have all the partners that can help us now land all this technology into all the things that we do. And I put here some examples. For example, the next-generation go-to-market.

Go-to-market is a core capability that we have. Now we can do automated ordering that facilitates a lot of the processes we were not able to do earlier. We can enable our customers to place orders digitally without our salesmen going there, which facilitates a lot of the processes. We're doing integrated business planning. So we can forecast demand automatically, and that goes all the way to procurement and that facilitates the way our operations work.

We're doing digital twins, and we announced recently a partnership with NVIDIA and Siemens, where we are obviously creating a simulation of our supply chain or every factory. And then we can see where we have bottlenecks, we can increase capacity and we can do a lot of optimization. And then obviously, on the consumer side, we're getting better at insights. We're getting better at connecting with consumers, engaging consumers, creating content and personalizing our communication to consumers in a way that we couldn't do a few years ago. So all this is a way for us to become not only more efficient, but more capable, more granular, more personalized ways that will drive growth.

The other topic we've been talking about is how do we make our North America operations more fit for the future, more optional, giving us optionality for future selling models. obviously, efficient, capturing the value of a large system that is duplicated, how do we create efficiency. But most importantly, how do we create a system of supply chain that allows us for growth in what is going to be the future of demand. We're working on this. We will give you an update towards the end of the year. This is a big opportunity for us to become more efficient, but also more competitive and drive faster growth in a way that very few companies can do in the U.S. with our scale and reach.

Okay. And then let me finish with better because this is a topic that is very critical for us. We've been consistently working on multiple levers of our better strategy, especially farming and farming, as I said earlier, farming is very critical for us. If we have good farming practices with our farmers, we can continue to have good soil, healthy soil. Healthy soils, healthy potatoes. Healthy potatoes is a better business for us. And the same applies to corn, applies to the tomatoes, applies to the oats and everything else.

Positive value chain, we see water as a scarce resource, and we have now 100% replenishment of the water that we use in any single watershed, we give it back to the community. So this is something we take it very seriously. Otherwise, communities will not want our factories there. And the same with plastics, we continue to reduce the amount of plastic in our products, and we take it very seriously that we need to reduce plastic in our supply chain. So we're going to continue to invest in this area. This is an important area for our resilience of our business. And we'll -- I'm sure this will be long term, a good investment for PepsiCo. So that's all for me.

And now I will turn it over to Steve to go over the financial side of the business.

Thanks, Ramon. Good morning, everybody. It's great to be here. In my time today, I want to cover 3 things. I'm going to talk a little bit about the momentum that we have in the business, as you saw in our Q4 results. I want to talk about our capital allocation priorities, and then I'll finish with how we're thinking about our long-term growth algorithm. So let's get into the slides. So from a momentum building standpoint, you can see on the left-hand side of the slide that we began the year in Q1 with just about negative 2% growth, and we finished the year with over 5.5% growth. It was really driven by 3 things.

The next bar chart talks about organic growth that we drove. So we started the year about 1%, and we finished with over 2%. The net revenue growth was also driven by some acquisitions we made in the previous 12 months as well as some positive foreign exchange translation benefit that we saw build in the fourth quarter, but as Ramon talked about, the 3 pieces that really drove the performance was we have a large and profitable as well as resilient international business. And this has been pretty consistent at growing the top line at mid-single digits.

We saw a strengthening North America business, and I was particularly pleased with the acceleration that we saw from Q3 to Q4 in our North America Foods business. And I mentioned with acquisitions, we're actively reshaping the portfolio, and we'll talk about that in a few slides. But it wasn't just top line momentum that we saw build in the fourth quarter. We saw a really nice flow-through to the bottom line. You can see on the slide that our core operating margin jumped over 100 basis points and EPS growth grew double digits.

Ramon talked a little bit about the productivity we have in the businesses. And this is really important because those tailwinds that we have from a productivity standpoint should carry through a good portion of them into 2026. And why that's important is it's going to help us play offense, as Ramon mentioned. So this is going to help us play offense from surgical price investments. It's going to help us play offense from more brand messaging. It's going to help us play offense from new innovation as well as new technology that will help us down the road.

So encouraged with the Q4 results. Now let me pivot to capital allocation priorities. So it's pretty straightforward on how we allocate capital. And this is an area, obviously, that I'm very involved in. We're going to invest in the business. And with the global brands and businesses that we have, we have ample opportunities to invest and grow the business. We have a meaningful and growing dividend. So we're going to pay and we expect to continue to grow our dividend, which we know is important to our shareholders. We're going to selectively consider acquisition partnerships and divestitures, and we have share purchase to round things out. And I'll talk about each of these in turn.

So first, from an overall capital spending standpoint, we had been at about a 6% capital spend as a percent of net revenue from 2019 through 2024. Last year, that was a little bit less than 5%, and we think that's a pretty good place to be for 2026 in the near future. And we allocate that capital between growth. You can see the green bar part of the pie chart on the right-hand side of the slide. So we're going to invest in growth and innovation and capacity. We have a large infrastructure. We need to make sure we continue to keep modern. So that's the operating necessity.

And we'll continue to invest in productivity, and Ramon talked about our sustainability goals that are very important to us. So we'll invest to make sure we lead in sustainability. So let's talk about free cash flow conversion. This is a 2027 goal to be over 90%. So how do we get there? We also have an ambitious goal to improve our core operating margin at least 100 basis points over the next 3 years. We're going to have tighter working capital management. And we talked a little bit about moderating capital spending that should be about less than 5% is how we're thinking about capital spend overall.

And an important part of 2027 is we do have our last payment for the Tax Cuts and Jobs Act this year in 2026, that's nearly $1 billion that will go away in 2027. So we expect the 2027 free cash flow conversion to be about 90%. I mentioned the dividend. You can see we have a long track record of improving our dividend. We announced with our Q4 earnings release that we increased the dividend again. We increased it 4%, marking the 54th consecutive year of increasing our dividend.

And in terms of reshaping the portfolio, this has been a critical area that we've been allocating our capital as well. So we made some really nice acquisitions that have helped with our organic -- with our net revenue growth. We've made strategic partnerships, and we've also had divestitures and transitions. And if you think about how we think about this going forward, we'll always consider bolt-on acquisitions where they make sense. And our mindset is around every piece of the business today needs to continue to earn its place in the portfolio. That's how we think about [indiscernible] the portfolio in general.

And so this all leads to our long-term growth algorithm. So over the long term, we expect to grow organic revenue in the mid-single digits. We talked about our goals over the next 3 years to increase operating margin over 100 basis points. And if we do these things, we think it leads to a high single-digit EPS growth. Now you may have seen with our Q4 earnings release and our guidance for 2026, we don't expect to get to these levels for the full year, but we expect to continue to make progress and build momentum throughout the year. And we think the combination long term of having a high-single-digit EPS growth plus a meaningful and growing dividend really gives us a nice investment return proposition for our shareholders.

And with that, we'll be happy to take your questions.

Great. Okay. Dara and Andrea are next.

Dara Mohsenian, Morgan Stanley. So Ramon, we didn't hear much of an update on One North America today. I get its probably early days, but can you give us any learnings you've seen from test markets so far? And as you think about the benefits from that longer term, break it down into productivity benefits versus commercial effectiveness. And just as you think about your vision over the next few years, maybe give us a sense of how much of North America regionally or how you think about the mix of North America in terms of what would be most effective and really combining convenient foods and beverages more from an integration standpoint?

So I mean we've been consistent in our messaging. There's efficiency in what we see by combining the 2 portfolios, and we see a lot of growth. Now let me go deeper into that. Warehousing, it's probably a very high return opportunity, warehousing. So the -- having a single point of inventory at the higher level for our 2 categories is a big idea. We're -- that's something we're going to keep doing. Power of one delivery and selling, this is where we're testing and where we're going to be more nuanced because it works very well in some channels. It works very well with some density, geographical higher density populations.

It works very well where we have low share of one category, high share of another category. So all those are the nuances that we're trying to test and we'll give you a better update towards the Q4. But this is a big idea from the efficiency, but most importantly, how we can have more optionality to give our customers much better service as we're -- some of these fulfillment modalities that are growing like delivery at home or quick delivery, those are going to be the demand signals of the future, and we can be better prepared with some of the infrastructure being combined versus separate.

Andrea?

Andrea Teixeira, JPMorgan. So can you comment on PFNA like the price reinvestments? And I know we discussed that in the earnings call and the follow-up. But in terms of how to measure success relative to the summer of late last year and how this time around will be different, how the retailers -- the key retailers that you tested, the test markets that you had relative to what it was last year and how deep we should see in the first moment, the price decline and then the volume reaction to it?

Yes. I think the KPIs we should look at is volume share, so gaining volume share and increasing the penetration of our brands. So that's one big KPI that we're following. Second, deliver on what we said would be the guidance for Frito, which is growing volume, growing net revenue and growing profit this year. That's how I would think about it. We're in the middle of the execution, Andrea, and it's we're executing with discipline and with rigor. And obviously, it's a combination of the execution of the pricing, but also all the space that is associated with this. And that will take in, I would say, the normal restage of the planograms and so on will be P3, P4, I mean, March April.

But the early signals are very positive. And the consumer clearly is telling us it was the right thing to do. And we have ways with the strong productivity, we have ways to increase net revenue, increase volume and increase profitability for Frito this year and most importantly, gain market share, which is important. Now we're thinking about between the innovation, the investments in affordability, the additional space, we want the snacks category to grow. Right, to grow above food to grow above macro snacks.

That's a critical thing for us to do long term. We've been doing this for many years. It wasn't the case last year. And we're seeing signals that whatever we're executing, we're growing faster than food. We're growing faster than macro snacks as a category. And obviously, our participation is increasing. So those are the KPIs we'll be looking at. We'll obviously be informing you very transparently on what's happening because this is a very important bet for the company, but we're very confident. The truth is that the early data is very good. And yes, we feel positive.

All right. I think we'll take 2 more. Michael, and then we'll wrap with Kevin.

Yes. I just want to come back to -- Michael Lavery from Piper Sandler. Just want to come back to the supply chain. You're testing, integrating food and beverages. You're also considering or exploring potentially some refranchising options. Can you give a sense how much they're mutually exclusive? Or are you being pulled in 2 directions? Or could this somehow work together? Is there a way mechanically you could combine and also refranchise? How do you think about what the options -- what the possibilities are?

Yes, yes. We will have a mosaic of solutions in the United States that would probably have some areas of the country, more integrated supply chain, some channels, more integrated supply chain. And then some other regions, we might even decide to refranchise more portions of the country because we think that we have the right partner that is aligned with our long-term vision of the category and execution. And we believe that the synergies or the return on the investment of the integration is less positive.

Okay. We'll take the last question from Kevin, and then we'll move to the breakout.

Kevin Grundy, BNP Paribas. Steve, a question for you on the margin target. So within the context of Ramon's comments a moment ago, just understanding that the return to volume growth, we talked about this yesterday, is really critical to getting the flywheel spinning again. But the margin target of 100 basis points over 3 years is another area to unlock value, not very different from Pepsi's long-term targets, not very different from what peers target in the context of big opportunities for structural cost reductions. So understanding that advertising and marketing is going to move higher this year, understanding the big price investment that you're making. What are the key levers? And what's the potential to exceed this 100 basis point margin target over 3 years?

Thank you for the question. I think about it, and you mentioned the first piece that we're very focused on, which is driving growth. So one of the areas that we're focused on is the more volume we drive through the system, we know we'll get fixed cost leverage in doing that. And those fixed cost benefits are, in many cases, bigger than I think people model sometimes. And so getting volume back through the pipes of the infrastructure that we have is going to be very important to drive margin and productivity.

The other piece is the productivity that we already have in the pipeline. And that's more a benefit that we'll see carryover from this year. So we'll have more productivity than we need to go after. We are playing offense, though. You mentioned a couple of things. You mentioned the investment we're making in value, the investment we're making in innovation, the investments we're making in marketing. But we think the combination of the sales leverage that we'll get, it's very important that we drive the top line and the productivity we have in the pipeline will help us mitigate the additional investments and grow margin.

Okay. I think we're going to pause there and move things over to the breakout room. So as we do so, please join me in thanking PepsiCo for a great presentation and again, providing the beverages and snacks today.

Good morning, and welcome to PepsiCo's 2025 Fourth Quarter Earnings Question-and-Answer session. [Operator Instructions] 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 of Investor Relations. Mr. Pamnani, you may begin.

Thanks, Kevin, and good morning, everyone. I hope everyone has had a 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, February 3, 2026, 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 fourth quarter 2021 earnings release and 2025 Form 10-K 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, Steve Schmitt. We ask that you please limit yourself to 1 question. And with that, I will turn it over to the operator for the first question.

[Operator Instructions]

Our first question comes from Bonnie Herzog with Goldman Sachs.

I had a question this morning on PFNA. You did announce that you're going to be accelerating your increased affordability initiatives this year during the first half. So I guess, hoping for a little more color on this strategy what's been working? And then how much lower will your average price points fall? And then you did mention productivity things will help fund these commercial plans. And I guess in the context of this, you expect PF&A op margins to expand this year. So if you could touch on how you'll ultimately balance growth and profitability for that business, that would be helpful.

Bonnie, it's Steve. Maybe I'll take a stab at it and the Ramon comment a little further. In regards to your question on the investments we're making in PFNA, I'd say there's 3 points. First, and most importantly, we're playing offense here. and second, we're excited about the initiatives and the benefits that will come both in volume and sales growth. And third, from an overall perspective, this investment is manageable for the business. It's included in our guidance. and our productivity progress, as you mentioned, certainly, that's going to help fund the initiatives that we have. So we're really fortunate. You saw the productivity that we had in the fourth quarter. We expect a lot of that to carry over. That's going to fund some of our investments. And we'll be balanced about how we use that productivity to invest in the business and drive sales growth.

Yes, Bonnie, maybe I can give a bit more color. This is part of a multi-vector strategy to drive category growth and then obviously, our participation in the category. And this is something we've been working on since or so of last year testing at scale in some of our key markets. we think that for some consumers, low and middle-income consumers, the biggest friction they have today in our category for faster penetration is affordability. So we have been testing multiple ways to give them affordability.

So this will be a very surgical, very focused on particular brands, particular formats, particular channels, investment. And we -- from the test that we've done at scale in multiple markets, this has very good ROI for us. You should be thinking this on top of space gains, big space games that we're getting through the partnership with our customers because of these investments in price. We're also investing, as we said in our prepared remarks, a lot on innovation, especially to provide more functionality, simpler ingredients, restate some of our larger brands.

So it's a comprehensive investment plan funded through the productivities, the rightsizing with it in Frito and other productivity opportunities we took at the global level to reinvest in the acceleration of the category, managing the category for the long term and making sure that we participate at a higher level in this category that is starting to grow, and we feel very good about how these different interventions will continue to drive accelerated growth in the balance of the year.

[Operator Instructions] Our next question comes from Andrea Teixeira with JPMorgan.

I was hoping to -- if you can comment further on the pricing reinvestment you just alluded to. There was a news article that talked about as much as 15% in some of the F&A items, right? So -- and you're doing the restaging. So I was hoping to see if you are -- what are your tools to be able to indicate that in the first half? Or should we expect that to be a first half relative to what you just posted in F&A. And then related to that, talks. I mean, obviously, you're also restaging Gatorade. So I was hoping to see if you can comment on the volume trajectory. You have an easier comp for PFNA as you go into the as you go into the first half, in particular, the second quarter. So if you can talk about like how we should be expecting the cadence of your guidance. That would be super helpful.

Okay, Andrea, let's step back for a minute. We expect Frito-Lay to grow volume, net revenue and already margin this year. So that should be the framework that we operate in. Now this growth will come early in the year, okay? So we expect volume growth and net revenue growth to come early in the year. The way you should think about the pricing investments and the article, obviously, talks about the maximum. As I said earlier, it will be very surgical investment, in particular, consumers, brands, channels where we see that the biggest friction for higher fluency is price and that's the way we've tested and the way it will go.

Now you should think about a combination of some price investments, not all of it is obviously net revenue from PepsiCo. And a large space gains. Just to give you a number, the average space gain for Frito-Lay in the new resets of both the main aisle and the perimeter will be double digit. So we'll be growing double-digit space in Frito-Lay from the March, April time frame when most of our partners start changing their layout. So this is a good return for us and a great return for the category as well. And this category needs to grow. It's very relevant for our partners is relevant for us.

And 1 other thing, Andrea, you asked to think about the cadence of the quarters. We talked about in our guidance from a sales growth standpoint that we expected sales to strengthen in the second half as more of our initiatives are put in place and gains traction as well as we have poppi and some other acquisitions from prior year moving into organic growth. From an EPS perspective, we think the year will be pretty balanced from a first half, second half standpoint, and we'll certainly update you as the year progresses.

Maybe if I can -- sorry, if I can add, Andrea, there is a -- we're also restaging 2 big brands. We're restaging Gatorade, and we're staging Quaker. We're starting the year with Lays and Tostitos. Those are multibillion-dollar brands for us. And then later in the year, we're going to have big launches of Gatorade and Quaker. 2 big, big brands, obviously, for us that are more on the sweet spot of growth of the categories.

Our next question comes from Dara Mohsenian with Morgan Stanley.

I was hoping for a little more detail on the focus on affordability and the price investments. Just, a, is that more focused on specific packages, brands? Can you just give us a little more detail in terms of how you're thinking about that? And then, b, there is some evidence, right? There are some retailers where you've taken actions already as we look back to last year and the last few months of the year. So maybe just help us understand what level of payback you saw there?

Are you seeing volume pick up more than the price investments? Is it close to the price investments -- how do you sort of think about the forward outlook there relative to what you've seen so far, understanding that it will be more aggressive actions in 2016?

Yes, Dara. So as I mentioned, it is very surgical. This is well tested at scale. Obviously, we're executing it means that we got very good ROI from those investments. Volume return is pretty good, and that's what the category needs, units and volume to go up. This not only has a good impact in the consumer, obviously, being part of our business and being part of our brand. But as you can imagine, once we've rightsized Frito-Lay as we have, the flow-through of additional volume has a lot of good leverage for us. So you should think about all these components, and we'll update you more as we get more data in coming quarters, we're very optimistic and we started the year in a good place.

One moment for our next question. Our next question comes from Lauren Lieberman with Barclays.

We had quickly just had the time to go through the 10-K before the call started. I noticed that advertising was down like it was double digits, like $500 million in 2025. So just curious about what drove that thought for '26 whether think advertising would go up, but that was sort of a bigger decline than I would have expected to see for 2025. And I'd love to hear more about it.

Lauren, it's Steve. Thanks for your question. You're right. It did go down this year. We did get some efficiency from both the working and nonworking advertising line. And your assumption that should go up next year is a good one, too. That's a benefit from -- just from a cost of sales standpoint that we did get in 2025 that we would expect not to get that same benefit. So we're going to be very growth-minded. We're going to be making sure our messaging comes through from a value and innovation standpoint. And so we'll be investing in the sales growth for this year.

One on before our next question. Our next question comes from Filippo Falorni with Citi.

I wanted to ask on the guidance for organic sales for 2016. You mentioned that in the second half of the year, you expect to be at the higher end of the full year guidance range. Can you walk us through like the drivers of the acceleration throughout the year? Because Ramon, you mentioned before, you're expecting PF&A to return already to volume growth earlier in the year. So is this further acceleration in PF&A or maybe some acceleration in the other 2 segments, PFNA and international. Maybe you can comment on the expectations for the other 2 segments as well.

Yes. Filippo yes, I think the way you should think about the year is we expect our international business to continue to perform at similar levels to last year, mid-single digit. We're seeing good performance in some of our larger markets, Mexico improving in the Q4 and then also having a good start, China as well, South Africa as well. So -- but you should think about mid-single-digit growth for our international business. That's the way it has been performing for the last 19 quarters or so. So there. And the acceleration comes mostly from our North America businesses.

On the beverage side, we feel good about the acceleration it's had in and we think that it will continue. So you should expect a little bit more acceleration from the beverage business. But clearly, it is our food business that has been improving throughout the year, both volume and net revenue. And December was better than October, and we expect that obviously, Q1 will be better than Q4 and so on. So that is the way we're thinking about the year. And then you have some sort of a mechanical acceleration in organic from the -- some of the acquisitions we made earlier in the year, they turn into organic throughout the year. That will have also a some mechanical impact.

But those acquisitions are very in high-growth segments of the category. That's why we did it. They've been integrated very well into our distribution systems and we're getting additional return on those brands. So they'll continue to grow, and there will be an acceleration of the portfolio in the second half. So those are the main the main buckets of growth and how you should be thinking about the acceleration in the second half.

One more before our next question. Our next question comes from Peter Grom with UBS.

So Ramon, you outlined a lot of innovation in the prepared remarks and talked about some of the success you've seen with Naked and Pepsi probiotic. So credit, it's still very, very early. But can you just talk about what you are learning or seeing from the innovation and how that informs your view on the path forward in North America?

Yes, it's a great question, and obviously, we're thinking about growth in 2 main dimensions. One is making sure that our core brands continue to grow, and that's why we're investing meaningful effort from the organization and dollars to restate some of our large brands. So if you think about the effort to relaunch Lays globally, we did it with actually 2 years ago. We're getting very good returns on that investment. Now we're relaunching Las globally with a new position, a new positioning, you will see for the Super Bowl based on freshness based on farmers, simple ingredients, no artificials. We know that, that is going to bring consumers to the brand we're relaunching Tostitos.

And as I mentioned, we're relaunching Gatorade and we're relaunching Quaker. So big brands that need to continue to drive the machine and they were innovating in the periphery of the category where we're seeing growth. And just to give you some examples, [indiscernible] was a good innovation for us. It's going to be a permanent innovation for us. And what it taught us is that there are consumers out there that are looking for us to give them excuses to come into the category. And these are mainly younger households, moms that are love our products, but they want it in this case, the case of naked like artificials.

So now the actual claim is now I can give my children my favorite because it has an artificial. So we're thinking about innovation from a category building point of view, bringing more consumers into the category and obviously driving frequency of the category as I discussed earlier with the affordability investments. The same in beverages, we're seeing the consumers willing to come into the category if we give them the right products.

Our big -- one of the big innovations we have in the plan for next year -- for this year is Gatorade low sugar, no artificials. Within this is going to be from the conversation with our customers, the space, the allocation, et cetera, it's going to be a big innovation for us. Again, probably the same the same consumer looking for reasons to come into some of our large brands. We're very keen on some of the fiber innovation. We're very keen on some of the innovation with protein. We are betting a lot on portion control. At important control is also a very big lever to keep consumers in the category and increase our frequency. So our multipack both in Foods and Beverages is going to be a very critical lever for us to grow.

And I think we're getting better, more insightful, more granular in the combinations and the price points and the different occasions where those packs can participate, and we know that they're driving category growth, and they're driving penetration of our brands.

Our next question comes from Kevin Grundy with BNP Parabas.

Ramon, just picking up on that -- your comment a moment ago on healthier innovations, but I wanted to drill down specifically on GLP-1 adoption because it comes up a decent amount in terms of the pushback on what may keep certain investors out of your stock. So naturally there remains a lot of concern. You have old tablets in the market, more insurance plans picking up weight loss drugs, et cetera. Can you -- not to be redundant remote with your comments from a moment ago, but maybe just address this GLP-1 concern, head on.

Did you -- were you able to address this in the test markets where you had success with the innovation you're rolling out and the price investment? And do you feel like PepsiCo has a good handle on what higher adoption rates may look like in terms of implications for the category and for your outlook. So your thoughts there would be appreciated.

Yes, I think we should we should assume that there will be a broader adoption of GLP-1 medicines, as those options evolve and they are more affordable. So I think that should be an assumption now. We are reacting. We have been working on this for some time. There are multiple levers that we're using, and we're very optimistic on how PepsiCo can play in that new reality with the consumer. I think there are more opportunities than threats, but they are both. The way we're reacting is multiple.

One, we believe portion control and we've tested and we see that families with GLP, they continue to engage in our category, but they do it in smaller portions. So the way to keep the category relevant is through smaller portions. If you think about our portfolio in the U.S., 70% plus of our food business is already in single serve, right? So we're investing in single-serve capacity. We continue to provide consumer solutions for 1 ounce, 1.5 ounces, small portions that they can be through the consumers' life.

Now there are big opportunities for us. If you think about consumer habits in when consumers are in GLP medication. One is hydration, big idea for us, big opportunities. We're relaunching Gatorade, Propel is growing 20-plus powder tablets, more functionality along with hydration, big idea. Fiber, we know those consumers are looking for fiber. They have some digestive problems. We can provide -- we are innovating around fiber, whole grains, that's a big space. we're relaunching quicker will put emphasis on that space, but not only that, sun chips and some of our food products as well. protein, obviously, that's an area where we've been innovating for some time, and we'll continue to do it.

We're working on cooking methods, so our consumers like baked, they like pop. We're working on airfrane. We're working on different technologies. -- make sure our products are cooked in a way that is more closer to what the consumers will prefer. So multiple vectors of transformation that will be sequencing with a sense of urgency, we did last year, we continued to do this year. But I think this could turn into an opportunity for us, and that's how we're approaching it in the U.S., but not only the U.S., this is going to be an opportunity for us in multiple markets.

Our next question comes from Kaumil Gajrawala with Jefferies.

I guess the big news and congratulations to the double-digit shelf space gains that you talked about earlier. Can you maybe just give us some more details where is it coming from when you go through typical grocer. Frito has quite -- Frito-Lay has quite a bit of shelf space already. So is this within the salty snack style? Is it incremental shelf space, maybe in other parts of the store? Just any more details around that expected to be this big increase at the reset time.

Yes. Good question. And it is a great achievement of our commercial teams in partnership with our customers. And it will be multiple, as you can imagine, in multiple parts of the store. It is in the main shelf, but it's also in the perimeter. -- and is a consequence of the increased units that we're seeing as we make our category more affordable, there's clearly more throughput and there needs to be more capacity in the store to either fulfill online or to give the consumers the in-store experience.

So yes, both main shelf perimeter has been tested capacity will be critical for us to continue to increase the volume on the unit.

One on for our next question. Our next question comes from Michael Lavery with Piper Sandler.

I wanted to come back to some of the innovation and marketing, but maybe on the biggest brands. I know you're driving the savings to help fund step-ups there. But what's different maybe in shift in capabilities or strategically obviously, the biggest brands could potentially have the biggest impact if you can move the needle there. But I just want to understand maybe what's changing? And is it primarily just a bigger push in visibility? Or help us unpack some of what you're hoping to work on your largest brands?

Yes. Let me take the example of Las and then I give you a good sense. So late we're changing the visuals with the idea of making the brand more center on simplicity, nature, freshness, potato, the ingredients of the food because that's what consumers are looking for, the food in the brand. There is a -- we're also changing some of the oil. So when you will see versions of lays with avocado oil, you will see versions of lays with olive oil. So it's an elevation of the ingredients. It's the simplicity of the portfolio.

We're eliminating artificials and we are investing much more in terms of A&M and in terms of price points of the brand. So it's a holistic relaunch of the brand. We're doing it globally and we're elevating the farmers that produce our products that grow our potatoes. And I think every time we do that, we see that consumers move them away from the artificiality or high processing of our products perception and they move to what it is, which is simple product, cook with precision at scale and kitchen logic and artificial.

So that is the change in perception we're trying to do. It is working, and we'll continue to invest. Think about that applied to gather applied to Quaker applied to Tostitos and you get a sense of what we're trying to do.

One more before next question. Our next question comes from Stephen Powers with Deutsche Bank.

Ramon, if you got back to DD&A and how you expect that segment to ultimately contribute in terms of growth and profit margin, you mentioned a number of drivers in your response earlier to Pito's question. But I guess if we could drill a little further down, I'd love some perspective on how you expect the energy portfolio to contribute to that segment's progress just how material that is to the plans in '26? And any early returns on either [indiscernible] or the onboarding of [indiscernible]?

That's great. So I think we're we're very happy with the progress we're making in the beverage business. Our focus this year will be on increasing competitiveness of the business. I think there are some areas of the portfolio where we can be more competitive. And it's a combination of execution, it's a combination of affordability brand building. So we're focusing on that in particular the soft drinks and parts of the functional hydration portfolio. So that would be the focus.

And we feel good about the plans and we feel good about the -- again, the space, and we'll feel good about investments we're going to be making. So the other thing you should think about is we've been very consistent on improving the margins of the business. And any states will be no different. We plan to continue to improve the margin of the of the beverage business in North America and in direction to the target that we've shared with you in the past. Now with -- especially on your specific question on energy, we're very happy with the way we're going to participate in that fast-growing profit pool of the category, which is energy. The way we've engineered this through a combination of a distribution margin last participating in ownership of [indiscernible], I think, is a good way faster to participate.

The [indiscernible] brand continues to grow and the introduction or the integration of the [indiscernible] into our business has been pretty positive so far. It's early. We still haven't completed all the distributors around the country. So we should see more acceleration in the coming months. But so far, we're seeing some of the metrics on execution already improving, and that should be positive for us going forward. There's very good collaboration with the [indiscernible] team. I think the separation of functions between the brand building part and the more the execution part works well.

And yes, we should be able to continue to gain share in some -- I think we're close to 20% now for the full portfolio. It's a meaningful participation in a category that is continuing to grow. And but has opportunities to grow even further.

Our next question comes from Peter Galbo with Bank of America.

I just wanted to follow up maybe a little bit on Filippo's question and Ramon, I think you've mentioned it a few times. But just as we think about lapping some of the M&A that's going to go into the organic, is there any way to kind of frame what those -- once they become organic, kind of will be contributors to the full year? And I ask that just in the context of trying to compare the base business kind of like-for-like relative to when Poppy and CSA moved into the organic base?

This is Steve. Maybe I'll just start with when they flip into organic. We have set that it will be in the March time frame. Poppi in the July time frame, [indiscernible] new towards the end of the year, I think, as Ramon talked about. It should certainly help our organic growth. We haven't been specific on exactly what that will be, but we'll report on that as the quarters evolve.

Our next question comes from Chris Carey with Wells Fargo Securities.

So trademark Pepsi grew volume in dollars in 2025, which is a great outcome. Can you just give us a sense of what went well in 2025, specifically for that business and perhaps a bit of a preview of how you can continue that momentum in 2026? Obviously, there's some previews of ad spots that are coming up, among other initiatives. And just connected, it doesn't get a lot of attention, but Mountain Dew has been a bit more sluggish. But it's not an irrelevant brand specifically for the PBNA business, which will be important as we get through the year. Maybe just a few tidbits on how you're thinking about Mountain Dew and how to reinvigorate some of the growth as what you had seen with brand Pepsi?

Great. So yes, listen, we're happy with Pepsi, obviously. It's a brand that is very important for our portfolio of beverages in the U.S. and globally. And we're doing very well globally, but also is improving in the U.S. We're not satisfied yet, so I think we have more potential with Pepsi, and that's why we are we're investing in a couple of areas. No sugar, as you saw, Pepsi Zero. I think we have a very good product, a product that over 100,000 consumers have told us that they prefer over our competitor based on our Pepsi challenge, and we want to tell our consumers that we're here and try us. So that's why we're investing in advertising in a way that is simple and easy to understand.

The same way we've been quite successful in our food deserved Pepsi campaign and that, together with increasing our availability in restaurants and food consumption spaces away from home is also being a big driver of volume, but also I would say, awareness and trial of the brand, and we'll continue to push on those 2. So feel good about Pepsi, feel good about our advertising feel good about our consumer programs and customer programs.

Now Mountain Dew, as you said, has been a more difficult project. I think we're making good progress. The teams are iterating innovation. Baha has been a very successful innovation for us and some of the flavors that go with that, especially with Hispanic population, but not only. We'll continue to iterate with -- I think we have a marketing model that is very local. It's a brand that is very different in different parts of the country. So our marketing needs to be quite segmented and granular. And I think our marketing teams are finding ways to be relevant in different parts of the country with the same brand, but obviously different messages and different innovation and different portfolios.

So we feel good. It will take a little bit longer, I would say, for Mountain Dew but we're seeing progress, '25 was better than '24 and '26 will be better than '25.

Our next question comes from Robert Moskow with TD Cowen.

Ramon, I was hoping you could give us just a little bit of an update on the tests that you're conducting in Texas. And I think Florida too, where you're merging food and beverage distribution, what's working? And are there elements of the combination that are difficult to execute and how does that inform the broader strategic review that you're conducting for North America Beverages distribution?

Yes, great question, and it's clearly an area of focus for us, eliminating duplications between our 2 large U.S. businesses and finding ways to create advantage on the integration is where we're working on. There is there is some good insights already in integrated delivery, integrated inventory points. So those are very positive initial numbers that we're getting that will make us more cost efficient, but at the same time, more flexible to provide better customer service, which at the end is 1 of the drivers of value.

We plan to update all of you later in the year towards the end of the year with specific details on our plans going forward. So we're working on learning as much as we can, scaling some of the solutions. There's obviously technical IT systems solutions that we're putting in place that would be high value, I think, for us and for the industry. There's also some innovation in terms of vehicles and some of the transportation trucks that we have to put in place. So there is innovation.

There is discovery and there is -- some of our best people are against this project, which gives us a lot of confidence that we'll build something unique that will be high value for the company, both in terms of efficiency and also in terms of giving our customers a much better service for the demand of the future. Now as we said in the past, this will not be a one-size-fits-all for the U.S. because the reality of the marketplace is very different, and we will construct a scale model that takes into consideration the nuances of every part of the U.S., in including potential small refranchising models in part of the country. If we consider that, that is that is the best solution.

Again, various small parts, very kind of complementary to our main assumption, which is that the integration of the 2 businesses will drive a lot of value.

Our last question comes from Robert Ottenstein with Evercore ISI.

I was wondering if you could just kind of step back and touch on the macro backdrop that you're working with, maybe any change in trends in major markets through the fourth quarter? And into January, any expectations of the impact of government measures in the U.S. And what are you thinking about in terms of the macro conditions in terms of your guidance for the year. Are you expecting things to kind of continue the way they are or kind of pick up or weaken in any key markets in terms of supporting your guidance?

Yes. The way we've constructed our guidance is continued stick from what we've seen in Q4. So clearly, a middle and low income consumer that continues to be stretched and choiceful and that we have to earn being part of their basket every day. I think that's how we're thinking about it for the U.S. Internationally, we're seeing different parts of the world behaving differently, but we're optimistic about Mexico, as I said earlier. We're seeing positive trends in China again, I'm rearing to our business and the surroundings of our business rather than larger macros.

We're seeing positive situation in the Middle East. We're seeing a good consumer there as well, a bit weaker in Western Europe and then Brazil kind of neutral. So those are our bigger markets, and those are the assumptions that we've been putting in our guidance. overall, I would say, rather continue stick based on the data that we have with monthly data that we have with consumers.

Okay. So I think this is the last question. So thank you very much, everybody, for joining us today and for the confidence you've placed in our stock. And I look forward to seeing you can in a couple of weeks and continuing the conversation. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Good morning, and welcome to PepsiCo's investor question-and-answer session. [Operator Instructions] 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 of Investor Relations. Mr. Pamnani, you may begin.

Thank you, operator. I hope everyone has had a chance this morning to review the press release from last evening, December 8, which is 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, our 2025 financial outlook and preliminary 2026 financial outlook.

Our future operating performance and statements about events we expect or anticipate may occur in the future. Forward-looking statements inherently involve risks and uncertainties. When discussing our business plans, guidance and outlook, we may refer to non-GAAP measures, which exclude certain items from reported results. You should refer to our December 8 press release for definitions and reconciliations of non-GAAP measures as well as for a discussion of factors that could cause actual results to differ materially from forward-looking statements.

Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's Executive Vice President and CFO, Steve Schmitt. Mr. Laguarta and Mr. Schmitt will start with some brief remarks, and then we will open the lines up for some questions. We plan to conclude the call at 8:00 a.m. Ramon, I will turn it over to you.

Thank you, Ravi, and good morning, everybody. I appreciate you guys taking the time to join us this morning. As I know this is a very busy morning for many of you. I'm sure you've read our press release from last evening. Before I take your questions, I would like to make some brief opening remarks.

Throughout 2025, we've taken numerous actions to accelerate both productivity and commercial plans to improve our marketplace performance. We feel good about the progress being made and expect greater benefits from these actions and future actions to materialize throughout 2026.

With the Board and Senior Management team having recently aligned on the forward business plans and initiatives, we felt it was important to also provide visibility about these plans and initiatives to both shareholders and our entire organization with urgency and accountability. We will also engage with many shareholders, including Elliott Management, who support our plan to accelerate organic revenue growth and improved core operating margin.

Most importantly, to achieve our long-term financial targets in a sustainable fashion, PepsiCo Foods North America must grow organic revenue and improved core operating margin. The meaningful investments that we're making in innovation, brand communication and affordability are expected to improve these businesses marketplace performance and growth, while significant productivity savings net of inflation and investment are expected to add core operating margin performance in fiscal 2026.

This business remains a critical driver of shareholder value for PepsiCo and it must deliver much better performance in 2026 versus 2025. In addition, we also have a strong pipeline of structural productivity initiatives in place throughout our global organization. Automation, digitalization and simplification will each play an important role in helping us sustain a pipeline of long-term productivity savings, which we expect will allow us to deliver at least 100 basis points of core operating margin expansion in aggregate over the next 3 fiscal years with free cash flow conversion also expected to improve.

Separately, as it relates to our North America supply chain and go-to-market transformation initiatives, a full refranchising of our North American beverage operation is not under consideration as we do not believe it will improve marketplace performance nor maximize shareholder value. Rather, we're piloting an integrated food and beverage model in Texas and are examining and analyzing the results.

As we think about full country scale up, we will take a more nuanced approach varying by business scale, customer and channel evolution and geography to maximize benefits and limit disruption. Ultimately, we'll remain focused on 3 key operating considerations as it relates to this transformative initiative, which include, solving for the demand of the future, not the demand of the past, the evolution of technology and the ability to better manage complexity and reduce bottlenecks and optimizing the full PepsiCo P&L including our Foods and Beverages businesses. We intend to provide an update on our progress and path forward with an analyst and investor meeting in late 2026.

To conclude, we believe we're all set up for 2026 and expect to deliver improved marketplace and financial performance. Now before we turn into your questions, I want to welcome PepsiCo's Executive Vice President and Chief Financial Officer, Steve Schmitt, who joined us in November and has hit the ground running. Steve has a strong and complementary background, having served in finance roles in the retail, restaurant, logistics and transportation industries and bring us a fresh perspective. Steve will play a critical role as a thought partner in our transformation journey ahead.

I will turn it over now to Steve to share a few comments as well.

Thanks, Ramon, and good morning, everyone. I want to start by saying it's a privilege to join the call and step into this role at an important moment for the company. While I've been here a short amount of time, it's obvious the team is acting with urgency to produce better results, and I'm fully aligned with that pace. I bring experience growing and transforming businesses and driving cost efficiencies.

Over the coming months, I'm going to be diving deep into the company, business by business, market by market to build relationships with the teams and understand the growth drivers, cost levers and opportunities for improvement. Now I'm sure you saw our 2026 preliminary guidance from the press release last night. We are coming out with guidance earlier than usual with our goals for next year. The message you should take from this is it's not business as usual here. Going public with our goals now gives us a head start on the year and makes us accountable. Each business knows its targets, and we're executing against them.

And with that, we're happy to take your questions.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs.

I had a question on your '26 guidance. I guess I was hoping for some more color on your growth expectations and drivers next year. For instance, how should we think about the balance between volume and price mix next year?

And then you laid out a lot of initiatives last night with, I guess, many of them already being implemented or discussed. So hoping to hear from you where you expect to see the greatest lift? Will it be from the robust innovation pipeline? Is it the greater focus on price pack architecture, et cetera?

Thank you, Bonnie. Yes, I guess let's talk mainly about Food North America. That is the business that will make the biggest difference between our current around low single digit and moving towards the end of the year into an algorithm level for our top line. We're seeing sequential improvement on Frito-Lay North America during the year, and you guys have access to retail data. We feel good about the improvements in operating execution. Basically, that's the key driver of performance during the '25 -- second half of the year.

Now when you think about '26, the bigger levers for Frito-Lay will be investments in affordability, innovation and the rollout of all the innovation that we've been discussing. Some of them are already in the market, but most of them are not in the market yet, better commercial plans that are resulting in increased space from our customers. And again, better execution, which I think is an opportunity that we have in place. Now we feel very good about the commercial plans that we already have, visibility from all our customers. We feel good about the space gains in the category, both because of the affordability investments and because of the new innovation.

We have those planograms already in from most of our customers. We feel good about the incremental A&M that we're putting in the business as a consequence of the high productivity we've been able to extract from the business. And we feel good about the early results of the innovation that is in the marketplace, especially the restage of Lay's and some of the innovations like Naked that have hit the market just very recently.

So those are the key drivers of the acceleration in Frito and that Frito will make a difference in the total PepsiCo. Then also for the second half of the year, a lot of the M&A that we did in the first half of this year, like Poppi, Siete and some others and the energy transaction is becoming organic in the second half of the year, and that helps us also with the acceleration of the business. Those are very profitable businesses that come into organic later in the year.

Our next question comes from Lauren Lieberman with Barclays.

So just following up on that, I'll be honest, it still feels a little bit early, if you will, to be ready to kind of draw a line in the sand on acceleration -- and stabilization and then acceleration on the North America Foods business. Yes, we've seen some stabilization in Nielsen.

But to be honest, it's like hard to tell what's because of comparisons versus what's actually happening in the marketplace. And then all the innovation you've got, which seems really exciting, the ultimate proof is going to be consumer takeaway. So just wanted to revisit, I know you mentioned once or twice the decision to go -- to share this now is about internal accountability. But I just want to push on that a little bit. Like why is it not too early first week of December to kind of draw a line in the sand on guidance that you usually would be offering not until February?

That's good. Listen, going back to the vectors of growth and why we feel that there is -- we feel good about going into growth in the first half of the year and then higher in the second half for Frito-Lay. As I said, if you look at retail sales for Circana for what we call B12, which is around November, it's already in growth. So that's an important milestone.

We were not going into those levels for the full year. Now we already have visibility, as I said, to our customer plans. And there's a combination of price investment and space gains that give us a lot of confidence that the volume will come and with that, also net revenue and share. And we think that our share in the category will be meaningfully higher because of the price investments, the space gains and the testing we've been doing with some of our critical customers in the last 3, 4 months. So that gives us a lot of reassurance there.

And then on top of that, as you say, we're making big bets on some of our bigger brands. The relaunch of Lay's, we're getting very good consumer feedback so far. We're relaunching TOSTITOS. Later in the year, we're making some restages with some of the other brands. So we feel good about our core performing at a higher level and then some innovation redefining the edges of the category and bringing new customers, new consumers back into the category.

Our next question comes from Peter Grom with UBS.

Steve, I wanted to ask you a question. And I guess, I know you've only been here for a few weeks, but would love some just initial perspectives on just the opportunity as you see it today. And maybe it's a little bit too soon from a broader business standpoint. But just maybe as we think about cash flow, capital allocation, any initial views on what we should expect as you step into this role?

Sure. Thanks, Peter, for the question. I appreciate it. Maybe I'll just take the CapEx piece of it first. No major changes in capital allocation philosophy, I wouldn't expect. From an overall capital allocation, we're going to invest in CapEx to grow the business. We talked a little bit in the release that CapEx should moderate some below 5% of net revenue. We have a meaningful and growing dividend, and we have a buyback program that could increase as cash flows improve.

Keep in mind that -- and we've laid it out in the release that we have the final payment from the Tax Cuts and Jobs Act, and that will be in 2026 of about $1 billion. So if you look forward to 2027, our free cash flow conversion should improve to over 90%. And so we definitely see that improving, and we think the plans support that going forward. But your first question, look, I'm thrilled to be here. PepsiCo, I've always been an admirer of PepsiCo, fantastic brands, fantastic team. We think we have a plan to add tremendous shareholder value over time, and I'm thrilled to be here.

Our next question comes from Dara Mohsenian with Morgan Stanley.

So Steve, maybe I'll build on that question just beyond capital allocation. Any initial impressions on area of opportunity at Pepsi now that you've joined the organization? I realize we're not even a month into your tenure, so it's early. But just any insights from a revenue or cost perspective coming as an outsider from a key customer that have come up so far? And Ramon, any additional insights as you've gotten to work with Steve? And what are the biggest focus points you ask Steve with at this point?

Thanks for the question. Look, there wasn't a pre-written playbook that I had when I got here on exactly what opportunities there were going to be. I'm taking a lot of time to listen and learn the business model. As I mentioned in my remarks, it's going to be business by business, market by market to see what that opportunity is. Give me a little bit of time to dig in, and I'll be able to share those details more at a later point in time.

Yes. I think obviously, I spent a lot of time interviewing a lot of potential CFOs and spent a lot of time with Steve in multiple conversations. I think there's a perfect cultural fit. And as I said, a very complementary experience that brings a lot of value to us in you think of areas like logistics and transportation, obviously, retail and also restaurants and away from home.

And then Steve, just his mindset of disciplined, rigorous finance approach to investment. He mentioned is a growth-focused CFO. I can see that already in some of the meetings that we've had. We're obviously doing now detailed AOP reviews with all the markets.

And the question Steve is asking the teams is about disciplined A&M focused on growth, how can we maximize the return from the demand generation investments we're making either through A&M or other. So I can see the growth focus, I can see the disciplined, rigorous financial approach, and I can see the breadth of experiences that he brings to the team, which will be very helpful to us. So I expect a great partnership. And obviously, continue to enhance the return to shareholders by PepsiCo.

Our next question comes from Filippo Falorni with Citi.

I wanted to go back to some of your comments on the Pepsi Food North America business, especially on the sharper everyday value and the innovation. Maybe on the value point, is your strategy a combination of increased promo and lower list price?

And what gives you the confidence that the volume actually responds to that because the prior promos that you tried last summer didn't get as much as a volume uplift? And then on the innovation, maybe what is the confidence in the recent innovation that you launched? Do you have any early positive results from conversation with your customers, especially with the Naked line recently launched? And what expectation you have for the contribution from innovation?

Thank you, Filippo. So I'll be a bit more open on the affordability investments. Obviously, we've had record productivity in Frito and across the company in the last 6 months. And now we have the opportunity to reinvest in value in a more substantial way. We're choosing to invest in everyday value, so reset the price, the consumer prices from our key bands.

And what gives us confidence, we've been testing this with 3 of our largest U.S. consumers for the last 3 months -- customers, sorry -- apologies, customers for the last 3 months. So we have we have very good metrics that gives us the confidence because we've seen the results. And now as we have developed the plans for '26 with our customers, we have the space gains allocated by our customers because we see the volume growing. So it has been -- it's a holistic space, price investment plans tested with our key customers over a meaningful period of time. And that gives us quite a lot of confidence that the volume will come, which has positive impact, obviously, to the category but also to our leverage of fixed costs that will improve our operating margin.

So it is a pretty good story. And that's why you see us more confident than usual this time of the year and ready to share with you, but also internally because we want our organization to start moving as early as possible. We have a very high sense of urgency as Steve mentioned, and we feel good. Now on the innovation, the biggest idea is the restages of the big brands. Those are the big ideas. Lay's, we feel very good about the new visual. We feel very good about the new communication. We feel very good about how some of the subsegments of the brand like Baked, like Kettle are going to take new oils and new innovation that will premiumize, but also give more value to the brands.

Then we have smaller pieces of innovation, but very relevant to take the category to new edges like you mentioned about the Simply relaunch or Naked, we're seeing incremental penetration to the category and to our brands because of those ideas. Naked is very early. We only started December 1. But clearly, the first numbers are very good from the 3, 4 customers that are running the product until Christmas time. So good numbers, but obviously, we'll update you in the February call when we'll have already maybe 10 weeks of data on those innovations, and we will be able to share with you much more detail.

Our next question comes from Michael Lavery with Piper Stanley.

I just want to unpack the volume piece of that maybe just a little bit further where you talked about some of the distribution gains you've gotten with these new customer plans. Can you give us a sense maybe of how much that's permanent sort of primary just facing versus maybe secondary displays? And then when you talk about the accelerated innovation in the release, we obviously know a lot of what is in the works near term that you've mentioned before. But how should we think about accelerated innovation and what that might mean for what comes next?

Yes, the investment in prices obviously will drive volume and to accommodate for the volume we need permanent space to make sure that the products in stock. So it's a consequence of the higher velocity of the product and its permanent space. Obviously, we are trying to maximize the perimeter space of our categories as well, and we'll work on that.

But it is structural additional space that will be implemented in the P1 to P3 as customers reset their planograms in that time frame. With regards to the innovation, we're very strong. We're very good about the innovation. We feel good. I mentioned in the October call that both in beverages and foods in the U.S. but also internationally, we're being bolder with some of the innovation around spaces like fiber, protein, elimination of artificials, lowering sugar.

So all the elements that consumers are telling us that's where their preferences are going. And we're -- these are things that we've been working for a while, and now we're accelerating its rollout because we see consumers moving fast into areas of growth that I think we can participate and help our categories grow.

Our next question comes from Andrea Teixeira with JPMorgan.

And just to think about international as you think of these reinvestments in AEM as well as in global. So for international first, are you also embedding some sort of -- you commented in the release, expect to continue momentum. But I was hoping to see if you can talk about some of the Western European deceleration, how we should be thinking of that and to offset and how the tactics that you're using and the strategy using in the U.S. can lift and shift too?

Yes, Andrea, how...

You said?

Sorry, sorry, I thought you were done.

Yes. On the AEM, Ramon, just to think about how much the investment you said that you're going to reinvest, how we should be thinking? Because to be fair, you have been investing double digits over the years. So how to think about the level of investment that you're embedding in your guide?

Yes. Listen, the way we're thinking about the investments in the business, we have record productivity, as I mentioned. And this is a multiyear. We see -- we have a line of sight to programs that we've been preparing or starting to execute over the last, let's say, 6, 8 months that will have multiyear impact to PepsiCo. So we have a good visibility on the productivity pipeline. And then the way we're thinking about it is reinvesting part of that money into growth-driving levers, mostly affordability and A&M.

In international, we know that affordability is critical to developer caps, and you will see us investing in entry price points to the category in many of the emerging markets, we're seeing a bit of a disposable income squeeze and therefore, consumers asking us to be even more affordable. So we'll invest some of that productivity into affordability entry points, but also into making our brands more known and preferred in international markets. And there, we've been investing in our key global brands.

Pepsi, we did a big relaunch. We're seeing very consistent market share gains by Pepsi in colas around the world. We are relaunching Lay's globally, Andrea, the same as we're doing in the U.S., similar look and feel, similar positioning. We think that's going to be very positive for the food business internationally, the relaunch of Lay's. We're investing a lot in Doritos. Doritos is still an underpenetrated brand. We're investing in Doritos both as a snack, but also as a meal with the Doritos loaded concept, and we'll use Formula 1 as a driver of trial of that concept of Doritos loaded, leveraging all the events around the world.

So we have multiple levers to continue to give the consumer affordability, invest in the brands and obviously investing in coolers and racks that we know that availability is critical for the consumers to try and get the repeat. So we believe in our multiyear growth story for international. We think it's going to continue to grow at the mid-single digits that we've been referring to in the past between Foods and Beverages. And the productivity will be reinvested in growth because that's how we will create more value for the company long term in international.

We will now take our final question from Steve Powers with Deutsche Bank.

Ramon, maybe picking up on those prior comments, but at the enterprise level, one could argue that there's a pretty aggressive agenda and set of assumptions in this preliminary '26 outlook just in terms of both driving the -- waited for acceleration in top line and 7% to 9% underlying EPS growth adjusting for the tax implications.

So just maybe can you give us a better sense of how much incremental demand-building investment really exists in these plans netted against the record productivity and your confidence that it's enough. I guess the question I've been thinking about overnight and I've been getting this morning is just your confidence that's enough. And I guess maybe alternatively, why not reinvest more initially in the top line acceleration to ensure success and then let the profit flow through thereafter?

Stephen, it's Steve Schmitt. Maybe I'll take a crack at the guidance question. What I'd say is we put a plan together that we think is ambitious and achievable. It captures the opportunities and risks as we see them today. And we know the team will need to execute at a high level, and we're acting with urgency to do that. So that's how I thought about guidance, and that's why we issued the guidance that we did.

Yes. Okay. So thank you, everyone, for your time, and thank you for reacting quick. We gave you not a lot of time. Thank you for your support and your investment in PepsiCo and have a great week. Thank you.

Ladies and gentlemen, this concludes our question-and-answer session. You may now disconnect your lines, and have a wonderful day.

Good morning, and welcome to PepsiCo's Third Quarter 2025 earnings question-and-answer session. [Operator Instructions] 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.

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 1 question. And with that, I will turn it over to the operator for the first question.

[Operator Instructions] Our first question comes from Bonnie Herzog with Goldman Sachs.

I had a question on the volume pressures you continue to face in both your food and beverage businesses. I guess, could you give us a sense of how much this is being impacted by your pivot to smaller pack sizes, maybe versus category trends softening or potential market share losses essentially, how should we think about these volume declines? And then 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?

Bonnie. Yes, let me start with beverages. In beverages, the mass are easier when you take out the case back water kind of divestment or new business model we have, beverages actually grew volume in the quarter. So we're very happy with the performance on the beverage business, especially some of the larger brands like Pepsi volume grew net revenue, grew shares. So positive development in beverages. In Foods, we changed the promo strategy in the summer, and we went rather than very deep on a particular brand as we did in '24. We try to provide everyday low value or better value to -- 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. So 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 transition. Now that's behind the service levels are very high on both businesses in the 97, 98, that's been well appreciated by our customers, and we're seeing much better fill rates, a 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. But I think we should think about the top line of the business and a balance between volume growth and price realization going forward. And we should see an acceleration in PBNA continued acceleration of net revenue in PBNA. And the same with the food business, we should be very close to flat this quarter in food actually. We're very optimistic that the business actually grew in the last 4 weeks, the last quarter and the last period that we closed. So optimistic about the top line growth on both businesses and the acceleration. And when -- 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. So 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.

The other thing I'd add, Bonnie, is as we lap some of these acquisitions, if you look at a Siete, poppi, the [ Ilani ] new, that's not included in organic. So as we anniversary those, the volume and net revenue is going to be reflected in the organic sales growth.

Our next question comes from Dara Mohsenian with Morgan Stanley.

So the commentary was helpful on top line growth. I guess just looking out more to 2026 and longer term, obviously, a lot of work is 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, et cetera. So just 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 spec on when you think we'll start to see material progress on that front? And do you think there's a line of sight to returning potentially the long-term top line growth, your long-term algo at some point within 2026, just when you wrap all these efforts together.

Yes. Thank you, Dara, for the question, and it's super critical, right? We're acting with a lot -- as you can -- as you saw and you said with a lot of sense of urgency on how we recognize top line growth, the growth across the business. And yes, we see a clear line of sight to going back to algorithm throughout '26. Now is it Q3, is it Q4? We'll see. But clearly, I'll tell you about why we see that happening during the year. The first one is being brilliant at the basics. And 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. And we feel very good about how our customer plans are starting to shape up, and we're already quite advanced in the process with our larger customers. So that's being brilliant at the basics. And we're making some big interventions in big brands. I said Pepsi is growing globally, and we relaunched Pepsi 1.5 years ago. Now we're going after 3 of our top brands Lays, Tostitos and Gatorade. We're relaunching 3 of our top brands in the U.S. and globally, and 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. Now that is happening as we speak with Lays and Tostitos, and it's happening with Gatorade a little bit later in the Q1 to Q2 time frame. The other element we're focusing on is really accelerating the platforms that are growing. And 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 3x the retail business. We'll continue to focus this execution of existing products and then some innovation special for away-from-home moving towards mills 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. And then we have 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. Now 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. So you mentioned protein. So there are a lot of innovation on protein, the relaunch of Muscle Milk, Starbucks and protein, we know in the morning, consumers are looking for protein as well. Doritos protein, quicker protein. We're having a Good Warrior, mid snacks without artificial and then a new development from Propel for GLP-1 consumers that will have a special type of electrolyte high content of fiber and good levels of protein. So that in the protein space, which, as you know, is driving a lot of growth. Now the move to no-artificials, impacting all our brands, Lays and Tostitos now that the rest of the portfolio throughout '26. And a new platform, we call it Naked, that 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 the benefit that they need is actually an efficiency in U.S. consumers diet and that will be elevated. And then we're also innovating in new oil. Some of our platforms, especially in potato you will see us coming with avocado oil versions and olive oil. So a very strong innovation pipeline, which we think will help us capture pockets of growth in our categories that will drive growth. And 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 CHA, we're seeing growth with Sabra, and we're going to incorporate Elaine New into our portfolio later in the year. So those are new platforms that will continue to accelerate the portfolio. Some of that will be organic, some of that will be nonorganic, but that's what -- how we see the portfolio moving towards positive growth in some parts of the portfolio, the total company going towards within our long-term net revenue growth targets within next year. And obviously, we're working to do it as soon as possible.

Our next question comes from Lauren Lieberman with Barclays.

Wanted to talk a little bit or ask a little bit about the cost associated with a lot of these innovations in the plus protein, better for you, cleaner labels, et cetera, that you run through. would think that these come at a higher cost of goods. I know you've talked a lot about cost savings as well, but I think you're going to want to reinvest. So you talk a little bit about margin structure, or how to think about the cost implications of taking the portfolio and your big core brands in this direction. And also what you do to make sure there's sufficient brand support for the launches, particularly as we look into '26.

Yes. Good. The overall company we think that we'll continue to improve margins going forward. And we're -- again, with a very high sense of urgency, we are 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 deleverage in Frito-Lay with very, I would say, intentional and active actions around the supply chain and the go-to-market fixed cost, and that's happening. Total company, Lauren, we see the margin improvement next year, again, driven by the continuous acceleration of international. And international is accretive to the company and continues to scale and becoming more profitable. That will continue in 2016. We see PBNA continue to expand margins at a good pace. The Q3 was impacted by tariffs, we see already in Q4 and expansion of the margin again to complete a positive margin expansion for the full year. And we see Frito-Lay or the food business in North America also starting to bend the curve after 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 under investment. Some of that was expanding capacity. The demand signal we had in '23 is different from the demand signal we have in '25. So there is some adjustment that we're making to the -- both the assets and the headcount in the business to make sure that we have the right cost structure to navigate the coming quarters. So 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. So you should see the innovation as accretive to the business. And the A&M, we're making, obviously, internal reallocations to make sure that the new platforms have the right money. And 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.

Our next question comes from Steve Powers with Deutsche Bank.

Maybe picking up on that threat with respect to productivity. Could you just give a little bit more detail on where the interventions are specifically in PFNA that you're making to rightsize that kind of fixed cost structure. And how far along you think you'll be at the end of '25. Do you think you'll have rightsized that business relative to the current demand signal, or is there more work to do in '26? And if I could, 1 of the things that I didn't see in today's remarks or release is any difference to 1 North America, which obviously was a big point of focus last quarter. So maybe you could talk about if that emission was intentional or just kind of where we are with 1 North America as well.

Yes. Good. So let me cover both. On Frito, I'll give you -- 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. And 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 rightsizing of our go-to-market as we see the labor market stabilizing some of the excess labor that we had in go to market, now we can probably leave without those extra coverage. So those are the 3 main areas. There's the global levers of we're 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 ]. Now 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. So we've been able to get to those metrics with the reduction of fixed cost that we've done in the last 6, 7 months. There will be a continuation of those interventions in the balance of the year. And I think they will continue, that we will have additional productivity interventions in 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. So you should expect that in the coming months. Now I don't know, Jamie, if you want to add something to the productivity.

The only other thing I'd add is the pace of productivity it built as we went out -- went through the year, and we took some of these incremental cost resizing actions. So 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.

Yes. On 1 North America, we continue to -- as we look at all the different opportunities to reduce costs, improve margins, drive growth, we're looking at 1 North America is 1 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 1 point of distribution, this is giving us a lot of benefits. So 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 1 size fits all for the whole country. So it will be more of a nuanced solutions depending on the market positions and the market size and where the population is in the different parts of the country. So we'll keep updating you on the decisions in that space.

Our next question comes from Filippo Falorni with Citi.

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. But some of your peers have talked about like some macro pressures in regions like Latin America, Asia Pacific include including India, maybe 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?

Yes. It's great, Filippo. I think, listen, when it comes -- when it -- talking about Q3, I think most of the deceleration are linked to mostly weather, Philippine in some of the large markets. And the good news, as I said, is that September was -- is strong -- 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, I would say, is 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 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 better than Western Europe, I would say. And then, yes, Mexico is somehow connected to the U.S., right? And 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. And we see remittances impact in 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 in a good summer -- their summer -- I mean, our summer. And so good, I would say, we see the consumer 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.

Our next question comes from Michael Lavery, Piper Sandler.

Just want to come back to brand Pepsi, seeing it's better improvement -- it's better momentum and improvement in the U.S. and even from a share performance perspective. And just curious, maybe some of what's been driving that? How much is it just a changing of the messaging or maybe an increase in marketing? And also when you talked about optimizing marketing spend as 1 of the ways to drive better ROI. Is there -- 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.

Yes. I think, as I mentioned, I think the Pepsi run has been a success for us. Every launch we did, I think, about 1.5 years ago in the U.S., about a year, a bit more in international has been a great success. And we're seeing momentum in the Pepsi brand in many, many markets. I would say internationally, it is driven by the nonsugar success. I think Zero Sugar, and nonsugar, MAXs in Europe. It is driving consumers to the brand. It is keeping consumers in the brand and continue to be very positive for us from the market share, but also the overall nonsugar segment growth. So we're very pleased with that. In the U.S., multiple factors. As I said, there is a I would say, a focus on away from home and food is sure Pepsi. I think the mill location is critical for beverages. It's very important for Cola. And we are focusing more and more in gaining points of access to the brand and linking the brand to that particular occasion in a culturally relevant way, no different types of foods for different types of consumers and good execution. I thought we're investing a bit more in the brand, and that is relevant, as you said, from the marketing point of view. There are 2 platforms that are growing faster than the rest. One is Zero Sugar, which is consistent with our international growth story. And the second 1 is flavors. And flavors, especially [indiscernible] and cream, but some others are bringing new consumers to the brand, younger consumers of the brand, and that is positive news for the development of Pepsi. So we feel good. We'll continue with those drivers. We'll continue to invest in what is our -- clearly, our most important brand in the beverage portfolio. And we'll -- 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 Mountain Dew and Baja Blast is a very solid platform, $1 billion retail value when you include both our sales and Taco Bell sales. So it's a very strong consumer platform. We're adding now a new a new platform with [ Dorty Dew. ] So kind of a creamy flavors to the Mountain Dew platform. I think that will continue to expand the brand into more consumers. And then as I mentioned, the relaunch of Gatorade, which is critical for us. We're leaders in a category that needs to grow faster. So we're working on value for Gatorade. But most importantly, we're working on to your point of marketing on superior hydration. We know we have proven superior electrolyte combinations that deliver both faster hydration, better hydration, longer hydration. And we are working on different parts of the portfolio to convey that message to the consumer. And we're optimistic about how that will play out for us.

Our next question comes from Peter Grom with UBS.

I was hoping to follow up on the prior commentary. I think it was Bonnie's question. So, I think you mentioned an expectation for PFNA 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. So just 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. So just any color on what happened in the last month, has that drives the confidence on the path forward.

I mean, listen, clearly, there is sequential improvement in the business. And at this point, I would say it is more related to being brilliant at the basics. So doing better the core things that drive our category. Service price execution, customer space, et cetera. So the key drivers of our category. I don't think it's a one-off. We see a better customer engagement, customer relation as our service levels became better following the system transition early in the year, and that should be sustainable. Now I don't want 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.

Our next question comes from Andrea Texeira with JPMorgan.

So my question is how to think about the headwinds of the SKU rationalization impacting your organic growth? And 2 clarifications, Ramon for PFNA, can you comment on the results of the price reinvestments, in particular in the core brands at the entry-level price points? And then second, I think you and Subani and Peter a bit on the volume inflection, is that a commentary in the -- you said volume inflected positive in the last 4 weeks. Is that for a total company or specific to some regions? I'm assuming specific to some regions in areas where you're seeing that service level coming back. So where are you seeing, if that's the case, where you're seeing the volume inflection?

Andrea, pardon me, it's Jamie. On the SKU rationalization, I mean, there's a lot of benefits that come from cutting the long tail. And 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. And as you cut that long tail, you create a lot of operational efficiency that leads to better customer service and that -- so you're not losing a lot, and there's a lot to gain through the efficiency and improved service. I missed...

Yes. 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.

Her line has actually left the queue. Can you give me 1 moment, I could not bring her back, okay?

Not a big deal, operator, either way.

And your line is opening Andrea, you can now repeat the question.

So for the PFNA, if you're thinking like the pricing 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 investments you've been making for, I think, more than 3 quarters for now?

Yes. So I view them as too 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. And 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. And yes, so that's the priority is to make sure that we've got the pricing very sharp to help drive demand.

Our next question comes from Peter Galbo with Bank of America.

Ramon, 1 of the areas where you focused a lot on in the prepared remarks within PBNA what was on protein. And I guess 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 protein in a bigger way versus other subcategories like energy or prebiotic where you've either bought or partnered. So maybe just if you can expand a little bit on kind of the decision to go more organic versus acquisition or partnership as we think about protein and beverages going forward.

Yes. No, listen, it was -- we always try to leverage as much as we can. Our existing platforms is a cheaper is 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 we've been able to -- our R&D teams have been able to develop, will be a great tasting, high levels of protein, good mouth feel and 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 will communicate a bit different. And the packaging will be very -- is very modern and update it. 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 5, 6 years. It has a lot of credibility in hydration, but I think it can expand into more. So this is why we think that we can take it into more of a functional hydration platform with Propel, focus on females but not only, both in powders and in liquids. And I think that, that will have a multiyear 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. So yes, 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. And the marketplace had already some scale players that it was a better return for us to go and acquire. And 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 tuck-in acquisitions that might give us a head start on additional scale in segments that are growing faster. So we're looking at portfolio transformation with a sense of urgency, and we're making that in the right moves, as you see from our innovation pipeline and some of the M&As we've made in the last 6 or 7 months, yes.

Our next question comes from Robert Ottenstein with Evercore ISI.

So Ramon, kind of a 2-part question. The first part is you talk a lot about rightsizing 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 in 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. So number one, is that assessment roughly right? And then 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?

That's good. So listen, I think it's an on. It's not an either, or. So 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 that will drive growth as we are more on consumer trend, and we're more in the spaces of the category that are growing. So that I think we spent quite some time, but also we 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. So 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 5 years. It is in our P&L. It's been a cost for us for the last 5 years. Now we can benefit from applying technology to everything we do, applying AI, overlaying intelligence to the infrastructure of data we've created, and that will give us optionality, agility and flexibility, which is probably what the market requires, given the continuous pivot from the consumer and from our partners, our customers. So that's how we're thinking. So 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 fast pace, and 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, place, first, let me thank Jamie for all the 35 years, Jamie or...

33.

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. And we've been doing a lot of work together. Now Jamie express 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, and 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.

Our next question comes from Kaumil Gajrawala with Jefferies.

First of all, Jamie, thank you for all your help over the, I guess, what's now been decades. And a question on the asset base and sort of following on with some of the answers to your questions on 1 North America maybe being regional, a focus on agility and focus on being fat a lot going on in terms of innovation and rightsizing. To what degree are you open to the idea of franchising some of these operations on the beverage side, particularly maybe just from a regional perspective because it feels like many of the many of the intentions of what you're looking to accomplish. Some of it could be moved along by pushing a sort of a refranchising initiative. So I'm curious what you think about that.

Yes, we -- as I said, we're going after growth and margin with high speed and a very strong center of urgency. We are -- at this point, we're open to all the ideas and we appreciate all the perspectives to create shareholder value. So we'll listen, we'll do what's best for PepsiCo. But as I'm thinking about this -- we think about the space of supply chain go to market, as I said earlier, the solution for this country, talk in U.S. will not be a one-size-fits-all solution. So there will be a 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 3 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. And the demand of the future will be much more concentrated in a few retailers or customers. And 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. So we need to solve for the 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 5 years helps -- allows us to do things that were unthinkable 5 years ago. And if you think about a lot of the basic processes of the company from order taking to transportation towers to how we we can do manufacturing or warehousing is totally different than the past. So we can manage complexity different. We can eliminate some of the human bottlenecks in ways that we couldn't do before. So technology, demand of the future. And the third point is, I'm trying to optimize the full PepsiCo P&L and not just 1 or the other, so as we think of that, we will have, for sure, nuance solution, we will be driving different solutions in different parts of the country, and we'll be looking for what is the best for PepsiCo long term. We listen to every perspective, we'll have constructive dialogues, and I'm sure we'll come up with the best solution for this company going forward.

Our next question comes from Chris Carey with Wells Fargo Securities.

So most ground has been covered. So maybe 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 America business. So I love getting any context or additional color on how you see that interplay.

Yes. So listen, it clearly is a very -- it's a complex topic, but I'll give you my point of view on a couple of areas. There are things that are clearly structural in the way we should think about consumers all over the world. I think consumers are moving to digital purchasing in a very structural way, and that will change the dynamics of the industry in both the assortment, 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. So 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 -- the consumers are much more informed about the food and the drinks, the ingredients in the foods and the drinks, and 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. And therefore, some of the relaunches of the brands that we're making, whether it's Lays or Gatorade or Tostitos, take that into consideration because I think they're very relevant going forward. And then affordability is also a reality. I think when you look at low-income households or middle-income households, they are very stretched, fixed cost, of living are going up around the world, and that will create the need for affordability and value and price points and cost consciousness also for the foreseeable future. So those are trends that they 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. And that's my point of view, that's how we're thinking about the future. And 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.

Our last question comes from Robert Moskow with TD Cowen.

A few weeks ago, an activist investor announced a stake in your stock and published a long list of recommendations. So 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 want 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?

Yes. Listen, a few questions in your question. So our engagement with [ Elliott ] has been -- we had a couple of interactions very constructive and collaborative, and we're trying to understand each other. I think we're aligned on 1 thing, which is critical, which is PepsiCo is undervalued. And there's a lot of opportunities to improve the valuation of the company by making a few interventions with a sense of urgency and the way we're doing. So I think we both want to create shareholder value. We're as interested as any of our investors to do this. So we're aligned. Now of all the ideas that [ Elliott ] mentioned in the document, most of them are included in our Strategy 2030, and we're acting on it. So 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. So a lot of positives. There's a few areas where we need to probably educate each other a bit more. We're going to have conversations in the coming weeks and months. And I'm sure we'll reach a point where they will listen to their perspective. They will help us in our decisions to make PepsiCo a better company and to create value for the long term. So yes, good collaboration, and I'm optimistic about how this will drive sense of urgency and will drive positive change for PepsiCo.

Good. Okay. So this concludes the meeting. Thank you very much to everybody for your engagement. And again, I would like to thank Jamie for the incredible work for PepsiCo for 33 years and support he's given me and the management team for all those years, but in particular, in the last 2 years. So thank you. And Jamie, I don't know if you want to say anything to the team here.

No, just thank you. It's been a terrific run, and this is a great company. I continue to believe our best days are ahead of us.

Thank you.

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.