PepsiCo Inc (PEP) — Q4 2025 Earnings Call Transcript

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, 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 2025 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. And with that, I will turn it over to the operator for the first question.

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 PFNA 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 let Ramon comment a little further. In regards to your question on the investments we're making in PFNA, I'd say there's three 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, I can provide more detail. This is part of a multi-faceted strategy aimed at driving growth in our category and enhancing our involvement in it. We have been testing this approach at scale in key markets since around Q2 of last year. We believe that for some consumers, particularly those in low- and middle-income brackets, the main challenge to faster adoption in our category is affordability. Therefore, we have been exploring various methods to improve affordability for them. This strategy will be very targeted, focusing on specific brands, formats, and channels. From our large-scale tests across multiple markets, we've seen a strong return on investment. Additionally, you should consider this alongside the significant space gains we are achieving through partnerships with our customers due to these pricing investments. As we mentioned earlier, we are also heavily investing in innovation, aiming to enhance functionality, simplify ingredients, and refresh some of our major brands. This forms a comprehensive investment plan supported by the efficiencies we have realized, including the adjustments we made in Frito and other productivity initiatives at a global level. This allows us to reinvest in accelerating growth for the category, manage it for the long term, and ensure our stronger participation as the category begins to expand. We are optimistic about how these different initiatives will contribute to sustained growth for the remainder of the year.

I was hoping you could comment further on the pricing reinvestment you mentioned. There was a news article that stated there might be a 15% increase in some of the PFNA items. With the restaging you are doing, what tools do you have to mitigate that in the first half? Should we anticipate a challenging first half compared to what you just reported in PFNA? Additionally, regarding Gatorade, can you speak about the volume trajectory? You have an easier comparison for PBNA as you approach the first half, especially in the second quarter. It would be helpful if you could clarify how we should expect the cadence of your guidance.

Okay, Andrea, let's step back for a minute. We expect Frito-Lay to grow volume, net revenue and operating 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 frequency 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, it's relevant for us.

And one 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.

I’d like to add that we are restaging two major brands, Gatorade and Quaker. At the beginning of the year, we are focusing on Lay's and Tostitos, which are multibillion-dollar brands for us. Later in the year, we will have significant relaunches for Gatorade and Quaker, two important brands that align well with growth in their categories.

I was just 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 '26?

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.

We just had a brief chance to review the 10-K before the call. I observed that advertising dropped significantly, around $500 million for 2025, which was surprising. I'm curious about what factors influenced that expectation for 2026. I would have anticipated an increase in advertising, but that decline was greater than I expected for 2025. I would appreciate more insight on this.

Thanks for your question, Lauren. You're correct that it declined this year. We did see some efficiency in both the working and non-working advertising lines. Your expectation for an increase next year is valid as well. We experienced some cost of sales benefits in 2025 that we don't anticipate seeing again. We will focus on growth and ensure our messaging highlights value and innovation, and we plan to invest in sales growth for this year.

I wanted to ask on the guidance for organic sales for '26. 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 PFNA to return already to volume growth earlier in the year. So is this further acceleration in PFNA or maybe some acceleration in the other two segments, PBNA and International. Maybe you can comment on the expectations for the other two segments as well.

Yes, I think you should consider our International business to continue performing at levels similar to last year, with mid-single-digit growth. We're seeing positive trends in some major markets, with improvements in Mexico during Q4, along with a solid start in China and South Africa. Hence, you can expect mid-single-digit growth for our International business, which has been consistently performing this way for the last 19 quarters. The primary acceleration is coming from our North America businesses. On the beverage side, we're optimistic about the growth we expect in 2024 and 2025, and we believe this momentum will persist. Therefore, you should anticipate some additional acceleration from the beverage sector. However, it is our food business that has shown improvement throughout the year, achieving growth in both volume and net revenue. December outperformed October, and we anticipate that Q1 will surpass Q4 and continue to build on that. We're also seeing some organic growth due to the acquisitions made earlier in the year, which will contribute to our overall growth moving forward. These acquisitions are in high-growth segments, and their integration into our distribution systems has been successful, leading to increased returns on those brands. Thus, they will continue to grow, and we expect acceleration in our portfolio during the second half of the year. These are the key areas of growth and how we envision the acceleration in the latter part of the year.

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 Prebiotic. So granted, 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?

It's a great question, and we're definitely focusing on growth in two main areas. First, we're committed to ensuring that our core brands continue to expand, which is why we're investing significant resources and funds to revamp some of our larger brands. For instance, we are relaunching Lay's globally with a new positioning that emphasizes freshness, farmers, simple ingredients, and no artificial additives, which we believe will attract consumers back to the brand. We're also revamping Tostitos, Gatorade, and Quaker—key brands that need to keep driving our business. Additionally, we are innovating at the edges of the category where we are observing growth. A great example of this is Naked, which has become a permanent innovation for us. It shows that there are consumers out there, particularly younger households and moms, who want our products but are looking for options that align with their preferences, such as no artificial ingredients. This allows parents to feel good about giving their kids their favorite choices. We're considering innovation from a category-building perspective, aiming to attract more consumers while also increasing the frequency of their purchases, as I mentioned earlier regarding our affordability investments. In beverages, consumers are also showing interest in our offerings if we provide the right products. One significant innovation we have planned for this year is a low-sugar, no-artificial version of Gatorade, driven by discussions with our customers about space and allocation. This is likely aimed at the same consumers seeking reasons to engage with our major brands. We are also focusing on fiber and protein innovations and are placing a strong emphasis on portion control, as it is a crucial strategy to retain consumers and boost purchase frequency. Our multipacks in both food and beverages will be essential for our growth. We are becoming more insightful and specific about the combinations, price points, and occasions where these packs can be utilized, and we are aware they contribute to category growth and enhance brand penetration.

Ramon, following up on your earlier comment about healthier innovations, I want to focus specifically on the adoption of GLP-1, as it often comes up as a concern for investors considering your stock. There are worries, particularly with older tablets entering the market and more insurance plans covering weight loss drugs. Can you directly address the GLP-1 concerns? Were you able to gather insights from the test markets where your new innovation had success and the investments you've made in pricing? Additionally, do you believe PepsiCo has a good understanding of what increased adoption rates could mean for the category and your future outlook? I would appreciate your thoughts on this.

Yes, we should expect a wider adoption of GLP-1 medicines as more options become available and affordable. We are actively responding to this trend and have been preparing for a while. We're optimistic about how PepsiCo can adapt to this new consumer landscape. We see more opportunities than challenges, though both exist. Our response strategy includes promoting portion control, which we've tested, and we know that families using GLP still engage with our products but in smaller portions. Keeping our category relevant means focusing on smaller sizes. In the U.S., over 70% of our food business is already in single servings, and we are investing in that capacity. We’re also offering solutions like 1-ounce, 1.5-ounce portions that fit into consumers' lives. There are significant opportunities, especially considering consumers on GLP medication. Hydration is a major focus for us, and we're relaunching Gatorade and growing Propel powder and tablets to add functionality to hydration. Our consumers are interested in fiber due to digestive concerns, and we're innovating in fiber and whole grains, particularly with our Quaker brand. We're also enhancing our protein offerings by researching cooking methods suited to consumer preferences, such as baking and air frying. We are urgently pursuing multiple transformational strategies this year, as we did last year, and we view this as an opportunity not just in the U.S. but in various markets.

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-Lay has quite a bit of shelf space already. So is this within the salty-snack aisle, or with the incremental shelf space, maybe in other parts of the store? Just any more details around what's 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 in 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 it's 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 have been tested. Capacity will be critical for us to continue to increase the volume of the units.

I just 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 any 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 use Lay's as an example to illustrate our approach. We are updating the visuals to focus on simplicity, nature, freshness, and the quality of the ingredients, which is what consumers are seeking. We are also changing some of the oils used, introducing Lay's varieties made with avocado oil and olive oil. This represents an enhancement of the ingredients and a simplification of our product lineup. We are removing artificial components and significantly increasing our investment in advertising and marketing as well as adjusting price points for the brand. This is a comprehensive rebranding effort that we are executing globally, while also highlighting the farmers who grow our potatoes. We have noticed that as we do this, consumers tend to shift away from the perception of our products as overly processed and instead recognize them for what they are: simple items made with care and no artificial ingredients. This change in perception is effective, and we plan to keep investing in it. Consider this strategy applied to Gatorade, Quaker, and Tostitos, and you will understand what we aim to accomplish.

Ramon, if we pivot back to PBNA 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 Filippo'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 CELSIUS's category captaincy or the onboarding of Alani?

We're pleased with the progress we're making in the beverage business and plan to focus this year on enhancing our competitiveness. There are areas in our portfolio where we believe we can improve. This involves executing better, ensuring affordability, and building our brand, particularly in soft drinks and parts of the functional hydration portfolio. We have confidence in our plans and in the investments we will be making. Additionally, we have consistently aimed to improve our business margins, and we expect to continue this trend in 2026, particularly for the North American beverage business, aiming toward the targets we've previously shared. Regarding energy, we are excited about our participation in this rapidly growing profit segment. Our strategy, which involves a combination of distribution margins and our ownership of CELSIUS, positions us well. The CELSIUS brand is experiencing growth, and the integration of the Alani brand into our operations has been positive thus far. While it's still early in the process, we're not yet finished onboarding all distributors nationwide, but we anticipate seeing more acceleration in the upcoming months. We're already noticing improvements in execution metrics, which is encouraging for our future prospects. There is strong collaboration with the CELSIUS team, and I believe that the division of responsibilities between brand building and execution is effective. We expect to continue gaining market share, and currently, we're close to 20% for our entire portfolio, which represents a significant stake in a growing category that still has further growth potential.

I wanted to follow up on Filippo's question. Ramon, you've mentioned it a few times, but as we consider the impact of upcoming M&A on our organic growth, can you provide insights on how these acquisitions, once they are integrated into our organic base, will contribute to the full year? I'm asking this in order to compare the core business on a like-for-like basis as poppi and Siete transition into our organic segment.

This is Steve. Maybe I'll just start with when they flip into organic. We have Siete it will be in the March time frame. poppi in the July time frame. Alani Nu 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.

So trademark Pepsi grew volume and 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 relevant 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?

We're pleased with Pepsi, as it plays a significant role in our beverage portfolio both in the U.S. and around the world. While we're seeing improvements, particularly in the U.S., we believe there is more potential for growth, which is why we're investing in specific areas. Our no-sugar option, Pepsi Zero, has received positive feedback, with over 100,000 consumers preferring it over competitors in our Pepsi Challenge. We're committed to reaching consumers through straightforward advertising and engaging campaigns, like our Food Deserves Pepsi initiative. Increasing our product availability in restaurants and other away-from-home spaces has also contributed to brand awareness and trial, and we plan to maintain this momentum. We're optimistic about Pepsi and our marketing and consumer engagement strategies. In contrast, Mountain Dew has faced more challenges. However, we are making progress as our teams explore innovative approaches. Baja has been a successful addition, particularly appealing to the Hispanic demographic as well as others. Our marketing strategy is tailored to various regions of the country, allowing us to connect with consumers through localized messaging and product offerings. While it may take a little more time for Mountain Dew, we are witnessing positive developments, with 2025 expected to outperform 2024, and 2026 looking even more promising.

Ramon, I was hoping if 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, that's a great question. We are focused on eliminating duplications between our two large U.S. businesses and finding ways to integrate them advantageously. We're already seeing positive initial insights from our integrated delivery and inventory points, which will enhance our cost efficiency and flexibility to improve customer service, a key driver of value. We will update everyone later in the year with specific details about our future plans. Our goal is to learn as much as possible and scale some of our solutions. We are implementing valuable IT systems and also exploring innovations in our vehicle and transportation resources. Our best people are dedicated to this project, which gives us confidence that we will create something unique that adds significant value to the company, enhancing both efficiency and customer service for future demands. As mentioned before, our approach will not be one-size-fits-all for the U.S., as the marketplace varies greatly. We will create a scalable model that considers the nuances of different regions, including possible small refranchising options in parts of the country. This is the best approach while keeping in mind that the integration of our two businesses will yield substantial value.

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?

The way we've constructed our guidance builds on what we've observed in the fourth quarter. Middle- and low-income consumers continue to face financial pressure and are selective in their purchases, so we need to earn our place in their shopping baskets daily. That's our perspective for the U.S. Internationally, we're noticing varying trends across different regions, but we're feeling positive about Mexico and observing encouraging signs in China. I'm focused on our business and its environment rather than broader macroeconomic factors. The situation in the Middle East looks good, with consumers there performing well. Western Europe is a bit weaker, while Brazil remains neutral. These are our key markets, and we've factored these conditions into our guidance. Overall, our outlook is consistent with the data we have from monthly consumer reports. Thank you all for joining us today and for your trust in our company. I look forward to our discussions at CAGNY in a couple of weeks. Thank you.