PepsiCo Inc (PEP) — Q1 2026 Earnings Call Transcript

Thank you, Kevin. Good morning, everyone. I hope you've all had the opportunity to review our press release and prepared remarks, which are available on our website. Before we start, I want to highlight our cautionary statement. We may make forward-looking statements during today's call regarding our business plans, guidance, and outlook. These statements involve risks and uncertainties and reflect our view as of today, April 16, 2026, and we are not obligated to update them. In discussing our results, we'll refer to non-GAAP measures, which exclude certain items from our reported results. Please check our first quarter 2026 earnings release and first quarter 2026 Form 10-Q on pepsico.com for definitions and reconciliations of non-GAAP measures, along with more information about our results, including factors that could lead to actual results differing significantly from our forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta, and PepsiCo's CFO, Steve Schmitt. Now, I'll turn it back over to the operator for the first question.

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?

Thank you for the question, and good morning, everyone. We've been focusing a lot on our operations. From a supply chain perspective, we haven't encountered any major issues, and we're maintaining solid continuity. Our teams are managing it effectively, and the scale of PepsiCo is a significant advantage during these times. I appreciate our supply chain and procurement teams for their hard work, as they are diligently ensuring we continue to serve our customers. We have some systematic hedging programs that provide us with near-term visibility, typically with hedges in place for about 6 to 12 months. We anticipate inflation, but the extent is still being assessed. In my experience, there are three primary ways to manage inflation: leveraging infrastructure for growth, increasing productivity, and adjusting our price pack architecture. We prefer to primarily use the first two methods, but depending on the size and timeline of inflation, we may need to consider all three approaches. Regarding visibility and guidance, we believe we can manage any impacts this year, which is reflected in our guidance assumptions. Additionally, we're starting to look at scenarios for 2027, but we don’t have further details to share at this moment. Ramon, could you address the second part of the question?

Yes. I want to highlight Steve's point that at this stage, the scale of PepsiCo and the resilience we've developed over the past few years, particularly after COVID, strengthens our supply chain. We've established significant redundancy for our critical materials and have multiple sources for them, which gives us an advantage. Our hedge program also plays a role. Additionally, the experience and seniority of our leaders in the field contribute greatly, as they provide the agility and sound judgment necessary to navigate challenges, ensuring the safety of our team while also pursuing growth during complex situations. Regarding our international business, it remains a crucial element of our long-term growth strategy and is showing strong acceleration. To address your question, this acceleration continues, and we haven't noticed any decline in demand since the onset of the war. Our commercial programs are robust, and in certain markets, we are benefiting because our supply chain is more efficient than some competitors', especially in the food sector. Currently, we're executing effective commercial initiatives for the summer. The World Cup will drive significant execution and innovation during this time, and our teams are fully engaged in these efforts alongside ongoing portfolio transformations. Overall, our international business is in a strong position and is continuing to grow. In our guidance, we haven't anticipated any adverse impact since we're not observing any at this time.

I would like to hear more about PFNA in detail, and congratulations on the increase in volume. Can you discuss how the programs are progressing as we move through the quarter? How do you view the sustainability of this performance? Some investors might wonder if you've benefited from shipping ahead of the shelf resets and the winter storms. Could you comment on that? Additionally, what has been your perspective on the repeat rates for the refilling of those orders?

That's good, Andrea. Looking back to early last year, we defined a new strategy for the company centered on growth and strong productivity to support that growth. We have been executing this strategy diligently across various sectors, and we've seen results in the fourth quarter, with continued improvement in the first quarter. In the North America Foods business, we undertook a comprehensive commercial study aimed at growth. We provided additional value to consumers, expanded our offerings, refreshed key brands like Lays and Tostitos, and introduced innovative products to enhance our permissible and functional lines. We also redirected funds to boost our away-from-home segment. These efforts are paying off, reflected in the 2% volume growth, which is the result of several factors, including added value in core brands and multipack offerings. We're optimistic about our current position, even as we continue with shelf resets and new product launches, which we expect to almost complete by the end of the second quarter. The initial results are promising. The 2% volume growth and 4% unit growth translate to 300 million new occasions in our food business compared to last year. Our away-from-home segment is growing three times faster than the company's average, and our permissible portfolio is seeing double-digit growth in some brands. The structural changes we’re implementing are effective, and importantly, the productivity measures we took last year are providing us the flexibility to invest in the food business more than before. Remarkably, costs for North America Foods decreased in the first quarter, showcasing the team's achievement. We're also encouraged by recent results that show positive market share growth, both in volume and now in value, aligning with key performance indicators we set. Overall, we're making good progress, and while we're in the midst of this reset execution, we feel very positive about the response from our brands, customer support, and team execution in the market.

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. Regarding the North America Beverages business, we are addressing the transition of case pack water to a third party, which is reflected in Q1 numbers. We have just one more month to compare against. Excluding that transition, the volume is nearly flat, and we anticipate this acceleration to continue in the upcoming periods. What’s promising about PBNA right now is that the business has grown by 9%. This growth stems from a combination of organic growth and additional platforms now within our distribution system, including acquisitions like Poppi and a broader range of energy brands that are boosting our growth. We are confident in the 9% growth, the ongoing acceleration, and the flat volume due to case pack water, and we believe this progress will persist in the forthcoming quarters. We expect positive volume growth in case pack water in the near future.

I wanted to get more specific about the trends in the PFNA business, knowing that Nielsen scanner data doesn't capture everything. One thing that stood out to us is Lays. Lays is one of the businesses where you acted early, with the Great Super Bowl commercial, refreshing the visual imagery and emphasizing simple ingredients, along with price adjustments. While that business is improving, it still appears weak overall, with bumpy volumes and a significant decline in organic growth. I wanted to hear your thoughts on the next steps. I believe this business faces the toughest mainstream competition and has less differentiation, yet you are the most advanced in addressing these challenges. Could you share your perspective on how the turnaround has been progressing?

Yes, Lauren, it's going well. The Lays brand is part of a comprehensive restaging of the entire business. This is a global initiative, and Lays is performing strongly around the world, including in the U.S., where we saw volume growth this quarter specifically for Lays. Overall, at PFNA, we grew volume by 2%, increased occasion units by 4%, and added 300 million occasions compared to the same quarter last year. These are key success metrics for us. Additionally, we are focused on household penetration, which has improved across all our core brands, and our permissible portfolio is also expanding, with brands like SunChips and Smartfood showing significant growth. Overall, we believe we are in a solid position. Recently, we have regained share over the last three weeks, using IRI data, which indicates we are doing well in value terms. We've been gaining volume share for the past few periods. Overall, we feel that consumers are returning to our brands and engaging with them repeatedly, thanks to our combined strategies of value, execution, advertising, and innovation. As we continue our transformation and execution, we are optimistic about further improvement in this business and believe we are slightly ahead of our expectations at this point.

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 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 continues 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.

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 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.

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.

This is Steve. I can address the SNAP question. We had eight states implement restrictions in the first quarter, primarily affecting beverages and candy. It's still early to draw any definitive conclusions about the impact. We will closely monitor how customers manage their funds alongside other discretionary spending over time. Overall, the LRB category remains robust, and we will keep an eye on it.

Yes. To add to what Steve mentioned, we are witnessing a significant acceleration in the Sabra snacks category, partly due to our efforts to attract more consumers into this space. Our retail partners are collaborating with us on this journey, which is important for everyone involved. This category is growing rapidly in various regions; in the U.S., Sabra snacks are sometimes outpacing food sales, which is encouraging, and we are increasing our market share in this category. Overall, we expect LRB to consistently grow above food and beverages, and Sabra snacks to continue its upward trend, eventually stabilizing and surpassing food and beverage growth, which aligns with historical performance. As leaders in the Sabra category, one of our main objectives is to ensure it remains healthy and that we keep attracting consumers, including those who have previously lapsed. We are innovating to engage more families and consumers in this category, and we are optimistic about the second half of the year. So far, we have successfully introduced many consumption occasions for the category in Q1, and we anticipate observing similar trends in Q2.

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. Market share is crucial. Let's take a step back. PBNA is growing its total business by 9%. We're experiencing accelerated growth, including in the energy sector. We see our involvement in the energy portfolio through our CELSIUS investment and distribution, which is gaining share. We are also leading in the functional hydration category, which is on the rise. For the first time in several years, functional hydration, including sports drinks, is outpacing LRB growth. This is an important objective for us. Gatorade and Propel are gaining share in that space. We still have work to do on speeding up the coffee and tea businesses, where we are also leaders. Some of the innovations in the Starbucks portfolio aim to help with that. In carbonated soft drinks, we're seeing solid growth in modern soda, which continues to accelerate. Our poppi business is beginning to pick up speed, and we have highlighted opportunities with Mountain Dew for a while now. Some of the new products we've launched are in the early stages, but both the Dirty Mountain Dew, Baja, and Cabo flavors are starting to boost the brand, which is very encouraging. Regarding the Pepsi business, we're past some of last year's events. No sugar Pepsi continues to grow faster than competitors, and we are optimizing pricing and sizing to better participate during the summer. Overall, we feel positive about the 9% top line growth and our engagement in various segments to drive PBNA's growth.

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. Our current assumption is that we will continue to see an acceleration in organic growth, specifically in volume, as we increase consumption units in our brands. We expect the organic growth to transition to reported growth starting next quarter. Our strategy for the rest of the year focuses on growing profit in North America Foods. We plan to manage the business as part of our broader portfolio while ensuring we stabilize the top line. We aim to continue growing the Sabra snacks category faster than the overall food category, creating an environment where both we and retailers want to invest for future growth.

Ramon, considering that we are still in the early stages of rebuilding PFNA momentum, have you noticed any significant changes in competitive intensity, such as pricing promotions or on-shelf behavior? Additionally, with the rising costs you're facing, how do you see the food industry managing the balance between clear consumer affordability issues and producers needing to counteract those costs? Could this potentially disrupt your investments in affordability? Or do you view this as a possible natural limitation on the risks or a more aggressive competitive pricing response to what you are doing as we progress through the year? How are you approaching these dynamics?

Yes, I'm sure there will be more competitiveness in the category as we enter the high season during the summer with all the major holidays. We have our plans in place for this, and it's not just about pricing. While price is certainly an important aspect for many consumers to return to our category, our growth strategy for Frito involves innovation, execution, and ensuring success across retail and food service channels. Regarding our productivity strategy, I'm not certain if our competitors are focused on the same, but we have concentrated on reducing costs, both per unit and overall for the food business across North America and the entire company. This has proven to be a successful strategy for us. We still have numerous untapped productivity drivers in the upcoming quarters and years that will help us provide greater value to consumers and compete more effectively against other food manufacturers. This is how we view the next phase of our journey. We'll also monitor inflation as mentioned earlier. We're committed to leveraging our full portfolio to succeed in the marketplace with PFNA while continuing to meet the overall profit growth targets for the organization.

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. I would add that some of the major drivers we’ve previously discussed continue to be executed. We are implementing global shared services, utilizing technology throughout the company, and leveraging AI in our supply chain and transportation to optimize routes. In numerous countries, we are transitioning to digital ordering systems that minimize the volume and duration our sales team spends on taking orders. We are employing technology in a comprehensive manner, using AI and data to enhance efficiency and reduce costs. This includes improving our advertising and marketing efforts, and we are becoming more adept at evaluating the long-term return on investment for marketing and trade. These are two significant areas we are optimizing. As we progress in our multiyear journey, we are applying these strategies across all of our key markets, including the U.S. We are also experimenting with integrating more of the supply chain in the U.S. and conducting live tests in Texas, with plans to expand this to other states. This is another aspect of our cost transformation that we expect to learn more about in the upcoming quarters, and we will provide updates later this year or early next year.

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 provide you with a couple of examples, Kaumil, to give you a better understanding. By enhancing the value in some of our multi-serve and multipacks, such as Lays, Doritos, RUFFLES, and Gatorade, we are attracting back consumers who had previously left the brand. These lapsed consumers either stopped buying our products altogether or shifted to competitors. This indicates growth in our core offerings. Additionally, we are drawing in new consumers to the category through innovations like Naked and some of the advancements in Gatorade that feature no artificial ingredients and low sugar content. Consumers who weren't previously in the category are returning because we are now offering options without artificial colors or flavors. Thus, we have two types of consumers entering the category: those returning due to a stronger core and those driven by innovations that add value. We plan to continue pursuing both strategies. This approach applies to both our food and beverage segments, and we will maintain this momentum not only in the U.S. but also in international markets, where we are beginning to introduce some of the U.S. innovations. We are also witnessing a growth acceleration in developed markets in Europe.

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, the World Cup is a significant opportunity for us as food sponsors globally to engage consumers. This event resonates deeply with many fans, including myself as a soccer enthusiast. Our innovation will showcase flavors from around the world, tailored to each market. We are focusing on our "No Lays No Game" campaign, which has been a global initiative, and we will enhance this with appearances from international football players. The idea is to connect Lays with the experience of watching sports, ensuring that consumers have access to our products during game gatherings. We will personalize our marketing based on team support and have various activations for each match, where our Lays brand will highlight the fun of the game. Additionally, Quaker will be involved as players enter the stadium, featuring the brand prominently in its global relaunch. Our partnerships with retailers and quick delivery services worldwide will help us seize these occasions, offering consumers the chance to order Lays and drink pairings to enjoy with friends. This comprehensive activation aims to enhance brand awareness and drive excitement globally, especially in lower per capita countries, as we seek to attract new consumers and encourage repeat purchases. We are already witnessing acceleration in various international markets due to this initiative. Thank you for your questions, your support, and your trust in PepsiCo. We look forward to further discussions in the upcoming quarters. Thank you.