PepsiCo, Inc. Q1 2010 Earnings Call Transcript

PepsiCo, Inc. Q1 2010 Earnings Call Transcript
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PepsiCo, Inc. (PEP)

Q1 2010 Earnings Call

April 22, 2010 8:00 am ET

Executives

Indra Nooyi – CEO

Hugh Johnston – CFO

John Compton – CEO PepsiCo Americas Foods

Massimo D’Amore – CEO PepsiCo Americas Beverages

Eric Foss – CEO Pepsi Beverages Company

Zein Abdalla – CEO PepsiCo Europe

Saad Abdul-Latif – CEO PepsiCo AMEA

Lynn Tyson - IR

Analysts

John Faucher - JPMorgan

Bill Pecoriello - Consumer Edge Research

Christine Farkas - Bank of America

Carlos Laboy - Credit Suisse

Marc Greenberg - Deutsche Bank

Kaumil Gajrawala – UBS

Jonathan Feeney – Janney Montgomery Scott

Lauren Torres - HSBC

Caroline Levy – CLSA

Judy Hong – Goldman Sachs

Damian Witkowski – Gabelli & Company

Presentation

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Good morning and welcome to PepsiCo’s first quarter 2010 earnings conference call. (Operator Instructions) It is now my pleasure to introduce Ms. Lynn Tyson, Senior Vice President of Investor Relations. Ms. Tyson, you may begin.

Lynn

Tyson

With me today are Chairman and CEO, Indra Nooyi and CFO Hugh Johnston. Indra will lead off today’s call with a brief overview of our results and then Hugh will review our first quarter operating and financial results.

We will then move to Q&A, where we’ll be joined by John Compton, CEO of PepsiCo Americas Foods; Massimo D’Amore, CEO of PepsiCo Beverages Americas; Eric Foss, CEO Pepsi Beverages Company; Zein Abdalla, CEO PepsiCo Europe; and Saad Abdul-Latif, CEO of PepsiCo Asia, Middle East and Africa. After Q&A, we will end with some closing comments from Indra.

I encourage you to review our earnings web deck, which augments our comments today, and is posted on our website at

www.pepsico.com/investors

. Our Q2 IR activities include our Annual Shareholders Meeting on May 5

th

which will also be webcast on

www.pepsico.com

.

During today’s call unless otherwise noted, all references to EPS growth, net revenue growth and division and total operating profit growth are on a core constant currency basis. Please read our Q1 earnings release for more details.

Before we begin, please take note of our cautionary statement. This conference call includes forward-looking statements based on currently available information, operating plans and projections about future events and trends.

Our actual results could differ materially from those predicted in such forward-looking statements, but we undertake no obligation to update any such statements whether as a result of new information, future events or otherwise.

Please see our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K and subsequent reports on Form 10-Q and 8-K. And finally, you should refer to the investors section of PepsiCo’s website under news and events, to find disclosures and reconciliations of our non-GAAP financial measures that maybe used by management when discussing PepsiCo’s financial results.

With that, let me turn the call over to Indra.

Indra Nooyi

Thanks Lynn and good morning everyone. First of all I just want to say a big thanks to all of you for participating in our Investor Meeting last month in person or by website. And I hope that you walked away with a better appreciation for the breadth and depth of our global portfolio as well as increased confidence in our ability to deliver near-term results while investing to drive sustained top quartile performance.

Since we just spent those two days reviewing our plans in detail, this morning I’m going to keep my remarks really brief. I have three key messages for you this morning. First we remain confident in our ability to deliver 11% to 13% growth in EPS this year while investing behind strategic platforms for the long-term.

Second, we are making great progress behind each of the seven initiatives we discussed with you at our Investor Meeting. And third, we posted solid Q1 performance in the quarter. Net revenue grew 11%, division operating profit was up 10% driven by improved costs and continued productivity, managing operating cash flow excluding certain items was up 40% to $794 million and we continued to make incremental strategic investments in areas critical to sustained growth.

More importantly the momentum going into Q2 has picked up across the board. Let me give you some operating highlights, in our $27 billion global macrosnacks business, we gained share in key markets by growing our core and our adjacencies businesses.

In Q1 we continued to make progress in shifting the mix of our portfolio from Fun For You to Better For You with the launch of great tasting products like all natural regional flavors of Lay’s Potato Chips, and whole grain Tostitos in the United States.

And we achieved all of this while investing to broaden our portfolio and expanding margins in key areas of the business. A prime example of this is at Frito-Lay North America where the team delivered great results in spite of overlapping double-digit growth in net revenue and core operating profit.

In our global beverage business, although reported volume was down half a point in the quarter if you include March in our international numbers, volume was up in low single-digits. I’d like to highlight just two markets.

In North American beverages, volume trends are improving across the board including Gatorade. We have been very careful to pursue share judiciously and we tended to save a value share in most cases and we are not pursuing unbranded volume.

Our core numbers reflect a healthy relationship between volume, revenue, and profit. In China beverages, we continue to step up our investments behind coolers and brand building. In the quarter we gained share in CSD as we led the industry with a 14% increase in volume.

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