Good morning, and welcome to PepsiCo's 2025 Second Quarter Earnings Question-and-Answer session. 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, 2025 guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, July 17, 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 second quarter 2025 earnings release and second 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. And with that, I will turn it over to the operator for the first question.

Our first question comes from Bonnie Herzog with Goldman Sachs.

I guess I was hoping for some more color on your accelerated productivity initiatives and your efforts to ultimately rightsize your asset footprint. My sense is your business is built for faster growth. And as we're seeing growth moderate, you're understanding the need to shrink your asset base and attempt to mitigate the impact that you might be seeing from some deleverage moving forward. So first, could you quantify the productivity savings you're hoping to generate this year? And how much above the typical $1 billion run rate it will be? And then second, could you frame for us how you're balancing your reduced asset footprint with ultimately ensuring your business will still be built for growth over the medium, long term? And I guess, along those lines, how should we think about your long-term algorithm and realistic category growth?

Good, Bonnie. A lot of questions there. Listen, let me talk first about how we're thinking about productivity in a multiyear horizon. And then maybe Jamie can give you a bit more sense of the numbers. Now we're thinking about productivity. You're asking about Frito, but think about PBNA as well, our International business. Every one of those businesses has been optimizing their cost structure for multiyears. Now we've been investing in technology. We've been investing in AI. We've been investing in data. Those businesses now have opportunities to improve even more their productivity as a stand-alone business. When it comes to the North America market, we have one new layer of opportunity that is going to give us a lot of opportunities to improve our cost structure over the next 3 to 4 years, which is the North America integration. We have two large businesses, almost $30 billion each that have been operating almost a full value chain side by side. Now with the investments we've made in technology, with the new data that we have and systems, we can start looking at those businesses in a more integrated way to perform some of the value chain tasks in an integrated way. With that, we create both efficiency and cost reduction, but also growth opportunities for the business in a combined way. Think about rural areas in the country. Think about how we service small stores, or away-from-home restaurants. Think about some of those opportunities, how we lower the cost to serve. And at the same time, we can increase frequency, we can increase time to sell. So those are stand-alone opportunities and combined opportunities as North America. The third layer is how we, as a company, have been investing for now multiple years in global capability centers around the world to service our businesses as One PepsiCo with one technology, one set of processes, and one set of information. That is live, and that will also create a lot of value for our businesses going forward. So think about productivity, not as a one-year event, but a multiyear opportunity for us to reduce our costs, invest in growth and obviously, the food business in North America that you were referring to is one of the businesses where we're looking at improved cost structure in the coming months and the coming years. Now Jamie, maybe you want to talk a bit more about the details of the costs?

Bonnie, yes, in the second half we're expecting to deliver about 70% more productivity than we delivered in the first half. Now that's across the entire enterprise. But given the size of Frito in the portfolio and the particular need to rightsize the assets and some of the other fixed costs, it skews more to Frito delivering that stepped up productivity. What we're going after, I think we've mentioned in the past, we've closed two plants. We do have excess manufacturing capacity given the volume performance over the past couple of years. We want to be careful not to take out so much that we don't have room to grow. So we're being very intentional about this. Within our other manufacturing plants, we've shuttered some lines, but we can bring those back into service when volume returns. And then we're rightsizing the workforce. And over time, you can flex the workforce up and down depending on the volume growth. But beyond addressing the fixed cost deleverage, we've got a lot of other initiatives in play where we've got the procurement savings, a lot of that is enabled by the investments we've made in the ERP system. We've got changes to our operating model where we're getting better leverage out of our management layer. We're going after everything, travel and expense. We're looking at third-party contracts. So we're pushing on every cost lever that is available and that's what's going to drive the incremental productivity in the second half.

Our next question comes from Steve Powers with Deutsche Bank.

Great. Can you hear me?

Yes, Steve.

Okay. Great. So if we stay on North America, but maybe pivot to the top line, both PFNA and PBNA. Your prepared remarks run through a number of initiatives that you have underway to leverage the capabilities that you just talked about in response to Bonnie's question to drive improved momentum. And I guess my question is, if there's a way to distill those initiatives down to maybe the top one, two or three things that you would say are the most critical, the most important to get right as we run through the back half of the year to drive improvement? And then, I guess, relatedly, what does success look like as we think about exiting the year in both those divisions? Where do you want to be? Where does your outlook kind of assume that you will be in terms of the run rate exiting the year?

Yes, Steve. I'll share what we're aiming to achieve in our two business areas. In the food business, our primary goal has been to stabilize the category as market leaders. We constantly assess the health of the category, making targeted investments to retain consumers within our brands by providing better entry points and value daily, which has proven successful. We're also focused on enhancing our competitiveness across the various subsegments of the category, with notable progress in many areas. For instance, Cheetos has performed well in the extruded segment, and Doritos has shown strong results in tortilla chips. Our permissible portfolio is becoming increasingly relevant, contributing over $2 billion with brands like SunChips, PopCorners, and Siete, along with the positive results from the summer relaunch of Simply. While there's still work to be done in potato chips, we're encouraged by the recent performance of unflavored tortilla chips with Tostitos and others. Our top priority is stabilizing the category, followed by enhancing performance across subsegments, and we anticipate further success with the relaunch of Lay's, our largest brand, focusing on improving its perception as a real food option. We're also relaunching Tostitos to elevate the brand's food credentials, which will happen in Q4 and Q1. Another important aspect, which may not be evident in Circana data, is our focus on the away-from-home business. This has provided us with additional locations and strong returns for both food and beverages. In beverages, we're concentrating on enhancing our cola offerings, particularly no-sugar colas, which have yielded positive share growth for Pepsi in both the U.S. and globally. We're also prioritizing Gatorade's recovery in the sports category, as we gained share in the first half of the year, and Propel has been a successful addition to our functional hydration lineup. Success for us would mean sequential improvements in our top line and market share, with the aim of returning to the lower end of our top-line growth algorithm in the coming quarters. There's a strong sense of urgency within the organization, and all businesses are focused on delivering improved operational metrics to reach this goal in the near term.

Our next question comes from Filippo Falorni with Citi.

Ramon, I wanted to go back to one of your comments on the away-from-home, which is a bright spot, definitely in the results. Can you give us a sense of how big is away-from-home, both for the beverage side and the food side? And you called out in the PBNA, it was up high single digits in the quarter. Should we expect that to continue in the balance of the year? And maybe also a little bit longer term, what's the opportunity longer term for your away-from-home business?

Yes. Away-from-home for us is a big opportunity. As consumers move their consumption patterns to more calories away-from-home, it is obviously an opportunity for us to create more occasions, accelerate growth in our categories, and growth in our brands. So it's been a focus for us for quite some time. It's been more of a physical availability effort. Now we're adding layers of innovation, some other solutions that in terms of mini-meals and ready-to-eat solutions that we'll talk to you about in the future. But that will be beyond physical availability. It's a sizable opportunity. It is more of a bigger part of the business in beverages than it is in foods. And it is margin accretive for both businesses. It's a higher-margin business for both beverages and snacks in away-from-home than it is in retail. So growth opportunity, very incremental, a focus area, and margin accretive. So you will see us talking about it more in the future. You will see us putting more resources against that channel. And also as I said, having more innovation beyond what is the physical availability of our products in those channels.

Our next question comes from Dara Mohsenian with Morgan Stanley.

So Jamie, I just wanted to maybe extend Bonnie's productivity question a bit to full-year earnings. Can you just help us understand your visibility and the assumptions behind the acceleration in the back half of the year relative to the first half? It's a pretty large magnitude. Obviously, currency is a big swing factor that helps. But I imagine a lot of that is eaten up by tariffs. So just trying to understand your level of confidence there, what the key drivers are? Is it mainly productivity? Or are there other factors there? And then also just longer term, Ramon or Jamie, as you think about investing behind the business, I'm not hearing a ton about reinvestment on this call. So just, can you talk about the decision to sort of drop that to the bottom line versus reinvest behind the business? You have some nice growth internationally, opportunity to continue to invest there. You're looking to drive better trends in North America, still below long-term goals from a top-line standpoint. So just curious how reinvesting behind the business fits into your plans and the ability to accelerate organic sales growth as we look out beyond this year?

So, Dara, I will begin by addressing the confidence level in productivity, which I believe is high. As we've entered 2025, it's become clear that the external environment will be quite challenging. Therefore, at the end of Q1 and the start of Q2, we focused on identifying additional initiatives to enhance our productivity, which we expect to gain traction in the second half of the year. We have already started implementing many of these actions, so I feel very confident about this. Regarding tariffs, we have considered them in our plans. While they are somewhat unpredictable, we are optimistic about the measures we have taken to mitigate their impact. We also have additional strategies under review for the latter half of the year.

Yes. When it comes to reinvestment, there are a few key areas we are focusing on. First, we have been investing in technology for a long time and will continue to direct a significant portion of our productivity back into technology, which enhances our intelligence and efficiency. Another area of investment is value; we are approaching this strategically and have improved our understanding of the return on these investments. Currently, our main focus is on entry points and maintaining everyday low prices across key categories. We are also investing in away-from-home capabilities to increase physical availability outside of our retail channels, as well as innovation. Over the past five years, our advertising and marketing efforts have been substantial, and we plan to maintain those levels moving forward. The brands are refining their strategies, and we are seeing improved productivity in our advertising and marketing efforts. We believe we have sufficient resources to both defend our core business and develop new growth platforms. Those are our primary considerations for reinvestment. Since I started, we have been focused on long-term growth, utilizing strong productivity to support substantial investments in the business over the long term.

Our next question comes from Lauren Lieberman with Barclays.

I wanted to talk a little bit about portfolio transformation. You've been pretty active on the permissibility side of things and you spoke about the Simply restage. I can tell you, I've seen a ton of incremental merchandising and display for the Simply lines in store. And I was just curious, I guess, first specifically how that's going, because I know that on Simply something that you've spoken about in the past is that the impediment was not having the products or making them available, it was, frankly, consumer engagement and interest in them. So I'm curious on what kind of uptake you're seeing on that front? And then also in the release, you had mentioned some upcoming innovation for Frito around fiber, and protein, and other things in ingredient profiles. And I was just curious if you've done anything in terms of consumer testing? Because when I think about the brand equities, I would think an open question is whether or not some of your brands have the right to play, if you will, in a space like protein, in the space like fiber? And just how you're thinking through the risk of diluting brand equity by stretching them too far?

That’s a great question. The focus of the company has been on creating a permissible food portfolio, with no sugar in beverages and functional platforms in that category for some time now. Our permissible snacks segment is already worth over $2 billion, making us the largest permissible snacking company in the U.S., with various platforms. For example, our SunChips brand is built on multigrain, while PopCorners emphasizes baked, never fried snacks. We also have Siete as a new addition. Simply continues to cater to the demand for natural ingredients without artificial additives. I'm glad to see an increase in the physical availability of Simply, as that was a major hurdle for consumption, not a lack of consumer interest, but rather availability and the right pricing to encourage trial. We’ve focused on both availability and affordability, which should further boost trial rates. We're noticing that consumers previously hesitant about our major brands like Doritos, Cheetos, Lay's, or Ruffles are now trying these products. This will be a key aspect of our advertising and marketing efforts, as well as strategies from our sales team. Looking ahead, we're excited about major innovations including the relaunch of Lay's and Tostitos. These brands have foundational roots in simple ingredients like potatoes and corn, and we aim to enhance their food credibility. We plan to eliminate artificial ingredients from both brands, starting in the fourth quarter and continuing into next year. Additionally, we are exploring innovations in functional areas within our food business, particularly relating to protein in PopCorners and Quaker snacks, and eventually in our larger brands too. Consumer feedback has pleasantly surprised us; there's a growing acceptance of our brands in these functional areas. The significant push toward protein will primarily focus on our beverage segment, where we have some exciting new launches planned for Q4 and Q1. Our offerings in the liquid protein space are expected to have superior qualities, be free from artificial ingredients, and be delicious. We believe these products will cater to an increasing consumer trend in the U.S. We'll share more about these developments in future quarters, but at this point, we can’t disclose too much for confidentiality reasons.

Our next question comes from Michael Lavery with Piper Sandler.

Just maybe shifting gears a little bit to International. It's doing quite nicely. And just maybe you gave some color in the prepared remarks, obviously, but hoping you could maybe call out a couple of the key drivers? Just some of what's really driving working there? And then maybe if there's any watch-outs for the second half, or even opportunities for further acceleration you can flag and just unpack that a little bit for us?

Yes. International has been a success story for us. It's been a focus of the company. Obviously, we're very developed in the U.S., and International is a big opportunity for growth. A lot of consumers and opportunities for per capita and frequency build in most developed and developing markets. So we continue to invest in International, both in foods and beverages. Both categories are doing well, mid-single-digit growth. That's where we're trying to continue balance in the latter part of the year, and that's what's in our guidance. In terms of specific markets, I'd say we're very pleased with LatAm. We're very pleased with some parts of Europe where we see strength. We're pleased with some parts of the Middle East. China is a little bit weaker. As you think about the Chinese consumer, post the Chinese New Year, it's a little bit softer. India continues to be double-digit growth. So overall, a strong competitiveness, we continue to invest in category growth, which at the end is the long-term driver of the business. The important thing for us is this was a business that had — the profitability was below PepsiCo average in the past. Now it is accretive to PepsiCo. So it is a very good investment opportunity for us.

Our next question comes from Peter Grom with UBS.

Ramon, I wanted to go back to your response to Steve's question on just what success looks like. I think you mentioned potentially returning to the organic growth at kind of the low end of the algorithm. Can you maybe just give us a sense in terms of your level of confidence or visibility into getting to that today, where we sit today, versus maybe where we've been over the last kind of 12 months? It sounds like you're more confident today versus where we've been. I'm not sure if that's a fair statement or not. But if so, what kind of drives that improved confidence?

Yes. The confidence comes from we see sustained International growth, and we see sequential improvement in our North America business. When you put that together, yes, we should go back to the lower end of our long-term algorithm. Whether this is 3 quarters, 4 quarters, I don't know. I don't have a magic ball, but clearly, the business is working on this. We're becoming much more competitive in multiple subsegments of the category. We'll continue to be very granular on our investments, and continue to increase our productivity so we can reinvest back in value and portfolio innovation. The away-from-home business, which, as I said, is giving us a lot of great returns, and we will continue to do that.

Our next question comes from Andrea Teixeira with JPMorgan.

Ramon, you mentioned permissible offerings, and I appreciate the effort the company has dedicated to these for quite some time. However, with $2 billion in sales out of nearly $27 billion to $30 billion in the North American convenience foods market, I'm curious why the share of healthy snacks hasn’t increased significantly despite strong consumer demand for them. Given that healthy snacks currently make up a high single-digit percentage of total sales, how do you plan to improve that moving forward? Do you believe that the consumer's preference for various forms, like shakes, nuts, fruits, or protein bars, which you may not have, plays a role? If so, should you consider focusing more on these options or even potential acquisitions in that area? I'm looking to take a strategic look at this situation.

Yes, it's a great question, Andrea. In terms of permissibility in our category, I believe that innovation and our portfolio are key factors. The various options we're providing to consumers will enhance visibility and affordability, which are aspects we may not have focused on as much before. Another important factor is portion control; it will be essential moving forward. Our brands will increasingly be a part of consumers' lives, but in smaller servings. For many years, we have been developing our multipack, variety pack, and single-serve businesses. Currently, over 60% of our volume in the U.S. food business comes from smaller formats, and that is expected to grow. This approach supports our brands in contributing to a healthy diet and improves the overall permissibility of our category. Permissibility should be viewed in a broader context, incorporating ingredient choices, cooking methods, formats, and calories per serving. We are exploring many avenues since we anticipate an increasing number of occasions for our category, especially as on-the-go lifestyles become more prevalent. I'm very optimistic about the growth potential in our food business as well as in our beverage business, where the no-sugar offerings and functional aspects related to hydration and energy are more advanced than in food.

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

Ramon, just going back through your comments on kind of sequential improvement expected in the food business over the rest of the year, and maybe even into next year. Just wanted to put that into context of Q3 in particular, as you kind of lap some of the promotional efforts from last year, the volume compare is a bit more difficult. Is it possible that we see maybe a step back in that volume trend before it reaccelerates? Or how we should think about it over the course of the year?

Peter, I will not go into the details. PepsiCo will get to the low end of its long-term top line algorithm in the next few quarters, as a combination of International business continuing to perform at a very high level and sequential improvement in our North America business.

Our next question comes from Kaumil Gajrawala with Jefferies.

Ramon, that was quite the tease on the big launch in protein. Is there anything you could add? I'm sure we'd all be interested? Is it an existing brand, new brand? Any context? And then on when I look at your comments in the opening remarks, many of the comments started with a focus on value as being responsible for this improvement in inflection. Could you maybe just talk about the journey and offering more value where you feel you are? Is there more work to do or is everything reset into a place that you like?

Yes. Listen, with regards to the protein. I think protein is clearly a subsegment in our food and beverages categories that is growing fast. Consumers are adopting protein solutions in their diet at a pace that was not the case a few months or a few years ago. We, as we always do, follow the consumer, and we try to offer consumer solutions, not small solutions, but solutions with our big brands because that's the beauty of our company, and we can provide democratized solutions at large scale, that's what we're trying to do. You'll hear more in due time, it's not too long from now, it's a few months from now, we will obviously make more detailed announcements of our new platforms.

On affordability, for sure. And I mean affordability, or you said value. Value has a number of dimensions, one of which is affordability, but it's also availability, and it's variety, and we pull on all of those levers. We expect to continue to innovate and change in response to how the consumers are defining value in the marketplace. And we're able to do that. Our analytics are getting much sharper as we've invested a lot in data and IT. So yes, we'll continue to use value as a lever, and affordability, we're addressing with a lot more precision, by channel, by pack size, by time of the month.

Our next question comes from Robert Ottenstein with Evercore ISI.

Just a couple of follow-up questions, if I may. Revisiting the International business, beverages did much better than food. Can you talk maybe about a little bit about the drivers of why the beverages did so well? You mentioned Sting, I think for the first time that I can remember. I know it's an energy drink that's big in Southeast Asia. I think you got it from the Rockstar transaction. So a little bit about your international strategy on the beverage side? And then a follow-up on the comments about North America and that integration. Is the integration that you're working on to such an extent that it would preclude any future consideration of refranchising? Or would that be an option in the future even with the integration?

Yes. A couple of things. Sting is a brand that originated in Vietnam and is now available in various developing and emerging markets, as part of our Formula 1 sponsorship. We believe it has significant opportunities across our portfolio. Beverages have been a successful area for us, and we've been increasing our market share in several regions. We are focusing on three main platforms. The first is no sugar colas, particularly no sugar Pepsi, which has seen great success globally. The second platform is energy, where Sting plays a significant role alongside other successful brands. The third platform is hydration, with Gatorade being essential and poised for meaningful growth worldwide; we are adjusting our American strategies to better align with international consumer preferences. Our bottlers are enhancing their performance by investing in technology and execution, leading to a strong partnership that results in improved outcomes, which we expect will continue in the coming years. We have a dedicated international beverages team that connects globally to ensure we focus on the right platforms, leveraging opportunities like the Champions League and Formula 1 to drive long-term growth.

The other point I'd make is on the International foods business. In a number of developing and emerging markets, we have what I'll call some basic food products. They tend to be very heavy but low value per pound. They also tend to be pretty volatile. If you look at just our savory snacks within international and exclude those basic foods, the growth rate would be about 4 points higher.

In North America, we see a significant opportunity to synergize two large operating businesses that are located close to each other, serving the same regions, customers, and consumers. This presents a major chance for us to optimize various tasks in our value chain, allowing us to operate at lower costs and improve performance. Our focus for the next 3 to 4 years will be on capturing value from this strategy, aiming to emerge as a lower-cost and better-performing business.

Our last question comes from Chris Carey with Wells Fargo.

I wanted to ask about PBNA. Well, actually, in the context of the global beverage business. The President made some comments last night about ingredient changes, or ingredient evolution in one of your competitors. It got me thinking in a way regarding how flexible is the system to respond to ingredient changes. I'm really asking in the context of the prepared remarks. You talked about removing artificial flavors from a number of food offerings. It got me thinking about the beverage side and where you see this portfolio today in the evolution toward healthier and cleaner ingredients. How do you see your North America versus International businesses on that journey to x percent today, and where we think we can be at x percent in the coming years, whether for our North America and International business?

Same journey that we have in foods, we're following in beverages. This is a consumer-centric strategy. We're following the consumer. If the consumer is telling us that they prefer products with sugar and natural ingredients, we will give the consumer products that have sugar and have natural ingredients. This is a journey of following the consumer, trying to be a little bit maybe one step ahead of the consumer, but not too many steps. It applies to both beverages and food. In particular, we have a journey and a technical roadmap to eliminate artificial colors and flavors from our beverages just as we do for our food business. We'll be able to execute as the regulations evolve, or consumer preferences evolve.

Our last question comes from Kevin Grundy with BNP Paribas.

Ramon, I wanted to come back to North America beverages and energy drinks. It's an area we haven't spent a ton of time on, but it was certainly an area when you took over, you kind of drew a line in the sand. I think you'd agree with that characterization and say you want to see PepsiCo play in a more substantial way. I think Rockstar has probably proven to be a little bit more difficult to turn Kickstart, sort of same deal with Mountain Dew, and sort of difficulty gaining traction. So I'd like to get your updated thoughts on overall satisfaction with the energy drink strategy. How do you see the role of CELSIUS potentially? A lot of new, not asking you to make any comments, of course, if you can't. But just looking out over the next 3 to 5 years, what would you share with investors? What would you share with the market? Success in energy drinks looks like from a PepsiCo perspective?

Yes. Listen, we continue to see energy as a large and growing category in our beverage business, and consumers are adopting those beverages in their lifestyle, and I think that will continue. The way we're participating is multiple. We're participating in the ownership of some businesses, like CELSIUS. We're also creating value by distributing some of those brands in the marketplace, which makes our business stronger with our customers, and we create value from our infrastructure and assets. That's how we're participating. We have a JV with Starbucks that is very successful and will continue to provide energy solutions, not only energy in the coming years. That's another way how PepsiCo strikes value, both from the ownership of the JV and the distribution of those beverages in the market. As the consumer evolves, there might be different spaces that get created, how maybe sports drinks and energy get combined in the future; we'll be able to create solutions with some of our platforms that satisfy those consumer needs. Think about our long-term value creation in energy, which I believe is a long-term growth part of the category in that way.

Thank you for a good call, and thank you for joining us today. As we were saying during the call, we're very pleased with our performance in Q2. Also, we have the right tools, and we're taking the right steps to deliver on the year and create a very stronger PepsiCo for the long term. We see a lot of opportunities for growth across our categories, and we're making the right investments to deliver on those opportunities. Thank you again, and have a great summer.

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