Earnings Call Transcript - PEP Q4 2023

Operator, Operator

Good morning and welcome to PepsiCo's 2023 Fourth Quarter Earnings question-and-answer session. Your lines have been placed on listen-only until it's your turn to ask a question. 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.

Ravi Pamnani, SVP, Investor Relations

Thank you, operator. 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 9, 2024, 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 2023 earnings release and 2023 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. As a reminder, our reported fourth quarter and fiscal year 2022 financial results included one extra reporting week for our North America businesses. Our reported fourth quarter and fiscal year 2023 financial results in North America reflect the impacts associated with one less reporting week compared to the prior year. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta; and PepsiCo's Executive Vice President and CFO, Jamie Caulfield. We ask that you please limit yourself to one question. With that, operator, I'll turn it over for the first question.

Operator, Operator

Thank you. Our first question comes from Bryan Spillane with Bank of America. Your line is open.

Bryan Spillane, Analyst

Thanks, operator. Good morning, everybody. Jamie, I'm not sure who's more surprised we're seeing each other again, me or you, but welcome back.

Jamie Caulfield, CFO

It's great to talk to you again, Bryan.

Bryan Spillane, Analyst

So I have a question, I guess, just in, we fielded a few questions today about the organic sales growth guidance for the year, and maybe if you can help dimensionalize, you know, not just the reduction, but how much is recall things that are sort of external, how much are things that are under your control? And maybe you can think about, as we think the balance of that, just how much of improvement are you expecting maybe in North America versus international? Just trying to understand the moving parts of how we get the organic sales guide from here?

Ramon Laguarta, CEO

Great. Good morning, Bryan. This is Ramon. Listen, let me step back for a minute and talk about the last few years and then how next year fits into that. So the last few years we've seen double-digit growth, top line in the business consistently. So I think it's at 11% CAGR and a 14% or double-digit EPS growth consistently as well. So three very good years. Now we see a normalization of the categories, a normalization of cost, normalization of inflation. So we see everything trending back to our long-term algorithm. Now, we guided to the upper end of both top line and bottom line at the previous earnings call. We maintain the top line at the upper end for the EPS and we move back to at least 4% for the top line, and there are a few factors that I think are material. One is the Quaker recall. We had a food safety incident in our Quaker supply chain in the U.S., which has impacted us in November, December, and it will continue to impact us, I think for at least the first half of the year until we recover our supply chain to normality. We're also seeing some geopolitical events around the world that are impacting some of our markets, which might potentially continue in the first half of next year. And then the third element is we're seeing a bit of a slowdown in the U.S. both the food category and the beverage category in Q4. Part of that is a slowdown due to pricing and the disposable income situation. Part of that is also a pivot between in-home consumption and away-from-home consumption that we're seeing in our business in the U.S. We think that might continue in next year, so that's why we're lowering our guidance. We feel good about the consumer in '24 in the U.S. We feel good in the sense of very low unemployment, we feel good about the fact that we think wages will go higher than inflation next year. And we hope that by the summer interest rates will go down, and that will create another source of oxygen for this possible incoming household. So we feel good about the consumer in the U.S., but if you think about those three elements, we decided to have at least 4% as the guidance for the top line.

Operator, Operator

Thank you. Our next question comes from Lauren Lieberman with Barclays. Your line is open.

Lauren Lieberman, Analyst

Great, thanks. Good morning. Just kind of continuing on that thread perhaps a little bit focusing more on Frito. So, track channel data hasn't looked great, you know, the reported volume decline, you know, sort of bigger than what we've seen in some times of this business. But when I look at a multi-year stack, you know, things look kind of steadier sequentially when I look at the second-half. So just curious how much it may be these near-term results on Frito and looking into the beginning of the year is multi-year comps? Is it the consumer backdrop, the impact of pricing? But just thinking a little bit about your expectations for and plans, I guess, for driving greater unit versus volume growth in '24. We're thinking about those two pieces.

Ramon Laguarta, CEO

Great, Lauren. I think it's a great question. Just to summarize, we're seeing the Frito business going back to profitable volume growth in '24. So that's how we're thinking about the business. If you think about the slowdown in Q4 and you link it to the elements that I was referring to, there is a units versus volume dynamic in the Frito business that is quite relevant. As you see consumption moving from in-home to away-from-home, the portion size is meaningfully different. So we're seeing growth in convenience stores, we're seeing growth away-from-home in, you know, two to three times the retail growth but obviously has an implication on volume. As we look at '24, we have a very strong commercial plan for Frito. We have our core brands very well invested. You saw that in '23 we increased our A&M meaningfully. We're planning to do that as well in '24. So Lay's has a big increase in A&M. Doritos has a big increase in A&M. All our permissible portfolio which, if you think about it, a combination of SunChips, PopCorners, the whole Simply Line, Smart Foods, that part of the portfolio is growing almost three times the average of Frito. So we're putting a lot of emphasis on that particular part of the portfolio to make sure that it is well executed in the store and now that the supply chain is back to 100%, we're going to push that part of the portfolio even more aggressively. So we think that Frito will have a continuation of the share of market gains that it's been having for the last couple of years and we expect the category will rebound as well. Part of that because of what we'll do with our brands, which obviously have a lot of weight in the overall category, but also the fact that we think consumers will continue to feel better throughout the year, and that will recover the fleet of a top line with a more balanced, profitable volume growth and pricing versus what we've seen this year.

Operator, Operator

Thank you. The next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Bonnie Herzog, Analyst

Thank you for your patience. I have a question regarding PBNA's profitability. I understand you aim to reach mid-teen operating margin levels, but progress seems limited so far. Ramon, could you share your plans to achieve this? Additionally, are you considering any significant structural changes, such as refranchising your bottoming network? You've previously mentioned the advantages of owning your network, so I'm curious if your perspective has shifted. If it hasn't, what other initiatives are you planning to improve profitability at PBNA? Thank you.

Ramon Laguarta, CEO

Yes. So, yes, listen, I would say we don't contemplate at this point any of the structural changes to our business. We continue to think that operating the business has advantages for us in terms of speed of execution and some other elements that as we see where the business is growing in e-commerce, away-from-home and some other channels of the future including direct-to-consumer. Within that, that's going to create an advantage for us. Now we've been making progress at a good pace in our margin improvement. If you think about the last three years, the net revenue for PBNA has grown over $5 billion, and the operating profit has grown a billion dollars. Core operating margin has expanded more than 150 bps. So we see the last few years a good improvement in the PBNA business. We think this will continue in the coming years, actually '24, that's the first step. We are optimizing the portfolio. We're eliminating parts of the portfolio that were less profitable. We've referred to bottled water. We've referred to some multi-serve parts of the portfolio that were not that profitable. We continue to optimize our efficiency of our supply chain. We're digitalizing our supply chain. We continue to extract, you know, eliminate waste from that. We continue to work on global business services that reduces G&A. We're also optimizing A&M, trying to get to higher ROI on A&M and our trade investments. So we continue to think that optimizing all those elements in the different parts of the P&L will continue to drive a sustainable margin improvement, whilst we remain very competitive in the marketplace. And that's the balance that we're trying to strike with this business. So far we feel good. The business grew with the rest of the category. If you take everything that is in our system, it grew in line with the category, and we increased the operating margin. So that's how we're thinking at this point about the PBNA business and with a long-term perspective obviously in how we will achieve those two elements of growing with the category and increasing the margins.

Operator, Operator

Thank you. Our next question comes from an unidentified analyst with Jefferies. Your line is open.

Unidentified Analyst, Analyst

Hey, everybody. Good morning. Welcome back, Jamie. Well, I suppose you've gone nowhere, but welcome back to dealing with us, I guess. Can you maybe talk a bit more about international, particularly margins that are picking up above the average now, it's scaling quite nicely, but also if there's anything we need to be aware of as it relates to hyperinflation, Argentina, anything like that?

Ramon Laguarta, CEO

No, let me start, and Jamie can add if needed. The international opportunity remains incredibly remarkable and exciting for our company. Our international business is now significantly scaled at nearly $40 billion across beverages and snacks, which is much larger than many global consumer goods companies. Clearly, there's a substantial opportunity, and we have just begun to explore the potential, especially regarding per capita consumption in various markets. As we scale, some of these businesses are becoming more profitable, creating a positive cycle of scaling, reinvestment, margin expansion, and building more profitable operations in numerous markets. We expect this year to be no different. For 2024, we anticipate international growth to outpace that of the U.S. We're experiencing strong momentum as we start the year in many of our international sectors. Our strategy involves investing in those markets aggressively, focusing on productivity and growth reinvestment in brands, systems, and capabilities to enhance per capita consumption and market shares. Our international business represents a significant opportunity for PepsiCo. Regarding the situation in Argentina, we have already accounted for hyperinflation, and there should not be any material impact on our organic sales growth.

Operator, Operator

Thank you. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Dara Mohsenian, Analyst

Hey, good morning, guys, and Jamie, great to hear your voice again.

Jamie Caulfield, CFO

Hey, Dara.

Dara Mohsenian, Analyst

So I wanted to drill down a bit more on Bonnie's question, but looking at PBNA top line more than profit, there's clearly been some market share struggles and pieces of the portfolio there, sports strength, CSDs, et cetera. So I guess can you just talk a little bit more about strategy changes from a top line standpoint. How you sort of manage the business by product category? And your thoughts around share trends as we look going forward? Thanks.

Ramon Laguarta, CEO

Hi there. We are optimistic about the overall portfolio of PBNA. We manage the business as a complete LRB operation rather than focusing on specific subcategories like CSDs. Our approach looks at the entire portfolio and its presence for consumers throughout the day in various locations. We believe we have a strong portfolio, considering our positions in sports and hydration, coffee, tea, and energy, along with our CSD segment. Our priorities this year include relaunching the Pepsi brand with a new focus on Zero, which has been rapidly growing and offers us a competitive advantage. Additionally, we are investing significantly in Mountain Dew and are introducing Baja Blast as a permanent SKU after its success as a limited time offer. We plan to leverage the Super Bowl this weekend to promote Baja Blast. We are also focusing on our Lemon Lime offering, Starry, which has had a successful first year and is performing well with Gen Z, driving good repeat purchases. We will continue promoting it around the Super Bowl and throughout the year. Regarding Gatorade, we are evolving from being seen as just a drink for high-performing athletes to offering a complete ecosystem of hydration and fuel for all active individuals. This includes Gatorlyte, GFit, Propel, and Muscle Milk under one umbrella. We are launching Gatorade ID around the Super Bowl, which enhances brand loyalty and personalization for our consumers, particularly appealing to younger audiences. In the energy segment, we are pleased with our offerings, including Starbucks coffee energy, Rockstar, and our successful collaboration with CELSIUS, which has helped us scale and reach our customers more effectively. Our tea business is also performing well, with Pure Leaf and our collaboration with Starbucks expanding beyond coffee to include refreshing beverages and other innovations for ready-to-drink options. Overall, we have a strong portfolio that continues to grow in retail. We are intensifying our focus on the away-from-home channel, which is seeing increased traffic as normal mobility returns. We expect to grow above market rates and gain share in this profitable and high-growth area. This reflects our strategic approach to the business and our commitment to innovation, brand investment, and effective execution.

Operator, Operator

Thank you. Our next question comes from Peter Grom with UBS. Your line is open.

Peter Grom, Analyst

Thanks, operator, and good morning, everyone. Ramon, I just wanted to ask a follow-up based on your response to both Bryan and Lauren’s question on the organic growth. And I may have misheard or could be misinterpreting this, but you touched on some of the things that you are doing internally that will drive the improved performance. But I think you also mentioned some sort of assumption around maybe the U.S. consumer would feel better. I mean, if that doesn't happen, would that put the organic revenue guidance at risk or would an improved backdrop be more of a source of upside versus the greater than 4%? Thanks.

Ramon Laguarta, CEO

The current assumption is what I said. We think that the consumer will continue to improve in its confidence and its disposable income throughout the year. And that's the ongoing assumption. We have a very strong productivity program in the company, which gives us the fuel for investment, and it gives us also a lot of flexibility to manage a potential different consumer reality. But at this point, we think this is the ongoing assumption who will invest in our brands, who will invest in our innovation. And now that the supply chain is in a very good place, compared to what it was a couple of years ago, even last year, we can rely on the tools that we're very good at, which is brand building, innovation, execution, distribution increases, strong commercial programs with our partners, and that's where we think we'll drive the growth of our top line here.

Jamie Caulfield, CFO

Yes, and I'd add just to remind you, 40% of our business is now international. So, you know, the U.S. is significant, but we've got a big business outside the U.S.

Operator, Operator

Thank you. Our next question comes from Gerald Pascarelli with Wedbush. Your line is open.

Gerald Pascarelli, Analyst

Great. Thanks very much. Ramon, I have a question on energy drinks. Can you just speak about your plans to maybe drive performance in Rockstar this year? It's kind of been a relative underperformer in energy drinks for some time and now you have Bang coming back into the market, which could potentially result in some incremental disruption. So maybe just some color on how you're thinking about driving an improvement in Apron and then maybe broader thoughts on the competitive dynamics within energy drinks this year? Thank you.

Ramon Laguarta, CEO

Yes, I mean, it's a great question. The energy category continues to grow, as you see, above the LRB category. So continues to expand into new consumers and new consumer locations, which obviously creates growth for everyone that participates in the category. So we participate, as always said, with multiple vectors. We're proud of our Starbucks partnership and some of the products we offer, double shots, triple shots. We're proud of the Rockstar brand. Rockstar has been growing with the category. More or less, there are some parts of the country where it's well distributed and well preferred. Other parts of the country we're trying to get consumer penetration and consumer adoption. The areas where we've been successful with Rockstar, which we will double down, are the zero and are the recover parts of the portfolio. Both of them, if you think, is energy with functionality and where we think our R&D can create advantage. So we're pushing those two platforms, Rockstar Zero and Rockstar Recover, and that will continue to be the focus of the brand. We've also been focusing on Hispanic consumer, and that also we've seen an increase in the penetration of the brand with Hispanic population, with Hispanic consumers we will continue to drive that commercial activity. But we see this as a portfolio of solutions, including sales use and how the combined portfolio creates a very good point of execution for us, multi-brand, it gives us an entry into convenience stores and some other points of sale away-from-home and will continue to drive the portfolio as the unit of execution. I forgot, maybe I can say. The other thing we're doing with Rockstar, which we don't talk a lot about, it's an important part of our growth, is we're launching Rockstar internationally in many markets around the world, from Asia to Europe to parts of Latin America, and we're having good success, again, as a portfolio of solutions that complements our Sting brand that we have in Asia or some other brands that we have in Europe as well.

Operator, Operator

Our next question comes from Robert Moskow with TD Cowen. Your line is open.

Robert Moskow, Analyst

Hi. Thank you for the question. In your prepared remarks, you said that you expect less commodity inflation, but some agricultural inputs might be higher. Can you be more specific? And I was hoping you could focus a little on Frito because there's a very big potato crop this past year. Vegetable oil costs are coming down. Do you see any relief on the horizon for Frito in that regard?

Jamie Caulfield, CFO

Hey, Rob, it's Jamie. Yes, that is a practice we comment on the basket of inputs. We don't comment on specific commodity movement, but you're absolutely correct that we do expect commodity inflation to moderate from what we had in '23.

Operator, Operator

Thank you. Our next question comes from Andrea Teixeira with JPMorgan. Your line is open.

Andrea Teixeira, Analyst

Thank you, operator. Good morning to you all and great having you back, Jamie, in the investor facing mode. I have one question and then a clarification. First for Ramon, I was hoping to see if you can elaborate a little bit more on how you're going to be lapping and if you have a red lap, the mixed drags and the shift from away-from-home and where your market share is not probably as strong as in snacks as you have in at-home channels? And given your strong gross margin delivery in your experience negotiating with large box retailers, especially in Europe. Are retailers asking you to invest back in promo rollbacks given your gross margin delivery and productivity gains, in particular North American and Europe. And my clarification for Jamie is in terms of like your organic sales growth and EPS cadence for the year, anything we should be considering on your guide as far as cadence. Thank you.

Jamie Caulfield, CFO

Yes, so on the organic sales growth, first of all, Andrea, it's great to hear your voice again and look forward to interacting as we go forward. Organic sales growth cadence, I'd say back half, stronger than the first half as we talked about before. We've got the impact of the Quaker recall is going to be front half loaded. The laps get easier as we get into the back half of the year. And then some of these consumer pressures that have existed with the elimination of stimulus benefits, resumption of student loan payments. We'll lap those as we get into the year.

Ramon Laguarta, CEO

Yes, regarding the customer, we are focused on creating mutually beneficial plans where we can grow our business while also driving profit growth for our customers. The consumer remains at the center of our strategy, and we expect to achieve growth through innovation, including significant product launches and brand relaunches this year. We plan to invest alongside our customers and expand our product offerings with them. Additionally, we will invest in providing more value to consumers through various means such as pricing, promotions, and consumer events, which will ultimately enhance brand preference. Our approach to business planning with our large customers aims to foster growth for the category, for them, and for us. Concerning the away-from-home segment, we view it as an opportunity rather than a limitation. As consumers shift their focus to away-from-home options, we intend to support them. This area has been a priority for us, involving investments in distribution and tailored solutions for away-from-home services. Our large market operations are showing growth that exceeds the overall market in this sector, indicating strong future potential. We are improving our offerings and creating more diverse food experiences, such as walking tacos and Doritos Loaded, as well as experimenting with food trucks and other formats to reach consumers beyond traditional packaging. We recognize that consumers expect a comprehensive experience from us in away-from-home contexts, and we are actively working towards this goal, showing promising progress.

Operator, Operator

Thank you. Our next question comes from Robert Ottenstein with Evercore. Your line is open.

Robert Ottenstein, Analyst

Great, thank you very much. A little bit more of a detailed question on PBNA and just want to talk about Gatorade and CELSIUS. So in terms of Gatorade, could you just remind us in terms of the timing of the move to DSD? And how that impacted your income statement? And then in terms of CELSIUS, obviously the brand has done phenomenally well. Can you talk about how CELSIUS impacts the income statement in the U.S.? And then how your relationship with the company has evolved? You talked about taking Rockstar internationally. CELSIUS is going international now. Are you part of that plan as well? Thank you.

Jamie Caulfield, CFO

Yes, so on Gatorade, we're 90% through on the transition. Obviously, that move is positive to the financial results overall. That's what we did is to enhance performance, and we're happy with the margins we have on that business. On CELSIUS, the way that works is we're sharing the system revenue with CELSIUS.

Ramon Laguarta, CEO

Yes, listen, we're happy with the collaboration with CELSIUS and that continues to be a part of our growth strategy. You know, there is an opportunity for us to collaborate in the international expansion as well. At this point, it's not, I would say, a scaled opportunity. It's a market-by-market opportunity and very particular market. So yes, we are contemplating that as an option and we are having conversations with CELSIUS on how we can leverage the PepsiCo system for a bigger expansion. Nothing short-term I would say at this point.

Operator, Operator

Thank you. Our next question comes from Chris Carey with Wells Fargo. Your line is open.

Chris Carey, Analyst

Hi. Good morning, everyone. So I just wanted to ask about SG&A over the past four years. We've talked about this before in this forum, but with the annual disclosure is now out. I thought it would be a good time to revisit the topic. Specifically, Ramon, can you help contextualize the increase that we've seen in SG&A over the past four years, specifically in distribution costs? I'm really curious about maybe how much of this is underlying inflation as opposed to discretionary investments that PepsiCo is making and not really looking for a specific number per se, I realize that's probably difficult, but distributions up 40% over the past four years, and I'm just wondering how much of this is within your control, maybe some of the capabilities that you've been able to build over this timeframe and maybe get a sense of how this line item should be trending going forward? So thanks.

Ramon Laguarta, CEO

Yes, so as you point out, selling and distribution is the biggest part of that. The A part is less so. And it's going to be a reflection of what you see is: one, you've got market mixed or sector mixed components in there. We've driven a lot of productivity in our OpEx, but at the same time, we're investing in OpEx to drive distribution and growth in the business.

Jamie Caulfield, CFO

One other thing, Chris, that you should be mindful of is, you know, we do have a big direct store delivery business, so we've had inflation in various things like labor and so forth, and that's what's gone up. A&M has gone up as well, which is also kind of all part of that SG&A bucket. We've made numerous capability investments in there as well. So it's all of the above. I wouldn't hone in just on the distribution costs, which I know you focus on from the 10-K. There's a lot of buckets that go in that are far deeper that we can't get into for competitive reasons.

Operator, Operator

Thank you. Our next question comes from Filippo Falorni with Citi. Your line is open.

Filippo Falorni, Analyst

Hey, good morning everyone. So Ramon and Jamie, you both mentioned the organic sales growth guidance is going to be more second-half weighted? And I know you don't provide breakdown and guidance on volumes, but given the importance of volume trends, can you give us a sense of how you see volumes evolving? Is there a possibility in your guidance where you see positive volumes in the second half of the year? And then on the pricing front, maybe you can give us a sense of what are you assuming in terms of pricing? I assume in the U.S. or developed markets its limited and there's more pricing in emerging markets, but any color on pricing will be also helpful. Thank you.

Ramon Laguarta, CEO

Yes, I think you should be thinking about we want to grow units next year. We will see profitable volume growth next year. And you'll see a more balance between pricing and volume that you have seen in previous years, obviously, we had to cover a huge commodity increase and OpEx increase. As commodities kind of normalize and OpEx inflation normalizes, that lever will be less necessary outside of what has been a normal pricing levels of our category in the 2% to 3%. So you should be thinking about profitable volume growth and more of a normalized pricing, compared to what it was in the '18, '19 timeframes.

Operator, Operator

Thank you. Our next question comes from Callum Elliott with Bernstein. Your line is open.

Callum Elliott, Analyst

Hi, good morning. I wanted to build upon Chris's question, please, and ask you about the A&M buckets and the spending behind your brands. I think the case shows advertising up around 10% year-on-year, and that's around a 20 basis points increase as a percentage of sales. But we're still quite a long way below pre-pandemic levels as a percentage of sales and comfortably below the average of the last several years. So I guess the question is, are your brands getting enough support and do we need to see upwards pressure on advertising spend as a percentage of sales over the coming years? Thank you.

Ramon Laguarta, CEO

That's great, good point. Obviously in absolute terms, we have much more A&M. So I think we have increased, last year was $500 million. And if you think about a longer timeframe, a meaningful over $1 billion increase in absolute A&M. So that's absolute dollars that go against our business. We're thinking about continuing that trend, continuing to support both our large brands across multiple markets and then smaller brands where we take the portfolio into the future. So that should be a composition of our A&M. Now, when you look at the last few years, you should bear in mind we stopped advertising in Russia, which was a meaningful market for us. So that is reflected in our absolute numbers or relative numbers. So that you should contemplate that. But as a, you know, if you think about where and how we're going to create demand in the future, you should be thinking about A&M continue to increase. Obviously, we'll look at ways to optimize A&M, and we have very strong measures on ROI and best ways to invest in our brands, but you should be thinking about as a company that continues to build brands, continues to innovate, continues to create value through investment in consumer. And obviously we also create a lot of demand through our push model to some of the questions that were asked before. You should be thinking about our selling and distribution costs not only as a cost, but also as a way for us to execute very granularly across millions and millions of point of sale around the world where we reach the final point of sale and we create, I would say visibility for our brands and impulse for our brands, which are relevant if you think about the categories where we compete.

Operator, Operator

Thank you. Our last question comes from Steve Powers of Deutsche Bank. Your line is open.

Steve Powers, Analyst

Oh, great. Good morning. Thanks, everybody. Jamie, add me to the list of people excited to work with you again. Hey, actually, this question may be for you. It probably is for you. On these calls for the last several years, we've been talking about on and off, just sort of the cash flow profile of the business and the capital investments that have been made in the business in the past, eventually back towards a higher level of pre-cash flow conversion. I guess acknowledging that you've been there in the room the whole time. Now as you assume the role of CFO, do you see any opportunities to speed that process of cash flow generation and a return to higher levels of pre-cash flow conversion from where we've been trending or is it more steady state? And if you could just give us a little perspective on how you're seeing those, that cash flow profile of the business evolving from here, that'd be great. Thank you.

Jamie Caulfield, CFO

Yes, so clearly cash flow continues to be a priority. I focus on CapEx and we've been very intentional about the levels of capital we've invested in the business. Part of that was to catch up on capacity. We're currently in the midst of big investments in IT and digitalization. But over time, I think you'll see the level of CapEx as a percent of sales begin to trend down, and that will help with the cash flow conversion.

Ramon Laguarta, CEO

Great. So thank you, everybody. I'm glad everybody's happy that Jamie is back, and I see a lot of bonding. Great, but obviously thank you for the confidence that you've placed in our investment, and we look forward to seeing many of you at Cagny in a couple of weeks and having a longer conversation there. Thank you very much.

Operator, Operator

Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.