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00:00Nice to see you. Thanks for joining us. I'm going to start with. I'm going to start with the guidance question. We dig into the margins in just a moment of what is happening with the consumer. Q It's Q1. It's early in the year. You guys sound unbelievably confidence about what is in front of you for the rest of the year. What gives you that confidence to raise guidance this early on? All right. Well, thanks and nice to be with you this morning. I would say it's a couple of things that when we started out the year, we knew we had terrific momentum coming out of two thousand twenty two. We also knew that the potential for a recession existed in the back half of the year. And our guidance when we approach the year reflected that. Now, we obviously just had a terrific Q1. And essentially what you've seen with the guidance increases were really flowing that Q1 upside through to the full year guidance, the balance of the year. We still have a cautious approach. So if things turn out better, we could even have a better year. But right now, flowing through Q1, we felt like was the prudent thing to do, given we'd already planned for something of a recession in the back half. So. Hi, it's Alex in New York. What's more likely, in your opinion, that we see demand start to fall off or that your margin deteriorates because prices say stickier? I don't think our margins are going to deteriorate at all. In fact, what we've said for the year is we'll be at least even with 2022 and in fact, may in fact, increase margins during the course of the year. So I don't think that one's going to be the case. Could there be a recession in the back half? There could be. Obviously, we just had 14 percent in Q1. The full year guidance on revenue is 8. So we may see something of a fall off in the back half. But and we need to keep this in mind. We're not a tech company. We're not a, you know, an auto company where when when the economy gets tough, those industries tend to get hit pretty hard. We are a defensive stock and consumers generally defensive industries. So even if that happens, I think we'll do better than most. Q One of the things that he's watching very carefully is what is happening with inflation. You'll probably a really useful window on that story. What are you seeing? Are you seeing any sign that inflation is coming down and sends a your calls? Clearly you have the ability to continue to raise prices. What do you see happening? Yeah, I mean, inflation is clearly come down from where it was a year or a year and a half ago. But one of the things you have to keep in mind with our results is we tend to forward buy commodities about nine months in advance. So from the time that that inflation starts to come down, it takes the better part of a year before those roll into our numbers. So from a PepsiCo perspective, we're still looking at pretty high inflation for the balance of this year. Hopefully we'll start to see it moderate in 2024. It'll get a little bit easier in the back half, but we'll still see pretty good inflation for the year. Let's talk about your ability to pass through price increases. Are there products that you feel confident that the price increases can continue versus ones that you're like? I got to wait on that one? Well, I mean, if you look at us, we're a company that has twenty three billion dollar brands and threw us a billion dollar brand means it's a big brand. It's a it's a powerful brand. Given that we've got such a large number of big brands and we invest so much in them as we have in particular over the last few years. Consumers generally look at our products and say, you know what, they are worth paying a little bit more for. While they may not be able to afford the big luxuries in life for us, a little bit of an affordable treat. Consumers generally feel good about that. So in general, the stronger the brand, the more the the consumer is is willing to pay a bit more for. In addition to that, we've been innovating quite a bit, whether it's minis in a canister or the story lemon lime product, which is a super tasting lemon lime. Consumers are excited by innovation. So they generally are willing to pay a few pennies more for that as well. Q Have you taken the opportunity to raise price? Is is the other price rises that you'll see commensurate with the costs that you're experiencing? They are in fact are inflation for the quarter and our pricing for the quarter was basically exactly the same. Now we did see gross margins go up a little bit. That was entirely driven by productivity. The pricing was just there to cover the inflation. Q What about hiring and wages? We're seeing a lot of job cuts happen and I'm curious as to that dynamic that you're going to be undergoing. Will the job cuts you're seeing across the economy are much more in the knowledge worker office work or types of job cuts? If you look across the frontline, generally speaking there in the United States, things are still quite tight. And of our employee base, an enormous proportion of it is frontline workers, people who make move and sell the product that we we produce. And there I would tell you, you know, we're seeing a little bit of wage inflation and that market is still quite tight. Q You mentioned just a moment ago that. You are seeing a pickup in productivity. How long does that continue for if we do see it down, turn? He's not going to be enough to protect you as we go through that downturn, or are you already starting to look at what a recession might look like? Are you preparing, for instance, in terms of maybe some cuts in your ad budget? How are you thinking about what your cost story is going to look like in areas like advertising throughout the rest of this year into next year? No. In terms of the advertising side, I expect we'll increase our advertising and marketing budget basically in line with revenue. Maybe a little bit more. We'll see. We put it times in the past we've increased a little bit more when we're having a strong year just to support the brands and continue to build on the positive flywheel of momentum. As I said at the beginning, when we entered the year, we were planning for a recession in the back half. And we've taken some actions to drive productivity, in particular digitalization of our entire company, leveraging automation across our our supply chain and using our global business services operation to do some office based work there. So I think we've adequately prepared ourselves for a recession that could come down the line by virtue of managing our productivity to a higher level than it's been in the past. You mentioned story earlier, which is basically your answer to coax sprites. And I'm curious and I appreciate this launch, but what would you think you need to see to say that that was a successful competitor to spray? Well, the biggest thing is sales. All right. What kind? Yeah. If we see that brand get up to a few hundred million dollars this year and I expect it may do that, then I would think we'd call that a year one success. Then after that, we have to do what we always do, which is continue to build the brand, continue to innovate with flavors and package sizes, and then we'll see how big we can make it. The category is a good sized category and we've been a pretty small player in it. So we think it's an opportunity for us. Q Are you opening the door with higher prices to own label? How do you see the dynamic working between the premium brands such as yourself and as consumers get squeezed, then maybe switching to lower cost options? We've seen that happen very, very small amounts so far in the last six or eight months historically. And I've been around PepsiCo for a long time in terms of share of market own label. It's typically been in the mid to high single digits, so anywhere from 6 to 9 percent you never really see it get much above that. I think it's the power of the brands that we have in the category and frankly, the power of the innovation and the quality of the products. So it does happen in other categories a lot more. Historically, we haven't seen it play much in our categories. Welcome for light you go. Frito-Lay is crushing it. Any chance that you're going to diversify also in the sweet stuff to really capitalize on the success that you've got for the salty stuff? You know, between the convenience food category, which is about 600 billion and the beverage category, which is about 600 billion, and they're both growing about 5 percent. I think we have an enormous number of opportunities in the categories we're in right now.

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People Are Willing to Pay More for Pepsi, CFO Says

PepsiCo Chief Financial Officer Hugh Johnston says consumers are willing to pay a little more for their products. He's on Bloomberg Television. (Source: Bloomberg)

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