PepsiCo (PEP) Q1 2026 earnings call transcript

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, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, April 16, 2026, 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 first quarter 2026 earnings release and first quarter 2026 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 LaGuardia, and PEPSICO's CFO, Steve Schmidt. We ask that you please limit yourself to one question. And with that, I will turn it back over to the operator for the first question.

Hey, Dara, it's Steve. Thanks for the question and good morning everyone. Obviously, we've been spending a lot of time here. A few things maybe. We've had no major issues from a supply chain standpoint. We're seeing really nice continuity there. The teams are managing it well. I think in times like these, the scale of PEPSICO is really an advantage. I really want to thank our supply chain and procurement teams for the work they're doing. I know they're working around the clock to manage this, and they're doing a really nice job. We do have some systemic hedging programs in place that does give us some near-term visibility here. We typically have about 6 to 12 month hedges in place.

Now, our assumption is that inflation will come. The order of magnitude we're still working through and I think a lot of that is still to be determined. The way I think about it from my experience on how you manage inflation would be kind of three ways over time. One, you grow your way through it and really leverage your infrastructure. The second is you push harder on productivity. And third, you do have options with your price pack architecture. We'd like to do the majority of it through the first two, but I think the reality is, depending on the magnitude and time that we have inflation, we'll likely play in all three areas to combat the inflation that we'll see.

From a visibility and guidance standpoint, our assumption is that we can mitigate what comes our way this year, and that's really reflected in our assumptions on guidance. As you might expect, we've started to begin our work on 2027 scenarios, but we're still working through that and we don't have anything more to share on that today. But Ramon, maybe you take the second part.

Yeah, there I saw. I would emphasize Steve's point that at this point in the play, the scale of PEPSICO and the resilience we've built over the last few years, especially after COVID, and our supply We build a lot of redundancy in terms of our key materials and multiple supply points for our key materials. So that's giving us an advantage, obviously our hedge program. And as Steve mentioned, the seniority and experience of our leaders on the ground make a big difference because they provide agility, they provide good common sense on how to deal with situations, protecting our people, We are also driving for growth in moments of complexity. Now, with regards to the international business, as you saw, it's very strategic to our long-term growth strategy.

It's one of the key pillars. It's been accelerating, and actually to your question, it continues to accelerate. So we haven't seen an impact on demand in the last, you know, since the war started. You know, we have very strong commercial programs. Actually, I would say in some markets we're seeing a benefit because we have better supply chain than some of our competitors, especially in the food business. So nothing remarkable at this point. We're executing our very strong commercial programs for the summer. However, the World Cup is a big driver of execution and innovation during the summer, and the teams are full speed executing that, along with some other transformation of the portfolio. So the international business is very solid, continues to accelerate, and in our guidance, we haven't assumed any impact because we're not seeing any at this point.

That's good, Andrea. So if you step back for a minute, early last year in the springtime, we defined the new strategy for the company, focus on growth and very strong productivity to fund the growth. The company has been executed across all the different sectors, this strategy with rigor and a sense of urgency, and we've seen results in Q4 and continuous sequential improvement in Q1, as you saw. Now, when you go down to the North America foods business, this was a holistic commercial strategy focused on growth. There was some additional value to the consumer. There was more space. There was a restage of some of the key brands like Lace and Tostitos. There was a lot of innovation to accelerate our what we call permissible and functional.

And there was a repurpose of funds towards away from home to accelerate away from home. All of that is delivering for us. So when you see the 2% volume growth, it's a combination of all these elements. More value in some of the core brands, multi-packs, and multi-serve is one lever, but it's much more holistic. We feel good about where we are at this point in the journey. Still in the process of all the shelf resets and launching the innovation, I would say by the end of Q2, we'll probably be almost completed in that process. But the early reads are quite exciting. Now, if you think about 2% volume growth, about 4% unit growth, we have increased 300 million occasions in Q1 in the food business, 300 million new occasions to our business compared to Q1 of last year.

The away-from-home business is growing three times the average of the company. The permissible portfolio is growing double-digit in some of the brands. So clearly, all the structural things that we're trying to do are working. And most importantly, and we don't talk so much about it, the productivity decisions that we took early last year are giving us that flexibility and optionality to invest in the food business in a way that we couldn't do earlier. And actually, the cost for North America foods went down in Q1, which is a remarkable achievement by the team. So we good We feeling encouraged also by the results in the last few weeks where we got positive share not only in volume We had for quite some periods already but now we have positive share in value as well which is one of the KPIs that we set for ourselves early on So good progress.

We'll continue to update, but the execution is, you know, we're in the middle of this reset execution, but feeling very good about how the brands are reacting, how the customers are supporting, and how the teams are executing in the marketplace.

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. And for PNFNA 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 in 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.

Yeah, and Bonnie, on the North America beverages business, we've been talking about this case-packed water transition to a third party. That's still part of the numbers in Q1. I think it lasts in P4, so we only have one more month to lap. If you excluded that transition, the volume is actually almost flat, and we expect that that acceleration will continue in the coming periods. Now, what's exciting about PB&A at this point is that the business grew 9%, right, 9%. Now it's a combination of organic growth, revenue growth of two, plus seven points of additional platforms that are now in our distribution system. Some of that is business that we acquire, like Poppy. Some of that is an increased portfolio of energy brands that are generating growth to our business.

So we feel good about the 9%. We feel good about the acceleration, the 2% inorganic, and we feel good about the fact that we have flat volume, SK SPAC water, and that that progress will, you know, that acceleration will continue in the coming quarters.

Our expectation is to have positive volume growth, SK SPAC water, in the coming quarters.

Lauren, this is good. The LACE brand is part of, as I said, a more holistic restage of the full business. This is a global brand restage, so LACE has been restaged globally. It's performing very well globally. It is performing well in the U. S. We grew volume this quarter in LACE in particular. But if you step back and say, okay, what's happening at PF&A? We grew volume 2%. We grew occasions, units 4%. And we grew 300 million occasions in the quarter versus Q1 last year. That, for us, adds some of the success metrics that we're looking at. The other set of KPIs we're looking at is household penetration, and we see household penetration gains across all our core brands.

And on top of that, we see our permissible portfolio growing, in some cases, double-digit brands like SunChips, Smart Food, Siete, and some others. So holistically, we think we're in a very good place. The fact that we're back to gaining share in the last three weeks, we use IRI. We don't use Nielsen internally. That's the data point that we have. In IRI, we're gaining share in value terms in the last few weeks, and we've been gaining volume share now for, I think, three or four periods. So overall, we think that the consumer is backing our brands. The consumer is coming back multiple times to our brand, responding to our holistic value plus execution plus advertising plus innovation strategy.

And there will be more, you know, as we execute the full space transformation and innovation execution, we'll see, we're very optimistic about the sequential improvement of that business. And I think we're on track actually a little bit ahead of where we thought we would be by now.

This is Steve. Maybe I'll start. Really no change in the guidance from the top line standpoint. We guided two to four in the upper end of that towards the back half of the year, and that is as good an 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.

Yeah, Kevin, I think if you look at all the execution of the hungry and thirsty for growth strategy across the company, it's very positive. So we see an acceleration international continue that. We've seen momentum in PB&A, 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.

Yeah, Filippo, I think we are obviously different launches, different stages of ACB that we have. But if you think about the majority of our innovation, it's, let's say, 40%, 50% ACB 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 planograms resets were probably 50 percent 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.

Steve McLaughlin This is Steve. Maybe I'll take the SNAP question. We did have eight states. There were eight states that began restriction in the first quarter. It's mainly beverages and candy. I think it's too early to come to any definitive conclusions right now in terms of impact. It's obviously something we'll watch closely, see how customers balance SNAP funds with other discretionary income for purchases over time. I think the LRB category overall It now remains robust, and we'll continue to monitor it.

Yeah, and to complement what Steve said, on the food side, we're seeing the savory snacks category accelerating. Part of that is our efforts, obviously, to bring more consumers into the category. Our retail partners are working with us in that journey. It's a very relevant category to everybody. We've seen that category accelerating in many parts of the world. Savory snacks is growing ahead of food. In the U. S. , some weeks is already growing ahead of food, which is a good sign, and we're gaining share of that category. So, overall, we see LRB consistently growing above food and beverages, and we've seen savory snacks continuing to accelerate and eventually stabilizing at growing ahead of food and beverages, And the last thing we have in the past, is that we have to talk about the best.

We have always talked about the Saver Snack category, one of our key objectives is to make sure that the category is healthy and we continue to bring consumers into the category. Some of them have lapsed. They are coming back, innovating to bring more families, more consumers into the category. So that's the assumption for balance of the year. And so far, it's so good. As I said, we've brought in a lot of consumption locations into the category in Q1, and we see the same trends in Q2.

For sure. I mean, obviously market share is a key. But let's step back for a minute. PB&A is growing 9% total business, right? So, you know, we're growing at an accelerated way, including energy. So we see ourselves participating in the energy portfolio through our Celsius investment and our distribution of Celsius. That's gaining share. We see ourselves obviously very statistically leading the functional hydration category, and that category is accelerating. For the first time in several years, we see functional hydration, including spores and the rest of functional hydration, growing ahead of LRB. That's a key objective for us as well. We see Gatorade and Propel gaining share there. We still have some work to do on accelerating the coffee business and accelerating the tea business where we're also leaders.

Some of the innovation that we have in the Starbucks portfolio is intended to do that. And then in CSDs, we continue to have good growth in modern soda, which is a segment that keeps accelerating. Our puppy business is starting to accelerate now in Q2. And then obviously we have opportunities with Mountain Dew that we have highlighted for quite some time. Now some of the innovation that we've put on the market, early innings, but both the dirty Mountain Dew and Baja and Cabo, different flavors on the Mountain Dew, are starting to grow the brand, which is very encouraging for us. And then on the Pepsi business, we're lapping some of the events that happened last year.

We continue to see no sugar Pepsi growing ahead of competitors, and we're optimizing pricing sizing on the rest of the business to participate in a better way during the summer period. So overall business, we feel good about the 9% top-line growth and how we're participating in different segments of the category to drive the growth for PB&A.

Yes. I mean, our current assumptions is we continue to accelerate organic first volume. We'll continue to grow volume, which is consumption units into the brands, consumption acts. We'll continue to accelerate organic and reported revenue growth. Siete becomes organic as of next quarter, I think. And then our intentions and how we're thinking about the balance of the year is growing our profit growth in North America foods again. That's how we're thinking about the business sequentially. Now, Steve mentioned that we're going to manage the business as part of the broader portfolio. We're going to, you know, continue to be on the attack, trying to make sure that we stabilize the top line, and we continue to make this category, the savory snacks category, growing ahead of foods and making this a place where both us and the retailers want to invest and continue to grow for the future.

I'm sure there will be, you know, as we enter the high season for the category in the summer with all the big holidays, I'm sure there will be more competitiveness in the category. But we have our plans for this. It's not only price. It's trying to provide that. The growth strategy for Frito is not only price. Price is one element, obviously, that is very relevant for many consumers to get back to our category. But it's innovation, it's execution, it's making sure that all the elements in retail and away from home continue to be successful.

Now, with regards to the productivity story that we have, I don't know if our competitors have the same productivity story, But we've been focused on reducing cost, cost per unit, and overall cost for the food business and all the North America business and across the company, actually. And that has been a very successful strategy for us. We still have a lot of non-executed drivers of productivity in the coming quarters and years that would help us continue to give consumers the right value And we will continue to compete in a better way against the other food manufacturers So that how we thinking about the next innings in the journey And we see how inflation behaves As Steve said earlier we going to play a full portfolio and want to make sure that we win in the marketplace with PF whilst we continue to deliver the overall profit growth targets for the full organization Thank you.

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 head count, plant closures, reduction in SKU count. It's encouraging to see key metrics like cases per hour in 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 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.

Yeah, and also I would add some of the big drivers that we've been talking about in the past we continue to execute. So global share services, deploying technology across the company and AI, both in our supply chain, but also how we do transportation, how we optimize routes. You think about in many countries around the world, we're moving to digital ordering systems where we reduce the number, the time that our salesmen expect to take an order. We're leveraging technology in a very holistic way and AI and data to drive efficiency and transformation of cost, not only efficiency across the system, both supply chain and go-to-market, the two big buckets.

We're also optimizing our advertising and marketing. We're getting better at the multi-year journey on return on investment, on marketing and trade. So those are two big demand budgets that we're optimizing. So if you think about where we are in the journey, we're in the multi-year journey, and we're executing all these strategies across all of our anchor markets, obviously including the U. S. , and we're testing and learning the idea of can we create more value, both growth and cost, by integrating more the supply chain in the U. S. And we're live in some tests in Texas, and we're going to deploy that in some other states. That is another vector of cost transformation going forward that we're going to learn more in the next few quarters and update you guys later in the year, early next year.

Thank you. I will give you a couple of examples, Camille, so you can get a sense. Obviously, by optimizing the value in some of our multi-serve and multi-packs, both in Lays, Doritos, Ruffles, etc. , and also in Gatorade, we are bringing lapsed consumers into the brand. So these are consumers that That had left the brand, either moved to, you know, stopped buying the category or moving somewhere else. So that is kind of growth in the core. At the same time, if you think about the consumers that are coming into the category because of innovations like Naked, or we're seeing already some in some of the innovation from Gatorade with no artificial slow sugar, We're seeing consumers that were not in the category, but because they loved our favorites, now we're offering solutions with no colors, no artificial colors, no artificial flavors, and they're coming back to the category.

So two types of consumers coming into the category because both of a stronger core and also innovation that drives incrementality to the category. And I think we're going to continue to play both levers. Obviously, that applies to both foods and beverages, and we will continue to do this not only in the U. S. , but also in our international markets where we're starting to deploy some of the innovation from the U. S. , and we're seeing also an acceleration of the category, especially developed markets in Europe.

Hey, Chris and 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.

That's good. No, listen, and World Cup is obviously where sponsors on the food side across the world, and this is obviously a very big opportunity to engage consumers. This is a real passion point for many consumers. I mean, I'm a big fan of soccer, and I see how we feel at that moment. Now, it's very holistic. If you think about innovation, we're going to have flavors from around the world being executed in every market. Obviously, there's space gains. There's activations. But most importantly, from the consumer occasions point of view, we're working on no lays, no game, which is kind of an activity or a campaign that we've been executing globally for quite some time. We'll double down on that with some of our global football players, and the idea is link lays to the occasion of sports watching and making sure that when there is gatherings of consumers watching the game, this is activated.

We're going to personalize, obviously, for different – we know more or less, you know, who supports what team, and then we're going to be able to personalize the communication to our consumers. We're going to have fun of the match, so we're going to have different activations in every game where our Lays brand will nominate fans of the match. We're going to have Quaker participating as well in the event. As the players walk into the stadium, the little children will have Quaker brand, and that's going to be part of a restage of Quaker globally. And then obviously we have partnerships with our retailers and quick delivery partners around the world to make sure that we capture those occasions in the moment and consumers have the opportunity to order lays and to order some of our, you know, drink combinations to, you know, to enjoy the game with friends.

So a lot of vocation development, a lot of brand awareness, a lot of personalization, and some innovation to drive excitement across the world, obviously space gains and retail partnerships. So it's a very holistic activation across the world. I think, you know, especially for countries where per caps are low, this is a huge idea for us to bring new consumers into the brands and also to develop frequency and some new occasions. So we're excited, and we can already see the, you know, some of the acceleration in some of the international markets because of this activation. So, thank you very much for your questions and your support, and thank you for the confidence you've placed in us in PEPSICO, and I look forward to further conversations in coming quarters.

Thank you very much.