PepsiCo Second Quarter 2012 Earnings Call July 25, 2012

Transcription

1 PepsiCo Second Quarter 2012 Earnings Call July 25, 2012 Indra Nooyi Chairman and Chief Executive Officer Hugh Johnston Chief Financial Officer

2 Safe Harbor Statement of Terms & Non-GAAP Information Note: This presentation should be viewed in conjunction with PepsiCo s Q earnings call Safe Harbor Statement Statements in this communication that are "forward-looking statements, including PepsiCo s 2012 guidance, are based on currently available information, operating plans and projections about future events and trends. Terminology such as believe, expect, intend, estimate, project, anticipate, will or similar statements or variations of such terms are intended to identify forward-looking statements, although not all forward-looking statements contain such terms. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from those predicted in such forward-looking statements. Such risks and uncertainties include, but are not limited to: changes in demand for PepsiCo s products, as a result of changes in consumer preferences and tastes or otherwise; PepsiCo s ability to compete effectively; unfavorable economic conditions in the countries in which PepsiCo operates; damage to PepsiCo s reputation; PepsiCo s ability to grow its business in developing and emerging markets or unstable political conditions, civil unrest or other developments and risks in the countries where PepsiCo operates; trade consolidation or the loss of any key customer; changes in the legal and regulatory environment; PepsiCo s ability to build and sustain proper information technology infrastructure, successfully implement its ongoing business transformation initiative or outsource certain functions effectively; fluctuations in foreign exchange rates; increased costs, disruption of supply or shortages of raw materials and other supplies; disruption of PepsiCo s supply chain; climate change, or legal, regulatory or market measures to address climate change; PepsiCo s ability to hire or retain key employees or a highly skilled and diverse workforce; failure to successfully renew collective bargaining agreements or strikes or work stoppages; failure to successfully complete or integrate acquisitions and joint ventures into PepsiCo s existing operations; failure to successfully implement PepsiCo s global operating model; failure to realize anticipated benefits from our productivity plan; any downgrade of our credit ratings; and any infringement of or challenge to PepsiCo s intellectual property rights. For additional information on these and other factors that could cause PepsiCo s actual results to materially differ from those set forth herein, please see PepsiCo s filings with the SEC, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue relianceonanysuch forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Non-GAAP Information Please refer to the Investors section of PepsiCo s web site at under the heading Investor Presentations to find disclosure and a reconciliation of any non-gaap financial measures contained herein. Glossary Please refer to the Glossary and attachments to our July 25, 2012 earnings release for the definitions of core, constant currency, organic and certain other terms used herein. Beginning with the second quarter of 2012, organic results exclude the impact of foreign exchange translation. 2

3 PepsiCo Second Quarter 2012 Earnings Call Indra Nooyi Chairman and Chief Executive Officer

4 Q2 Results In-Line with Expectations Consumer Behavior, Competitive Landscape, and Commodities In-line With Expectations Balanced Revenue Management Led to 5 Percent Organic Net Revenue Growth 1 1. Represents a Non-GAAP financial measure that excludes certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 4

5 Reported Results Impacted by Transactions Reported Net Revenue Impacted by Structural Changes and Foreign Exchange Strategic Benefits of Refranchising Transactions Strengthen Operations Improve Operating Margins and Key Efficiency Metrics Improve Returns on Capital 5

6 Financial Highlights for Q2 Core EPS of $ Percent Organic Net Revenue Growth 1 4 Percent Global Effective Net Pricing Grew Organic Net Revenue 1 in Global Snacks & Global Beverages 9 Percent Organic Net Revenue Growth 1 in Emerging and Developing Markets 1. Represents Non-GAAP financial measures that exclude certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 6

7 We Remain Focused on 5 Key Initiatives Brand Building Innovation Execution Productivity Driving Cash Returns

8 Brand Building On Track to Increase Advertising and Marketing to 5.7 Percent of Net Revenue in 2012 Focusing on 12 Global Mega Brands Greater Global Coordination to Leverage Creative and Production Activities Across Multiple Geographies Consistency in Brand Messaging, Cost Leverage US Media Spend Up Over 40 Percent in Q2 and Over 30 Percent Year to Date Brand Equity Scores Stabilizing and Expect to See Progress Over the Course of the Year 8

9 Targeted Innovation with Particular Focus on Mega Brands 9

10 FLNA Innovation Drove Incremental Sales All Across the Portfolio Doritos Jacked Ultimate Extreme Snacks Doritos Locos Tacos Partnerships in Other Channels Ruffles Ultimate Continues to gain distribution, helped drive mid-single-digit sales growth for trademark Ruffles 10

11 Growth Ventures Driving Premium and Value Innovation Stacy s & Smartfood Selects Double-Digit Gains Lay s Stax & Taqueros Del Sur Driving Value Innovation 11

12 Pepsi Next Launching New Flavors Pepsi Next Pepsi Next Off To A Strong Start Launching Two New Flavors Pepsi Next Cherry Vanilla and Pepsi Next Paradise Mango 12

13 Gatorade Product Innovation and Differentiated Packaging Gatorade Recent Introduction of Gatorade Prime Chews (in 3 Flavors) Introduction of Differentiated Packaging 13

14 Quaker Innovation Driving Sales Growth and Share Gains Quaker Real Medleys Premium Single Serve Cup of Hearty Rolled Oats & Whole Grains With Chunks of Real Fruits and Nuts Quaker Yogurt Bars Granola Bars with Yogurt Flavored Coating 14

15 Driving Execution Across Our Businesses #1 Contributor to C-Store Revenue Growth in the U.S. Power of One Rock Your Summer Campaign Strong Growth in Emerging Markets Source: IRI 15

16 On-Track To Deliver 2012 Productivity Expect ~$1.1 Billion in Productivity in 2012 and $3 Billion in Total Over the Next 3 Years Executing Restructuring Program Reducing Capital Intensity & Improving Working Capital Efficiency Leveraging Global Capability & Know-How 16

17 Returning Cash to Shareholders Returned $2.8 Billion to Shareholders in First Half of 2012 and Expect to Return More Than $6 Billion for the Full Year th Consecutive Year of Dividend Increases 17

18 Making Good Progress And Confident in Achieving Our 2012 Goals in These 5 Initiatives Brand Building Innovation Execution Productivity Driving Cash Returns

19 PepsiCo Second Quarter 2012 Earnings Call Hugh Johnston Chief Financial Officer

20 Brand Strength and Innovation Brand Strength Brand Equity Holding or Gaining % Innovation % of Net Revenue Q2 YTD ~7% 81% Q1 Q2 1. Source: Millward Brown. Data is for Key Brands in Strategic Markets 2. Measured on a Constant Currency Basis Based on Internal Company Estimates 20

21 Execution and Value Share Change in Share of U.S. Inventory on Display 2012 vs. PY Q1 Q2-0.6 Q1 Q2 59 CSD PEP Share of Salty Purchases with a CSD 63 +2pt Advantage Improvement vs. PY Execution Co-Incidence of Purchase 2 32 Salty 0.5 PEP Share of CSD Purchases with Salty Snack +1pt Advantage Improvement vs. PY 35 Value Share Gaining/Holding LRB Share 3 Versus Primary Competitor in Majority of Strategic Markets Savory Share Results 3 Mixed But Improving Other When CSD Is PEP Other When Salty Is PEP 1. Source: IRI (Grocery Channel) 2. Source: IRI Household Panel, 12 Months Ending June 3, For Q2 YTD Versus Prior Year 21

22 Financial Metrics Focus Area Cost and capex 2012 Update Capex as percent of net revenue 4.4% on rolling 4-quarter basis, improvement of more than 100 bps over prior rolling 4 quarters YTD operating cost reduction as % of net revenue on target EPS On target to deliver expected (5)% core constant currency EPS for full year 12 1 Net ROIC NOPAT and capital investment performance on target for 2012 Expect Net ROIC to improve by 50+ bps/year beginning in 2013 Operating cash flow On target to deliver $6 billion+ in core management operating cash flow for From PepsiCo s fiscal 2011 core EPS of $4.40. Based on current forex market consensus, FX translation would have an unfavorable impact of ~(3)pts on 2012 core EPS Note: Certain of the above represent Non-GAAP financial measures that exclude certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 22

23 As Expected, Below the Line Deleverage in Q2 Core Corporate Unallocated 1 Increased in the Quarter Higher Net Interest Expense of ~$30 Million Year Over Year Driven by Lower Interest Income and Higher Average Net Debt Core Effective Tax Rate Of 27.8% 1, 180 Basis Points Increase Year Over Year Drove ~3 Points of Deleverage Below the Line 1. Represents a Non-GAAP financial measure that excludes certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 23

24 2012 Guidance Core Constant Currency EPS Growth Commodity Inflation 2012 Productivity A&M % of Sales YoY Increase Corporate Unallocated Expenses Net Interest Expense Core Tax Rate Foreign Exchange Impact on Core EPS ~(5)% 1 ~$1.5B ~$1.1B 50 Basis Points Increase Increase ~27% ~(3)% 2 1. From PepsiCo s fiscal 2011 core EPS of $ Based on current forex market consensus Note: Certain of the above represent Non-GAAP financial measures that exclude certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 24

25 Structural Changes Impacting 2012 Reported Revenue Mexico Beverage Refranchising Change IDJ Joint Venture Tingyi Alliance Q Q Q Expected to Reduce Reported Net Revenue by ~5pp in Q3, and by ~3pp in Q4 25

26 Returning Cash to Shareholders Net Capital Spending Down 100 Basis Points as % of Net Revenue on Rolling Four Quarter Basis Improving Working Capital Efficiency Returned $2.8 billion to Shareholders Year to Date Continue to Expect More than $6 billion in Cash Returns to Shareholders in

27 Earnings Expectations Consistent with Previous Outlook Continue to Expect Core Constant Currency EPS to Decline by 5% in Brand Building, Innovation, and Productivity Remain Our Investment Priorities 1. From PepsiCo s fiscal 2011 core EPS of $4.40. Based on current forex market consensus, FX translation would have an unfavorable impact of ~(3)pts on 2012 core EPS Note: Certain of the above represent Non-GAAP financial measures that exclude certain items. For a description of these items, please refer to Reconciliation of GAAP and Non-GAAP Information in the Investors section of PepsiCo s website at 27

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