PepsiCo, Inc. (PEP) Earnings Call Transcript & Summary

So please join me in thanking PepsiCo for fortifying us with snacks and drinks today. I did a check a little bit earlier. And based on the traffic, it's likely to be wallet less. So thanks, Pepsi. I'm pleased to introduce PepsiCo, one of the world's largest Convenient Food and Beverage companies with more than $90 billion in revenue. Joining us today are CEO, Ramon Laguarta; and CFO, Jamie Caulfield. Together, Ramon and Jamie have nearly 60 years combined experience at PepsiCo, with a range of experiences from sales and marketing, to operations, to finance. Since Ramon took over as CEO in 2018, the company embraced its strategy to increase investment and accelerate growth. The result has been strong performance in the most recent years. Ramon, I'm going to turn it to you so we can have a discussion on PepsiCo.

Great. Thank you, [ Bryan ], for the kind words, and good morning, everybody. It's always fun to be in Florida when you live in the Northeast in the month of February. So it's great. And hopefully, you guys can have fun with our products as well. I saw they were flying of the shale, so that's great. We're going to double team with Jamie in the presentation. And we're basically going to focus on how have we been executing against the strategic framework that we shared with you 5 years ago. . Before I go into the presentation, I'd like to thank our very experienced leaders in every country around the world and our frontline for -- the work they've been doing over the last 5 years, which has been tough, and they've been performing, as you will see with outstanding levels. And also before I move to the presentation, I'd like for you to take note of the cautionary statement. Okay. So 4 chapters that we'll cover. I'll spend a little bit of time on who we are, probably most of you know about our company, but just to make sure that we all have the same level of information. Then we'll spend the majority of the presentation on the last 5 years' performance against the strategic framework and then where we're going to take the company over the next 3, 4 years. as well within that same strategic framework. And then we'll talk obviously about capital allocation and financial targets, and Jamie will do this part. So as Brian were saying, we're one of the largest food and beverage companies, convenient food and beverage companies around the world. We sell $91 billion -- last year, we sold $91 [ million ], operating profit of $14 billion, and we have a broad set of brands, iconic brands, a lot of brands that people love and trust, and we sell them over 200 countries around the world. The business is about 60% Convenient Foods and about 40% beverages. We operate in those 2 very large categories. I'll talk about them later. There -- complementary categories from many dimensions, consumer customers, occasions, infrastructure. So that's how we get the benefit. In Snacks, we are mainly leaders in savory snacks, but opening up to many new occasions in convenient meals, Convenient Foods in home and Away From Home. And in beverages, we play in mostly all the LRB categories, and we're expanding beyond our current footprint into new occasions, as you will see later. The -- we operate through 7 sectors or operating units. All of them have, obviously, a lot of MUs or marketing units are reporting to them. And that allows us to be very locally relevant and downplay our strategies to the local level. As you will see -- as you see there, 60% of our business is in the U.S. Almost 40% of our business is international. But look at the size of our international business, $36 billion, clearly much larger than most of the companies in our sector globally. If you go down to 1 level in North America, Beverages business is about $28 billion, and you see the brands that we operate, Pepsi, Gatorade, Mountain Dew, Starbucks, Lipton [indiscernible] and many others. We play across most of the categories in LRB. Frito-Lay North America already $25 billion and with brands that you probably all recognize Lays, Doritos, Cheetos, but also smaller brands like PopCorners, the SunChips, Tostitos, et cetera. And then Quaker Foods, a smaller division, $3 billion, plain in in breakfast, but also in different meal locations throughout the day. Good -- we feel very good about the fact that for the eighth consecutive year, our customers are recognizing us as the #1 manufacturer. And that gives us a lot of pride, and it's a great recognition to the teams that operate every day in the U.S. Internationally, we have 4 large sectors. And as I said, a lot of market units are reporting to those sectors. Europe and Latin America are the 2 largest ones. [ EMEA ] and APAC growing faster, and we expect that as we think about the future, given demographics and our scale already in those markets, those sectors will continue to increase in relevance. One thing to note, our food business, we operate it end-to-end. So we recognize much more net revenue. Our beverage business is mostly a franchise business. So when you compare the size of the beverage business, it gets smaller, full system revenue is still very large. Now we operate as a company in this framework that we shared with you multiple times where we have a mission to create smiles with every sip and every bite across the world. We have an empowered culture, a high-performing culture with the objective with the goal of becoming the global leader in convenient foods and beverages. And we're putting pep+ at the center of our strategy, make sure that we'll have long-term returns by being sustainable, by being a company that cares for the planet for people. Okay. So that's who we are. Now let me tell you about the last 5 years, how have we done against the strategic framework that we shared with you about 5 years ago. That framework was that we wanted people to growth, we want to people -- we want to take this company from being a good company to being a great company. We will invest in accelerating growth with investments in our brands, investments in our infrastructure. We're trying to modernize our infrastructure, debottle our supply chain, debottle our go-to-market, modernizing our systems, modernizing our technologies, creating a culture of empowerment. And as I said earlier, elevating the better part of our company to make sure that we have sustainable long-term returns. It only started with making sure that the investments in our brands and the investments in our operations went up to elevate our performance. So we went from investing $4.2 billion in our A&M in 2018 to almost $6 billion in '23. That's a large growth. That marketing went against our large brands, but also against a lot of our smaller brands that are competing in niches within our category. And of course, we're investing in capabilities to maximize the ROI of those investments across the world. The other thing is we took our CapEx from about $3 billion to $5 billion, investing against debottling our infrastructure, our go-to-market, modernizing our operations, modernizing our technology and investing as well in productivity. And I will go a little bit into the details. Not only did we invest in our brands, but also we elevated innovation and a central capability to the company, very consumer-centric innovation. And a few areas of focus that I mentioned here. In beverages, functionality and hydration were big pillars of this strategy. And you see here, we've created meaningful platforms in energy and in hydration. These are global retail sales. So these are consumer value. So both in energy, you'll see through multiple brands, we're already selling $6 billion. Our Gatorade, our Propel, our Muscle Milk, all that part of the portfolio is already $11 billion. We invested a lot in developing our Positive Choices in snacks, especially but also in beverages, not only reducing sugar, reducing sodium whilst keeping a great taste, but also adding whole grain, changing the cooking methods to baking and popping and some other choices that we call Positive Choices in the company. And you see also the size of our platforms already $9 billion in nonsugar colas, $2 billion in whole grains or baked snacks meaningful. We also invested in giving the consumer optionality for portion control, optionality for portability. And you see some of the innovation around packaging, be it [ cans], be it multipacks or variety pack which are already a big part of our business, $3 billion. And of course, we continue to innovate in flavors and experiences even is one of our core capabilities. And you probably will enjoy some of them outside, but we keep innovating with local flavors, global flavors and new trends, okay? The result of this has been -- I mean we're feeling proud of it. The business was growing 2% in beverages in the '16, '18 time frame, now is 7% for the last 5 years. The same with convenient foods went from 5% to 10%. And it's been quite broad against all our large brands. So you see Gatorade, Pepsi and Mountain Dew growing almost double digits, and the same for our large snack brands. So good growth, translation of the investments into faster growth across multiple parts of the business. And also geographically, the growth has been are in the U.S. and internationally. So the U.S. went from a, say, a 2% growth to a 7% growth and the international [indiscernible] went from a 6% to a double-digit growth over the last 5 years. And look at the scale of our business, again, the U.S. business being a $55 billion and the international business $36 billion, which gives us a lot of resources, a lot of opportunities to reinvest to continue to gain market share and per capita development. In the U.S., I won't go too much in detail, but Frito-Lay has added $8 billion since '18. The Frito-Lay business has been gaining share consistently for the last 4 years, year after year and continues this year, both by expanding packaging optionality, also introducing, as I said, innovation, standing permissible offerings and through a combination of better execution and innovation, the Frito-Lay business continues to thrive above the category and above food. And the beverage business in North America also expanded its presence across LRB with increase in zero sugar, increasing energy. And we started this new part of our business, which we call Beyond the Bottle. You've seen some of that examples there with SodaStream, but also powders and tablets. I saw that powders and tablets for Gatorade were gone in 1 minute. So clearly, a consumer opportunity that we are increasing in capacity, and we're going to give even more a priority because it is at the center of a consumer trend, but also a Positive Choice as we eliminate plastic, we eliminate a lot of the emissions that come from moving liquids around. So this is the performance. And one thing for all of you for the last 4 consecutive years, our PepsiCo business, the combination of our food and our beverage business has been the #1 growth contributor in U.S. retail. So clearly, there's a correlation between the role we play as a growth contributor and the recognition that our customers give us to the counter report. Internationally, we also feel very proud about the growth in the last 5 years. We've gone from a $25 billion business to a $36 billion business. And we're building scale in many, many countries around the world, developing and developed markets around the world where focus is in developing markets and look at the scale of some of our businesses in developing markets. And I put -- I chose here a few Mexico, China and Brazil, already very sizable market. And that scale gives us the opportunity to continue to gain market share consistently as we have more resources to invest in our brands. We can attract better people. We can build better go-to-market models. And also, it helps us invest in what is the critical opportunity, which is the per capita development of our categories internationally. Now not only did we invest in growth, but also we elevated productivity. Productivity was elevated over the last 5 years. Culturally mindset, but also capability-wise. And here, you see some of the results. We focus on driving excellence at the basics that we call. So we try to become better at all the critical things that we do in the company from sourcing, to move in, to making to selling, those are the critical cost elements of our P&L. And you have here some examples of how we've elevated transportation productivity, making packaging productivity and some of the other elements of the productivity journey. Now as I said, for us, we believe that elevating pep+ to the center of the strategy will give us sustained long-term performance over time. So we're better at the way we farmer -- or we work with the farmers to source our products that will give us sustainable performance. If we eliminate the amount of water or reduce the amount of water, reduce the emissions in our supply chain, that will give us legitimacy to continue to participate in many communities around the world. And obviously, by moving the portfolio to Positive Choices, that will be recognized by consumers as a positive way to stay connected to our brand. So this is central. We've made a lot of progress. You see some of the numbers there. We feel very proud about the water reduction, the Scope 2 reduction. We feel very good about the progress we've made with our Positive Choices portfolio. And then this is, I guess, the consequence of all this is we've been growing very fast. We've been growing 11% over the last 3 years, and our EPS has been double digit, 12% EPS consecutive for the last 2 years. Clearly, the consequence of all these investments, great work by our people, long-term perspective in delivering a superior financial performance, way above our long-term target and what we have been able to deliver in many years in the past. But what makes us also very proud is the recognition that we're getting externally from our customers. Clearly, we'd take that with a lot of value. But not only our customers, we're seen as one of the more high integrity companies. You see 100 best top [indiscernible]. The -- one of the most [ identical ] companies. And also, we are being recognized by the way we treat our people, and that is clearly to me, a sign of sustainable performance as well for the long term. So this is our last 5 years. Now let's spend a bit of time on where are we going from here? How do we taking this momentum that we have this stronger foundation that we have our technology, our people, our brands, our capability in general to continue to deliver outstanding performance for all our stakeholders. The first thing is growth, and we're very excited about the growth opportunity for the company, mainly because we operate in 2 very large, very fast-growing categories globally relevant, where we participate at scale. But if you see, we're still a very small part of those 2 categories. So we are less than double digit, both in Convenient Foods and LRB globally. And those are categories that are growing around 5% around the world. So if we are able to leverage the strength of our brands, the strength of our people, the strength of our infrastructure to continue to grow these categories and build market share as we think we will, this is a great opportunity. The second one is we are well scale international company, but we have a lot of opportunities to continue to grow internationally. And you see there, there's not only an opportunity from the demographic point of view. Obviously, we have a big business in the U.S., population is outside of the U.S., but in the U.S. as well, but a big part of it outside of the U.S. And look at the category development in the U.S., outside of the U.S., both for LRB but also for our savory business. So you have the combination of demographics plus the opportunity to develop our categories and the scale that those international business are starting to have already in terms of capacity to invest, capacity to attract the best talent to innovate, you see the opportunity that we have over the long term. Now we have very clear priorities on how we plan to do that for every one of the businesses in the organization, be it the beverage business, be it the food business, be it in North America or international. But the things that I want you to focus on is the capabilities that we plan to scale in the company that I think will make us successful. Number one is, consumer-centric innovation, I'll talk about it. Second one is, how do we leverage our brands beyond what they are today into an ecosystem of solutions that drive consumer occasions in multiple parts of the day and this ability to be always everywhere through our go-to-market systems to our innovation. We can be in every day, in every single day part of the consumer journey, but also being everywhere in home and Away From Home to capture that consumer. So let me spend a bit of time on how we plan to do that. When you think about innovation, there's a few spaces that we're going to double down. One is, as I said, Positive Choices. We will continue the journey of Positive Choices through superior R&D, be it reduction of sodium, reduction of salt, a reduction of sugar, positive ingredients, whole grains, lentils, et cetera. So we're working on a lot of innovation around foods and beverages, that around Positive Choices. Second is new occasions. We want to make sure that consumers can find us in many more occasions that today. That will come through packaging innovation. As you see there, Minis there has been a a great opportunity for us to have portable snacks throughout the day. Powders and tablets, as you saw there, outside, but also [indiscernible] own beverages, giving the consumers the opportunity to personalize their beverage through the SodaStream ecosystem plus other solutions. So consumers can have beverages throughout the day as they're pleased with their own personalization. We are also moving -- we're planning to move our food business beyond snacking into meal locations. And we're going to do that at home. We think our products belong and we're seeing that already in at home both at side dishes, but also as ingredients in the meal. And we're also going to double down on providing the consumers with food experiences that are Away From Home. If you think about consumption is moving Away From Home, consumption of calories, especially in developed markets. In developing markets, has always been there with street food. We plan to participate much more in meal location. You have -- there are some examples like Walking Tacos and some other ideas that we're working on, becoming a solution for consumers that want convenience Away From Home. And of course, we're thinking about other categories, whether it is suites in our variety packs that we already do or testing how do we expand our brands into spaces like alcohol. And as you know, we've been playing with different models for the last few years. Now when you think about what I was saying, the other big opportunity for us is to take our large brands and build them from just 1 or 2 solutions into an ecosystem of solutions. And this is the example of Gatorade, what I think will clearly illustrate it. Gatorade, if you think about it 5 years ago, was a ready-to-drink hydration solutions for high-performing athletes, a great opportunity. We're doing a great job. We think about Gatorade and the brands that we're building around Gatorade as an ecosystem of solutions for both hydration and fuel that go way beyond the ready-to-drink solution. And you see here some ideas. We're taking basic Gatorade rate 0, [ Gatorade Light ] being a rapid hydration. You take [ fast rich ] is the convergence between hydration and energy. You then go into powders and tablets, so giving consumers the opportunity to find Gatorade or to use Gaorade in a much different way. You go to equipment, and we're -- the equipment business is flying for Gatorade, given the strength of the brand, be it the bottles or some other solutions for consumers to take home. And now we're creating Gatorade iD which is a digital solution for consumers to participate in this ecosystem, being able to personalize their bottles, being able to have tested scientifically how do you -- what are your hydration needs, and we can provide you with personalized solutions of it and also having special LTOs and special unique choices for you as you become part of the Gatorade club. So this is how we're thinking about brands. I'll tell you about Tostitos later, how we're thinking about Tostitos [indiscernible] and ecosystem of solutions. So it is about innovation, but it's also about taking our brands into many more spaces and create an ecosystem, digital and physical to -- for consumers to connect with our brands. When you think about channels, we're also thinking about a very expansive channel evolution. Obviously, At Home is our core occasion. But within home, we think that we can move into meals in a much more intentional way. And a lot of our innovation and our marketing is about our products going from snacking to meals, and we think that is a big opportunity. When you think about e-commerce, clearly a huge, huge growth opportunity. E-growth sort of being a big part of it, and we're obviously improving our capabilities to be participating in that opportunity above our fair share. But also, we're creating direct-to-consumer solutions be it with Gatorade, be it with SodaStream or be it with Snacks.com where we can personalize solutions for consumers, and those are starting to become scalable solutions already. And now Away From Home is a big element of our future strategy. We are big in Away From Home. We're being in on-the-go. We're being in on immediate consumption, both in our snacks and our beverage business. We want to provide more experience solutions to the consumer Away From Home, so we can capture more calories or more of the hydration needs for consumers Away From Home. And you would see some executions like Doritos late night where you show up with Doritos tracks in universities with the Doritos full meal solutions or other brands that will participate in Away From Home, a higher value occasions as we go forward. Now I was saying Tostitos. So similar to Gatorade, Tostitos was also a package, corn-based solution. Now this is real in Mexico today. Tostitos is way beyond a core meal dipping solution. It is already -- we have specific executions of Tostitos that go with meals, local rituals in Mexico with [ Tostitos ] we participate in Mexican breakfast. It's in food service. We have [indiscernible], which are street food -- street vendor solution. So Tostitos is today, we have over 10,000 street vendor trucks or whatever you call it, that we're -- consumers come by a solution which is Tostitos with veggies, with tomatoes, with their own personalized solutions, and that's already a big business for us. And we're obviously trying to move into restaurants, some other solutions for the brand to participate much more holistically in what is the full food experience where we want to be always everywhere for the consumer, wherever they are. Now we're excited not only for our growth opportunities, and you saw that in the categories where we participate, the scale of our brands, the international opportunity and the innovation opportunities. But we also feel very excited about where we can take the productivity of the company based on the foundation we've built for the last 5 years. We've invested in technology. We've invested in data. We have our data a much better place to be leveraged. We've invested in the mindset of our people and the capabilities of our people. And there's 4 big areas where we plan to elevate productivity. One is network optimization and making sure that we accelerate the automation in our plans, in our warehouses. That's a big pillar that's already underway and will give us a lot of good returns and will create better jobs for our people. The second one is how do we do work across the company. We do work in a probably too complex way. So we're streamlining processes. We're simplifying and standardizing our processes through the leverage of global business services, which is a capability that we've built over the last 4 years. Now it's at full scale. Obviously, we plan to use data and AI in a much more scaled way. And we were not able to do that 5 years ago, 4 years ago because our data was not in a way that our people could be empowered to use the data as they are today. I'll give you some examples. And the other thing is just an example of our capability that we're building is, how do we make sure that our cost are in the areas which are valued by the consumer. So it's a consumer back way of value engineering, everything we do, we call it design to value, but it requires a lot of capabilities so that our people can understand what do consumers really value in our products or in our processes and then go back and put -- make sure the cost of the product or the cost of the business is against those areas that consumers are really valuing. So we're going to elevate productivity, productivity that we need to invest in growth. We want to be the best performing company from the top line point of view. And these are just some examples of how we plan to use digital and AI, now that we're ready for it across what are the core capabilities of the business, how we innovate and how we go to market, how we plan. So if you think about an integrated business planning process that goes all the way from automatic forecasting to automatic purchasing, integrated visibility of that process. That was not something we had in the past. We're going to have that AI forecasting. For example, we forecast all our cash flow today almost through AI. We don't have a lot of human intervention and how we forecast our cash flow. Obviously, in the -- how we make our products, agile networks that are much more ready to [ PVOD ] against what have been complex supply chain situations in the past. Selling. I think we are -- as you know, we have a DSD model in the majority of the countries, the large markets where we participate. That's a great opportunity for us, both for growth and productivity. If we make our frontline associates more intelligent with real-time data of where they're selling, how they're selling that would elevate both their ability to sell more but also will help us with productivity. So we're planning to execute a much more aggressive data and AI strategy against the core capabilities of the business, and that will drive both more growth and more more productivity. And then lastly, we remain very committed to pep+. Pep+ as I said earlier, it is essential to our strategy. We're planning to change the way we do agriculture. We're changing the way we do our value chain, the amount of water we consume, the emissions we have, the amount of waste, packaging ways that we have in our system and obviously, how we upskill our people, how we develop our people in our value chain so that they can fulfill their potential in life. And then Positive Choices, the portfolio strategy being critical for us and Positive Choices being critical to how we evolve the portfolio to remain centered to what consumers will prefer, prefer today and will prefer in the future. It's not only about packaging reduction, but it's critical, but it's also, as I said earlier, reducing sodium, reducing sugar, increasing positive ingredients like whole grain or plant-based proteins in our portfolio. So this is where we think we can take the company, I'm sure we can talk more in the Q&A. And now I'm going to pass it on to Jamie to take us through the capital allocation and the financial objectives. Thanks.

Good morning, everybody, and it's great to be back at CAGNY after a 4-year hiatus, and I've really enjoyed over the past couple of days reconnecting with a number of old friends. So as Ramon mentioned, I'll just go through a few slides on capital allocation and our long-term financial targets, and we'll begin with our capital allocation priorities. No change from what we've shared with you in the past. Our priorities are: number one, invest in the business; number two, pay and grow the dividend; number three, selectively consider acquisitions, divestitures and partnerships and in doing so with a very strict strategic and financial lenses; and then number four is to return residual cash flow to our shareholders through share repurchases within our capital structure framework. As we look at capital investments, really beginning in 2019, we had 4 priorities: one was expanding growth capacity; number two, was supporting productivity, largely through automation and the network optimization that Ramon referred to; number three is modernizing our IT infrastructure that really creates the foundation for a lot of our digital efforts; and number four is advancing our pep+ sustainability initiatives. Our CapEx peaked. If you look over the past 5 years, a peak in 2019 as a percent of sales, and has since moderated a bit in the earlier part of that 5-year framework, the emphasis on capital investment was more directed towards expanding the growth capacity and really removing some bottlenecks that had built up in the system. And over that time, the investment in capacity has moderated a bit, but at the same time, that's -- as we've ramped up our investments in IT, in sustainability and in productivity. Expectation going forward is that as we complete a lot of the IT foundational work that the CapEx will begin to moderate a bit more as we get into 2025 and 2026. On dividends, we have a very long-established track record of paying an attractive dividend and growing that dividend steadily over time with our recently announced July 2024, dividend action that will mark our 52nd consecutive annual dividend increase. And then finally, turning to our long-term financial targets. Again, unchanged from what we shared with you in the past: number one, mid-single-digit organic sales growth; number two, core operating margin expansion of 20 to 30 basis points a year; number three, core constant currency earnings per share growth in the high single digits. And then, of course, the dividend plays a really important component of our overall TSR framework and our dividend yield currently stands at about 3%. And with that, Brian, we're ready to go to Q&A.

We'll go Dara, Andrea and Bonnie, and then I'll come around to the next round.

Dara Mohsenian, Morgan Stanley. So Ramon, you talked about the per capita consumption opportunity in D&E markets over time. I was particularly interested in savory, where there's a large gap versus North America. Can you talk a little bit about what you can do internally and the key factors where you can drive that per capita consumption. Obviously, some of that is external macro development, but what are your key strategies internally?

So thanks, Dara. You got in the what is the critical anchor for our growth internationally, which is developing the per caps -- and the basics are simple is about affordability, is about distribution of being everywhere and it's about becoming part of the local food rituals. So those are the 3 things that we work all the time. So affordability normally in developing markets and emerging markets, there is an end package snacking habit normally and package. And there is local lower value solutions that people use for snacking. So affordability means that we're very always measuring our products against those 2 big buckets of addressable markets. So the [ N package ] and the low value package. And there's a lot we can do as we scale the businesses to become more efficient. Our [agro] programs become better, so we can grow potatoes. We can grow all of our ingredients at lower cost, and that becomes a great way to move consumers from what is low-value snacking opportunity to a much more higher value. The second one is ubiquity. We want to make sure that our products are everywhere and scaling availability in developing markets has a lot of complexities, if you think about India and how do you get to 5 million stores and then get to 10 million stores. And I think we're very good is that one of our core competence is how do you build ubiquity and affordable go-to-market. And the third one, which is very important is how do you become part of the local ritual. So you're not an American product going into India or an American product going into South Africa or Turkey or Brazil. But you localize, you localize the brand, you localize the flavors, you localize the occasion where you participate. So consumers adopted with less friction. And those are the 3 things we're working on. As I said, as we scale the businesses, and we have -- you saw Mexico, China and India, these are very large businesses. But we have a lot of businesses already in that $300 million to $1 billion. And those are very resource-rich businesses already where we can invest to make our brands kind of loft and iconic in each one of those markets. And I'm very optimistic that the more resources we have, the more scale those businesses are, the better we're going to be transforming per capita into our, savory snacks or convenient food in general.

If I could just follow up on that. International margins, exceptional performance in terms of year-over-year expansion in the back half of the year. How do you think about the ability to harvest that top line growth to the profit line and margin expansion going forward? Can that continue? Are you now at a scale point where you can really drive margins more aggressively? Or is there more investment to come as you think about international and D&E specifically?

Yes. I think it's a balance. We're really pleased with the progress we've made on our productivity initiatives around the globe, not just in international and certainly see the opportunity for margin expansion in the international businesses as we go forward. But there's a tremendous growth opportunity. And so we'll balance how much of that productivity flows to the bottom line versus how much we invest in a lot of the activities that Ramon talked about to continue to build out the per caps.

We'll go to Andrea and then Bonnie.

Andre Tessera, JPMorgan. I wanted to go back to that international opportunity in the sense of having -- also balancing the affordability. Ramon, you mentioned, one of the key affordability and also localize phase. How can you think about as we go into this high inflationary environment that continues in certain parts of the world where you're very present, how can you continue to, number one, tackle that in terms of ability; and then second, be able to expand and take those other countries, except for Brazil, China and India. What are the next level? Is that a high group of company -- of countries that you can leverage and then use the CapEx that you're putting into 2025? Is that a CapEx that we are putting in mostly to those international capabilities as you go forward?

Let me see, the levers of affordability and being able to scale the businesses are related to scale in many cases, right? So if you think about a big element of our cost is agriculture. So we have -- as we get into a market we basically build potato growing capabilities in the market. In some markets, that's already established and many are not. So as time goes by, we build more capability, the yields of potato go like 5x, right? So that's a big element. The second one is the manufacturing capabilities and how we can cover a large market like Brazil or a large market like India or like China or Turkey or whatever. And obviously, you first established that footprint and then you need to fill those factors. There's a huge element of volume-related or per capita development and scale that impacts your cost per unit and your affordability. And the same with go-to-market. So there is a high value of our businesses get bigger, businesses get more profitable and also have more resources to invest in the per capital development. So it is -- to your question on what is the next level. The next level is countries like Turkey, Saudi Arabia, Thailand, China, India, obviously, those are the markets. If you think about Poland, Romania, some of the CIS Republic, those are the countries that are in the $300 million to $500 million already, and that can attract the best talent. We are large for those markets. Talent makes a huge difference in our business. And that we can deploy everything that we know from all the other markets into those particular geographies, and we take it to the next level. So that's how we're thinking about the market. And it's not -- International Foods is not margin dilutive to PepsiCo, and international beverage is neither, of course, because it's a franchise business.

The CapEx question for the U.S. vis-a-vis international? Is that something...

The CapEx, as Jamie was saying, we're going to be investing in growth. That will be mostly international markets. We're going to be investing in technology. That is global, but the U.S. will take a lot of our technology investments to become a much more digitalized business. And I think there's a lot of growth and productivity initiatives that come from applying digital in the U.S. When you think about sustainability that is across the world, but also the U.S. So there's elements of the CapEx that are more international. There's elements that are cut across both domestic and international.

Bonnie?

I wanted to stick on the same topic of international and the opportunities to build scale. So I guess my question is, it seems like you have great capabilities given the portfolio you have and your ability to continue to innovate as you discussed. So trying to understand if you think you have the right infrastructure and partners in a lot of these markets as you try to expand your distribution further? Or do you see opportunities to either make improvements, make changes? How do you think about that in terms of just further distributing your business in these markets?

Great. The food business is mostly ourselves, right? And the partnerships come from agro partners to scale up agriculture. That is -- the rest is as end-to-end. And I think we have the know-how from obviously, the U.S. being a big source of know-how. Mexico being a big source of know-how on how we spend globally low-cost capital solutions, low-cost go-to-market solutions and innovation. When it comes to beverages, obviously, we rely on local partners, and we have very strong partners in some parts of the world. We have partners that we're working together to become more capable. So some of our operating capabilities, we're working with our partners to make them more capable. And in some cases, we are also working on scaling up our partners by let's say, taking 3 or 4 markets and aggregating into 1 larger bottler with contiguous geography. So you will see in beverages a combination of aggregation of bottlers and transfer of capabilities. In the food business, we feel more confident about leveraging Frito and our Mexico business to deploy capabilities globally, end-to-end from agriculture, all the way to consumer and go-to-market and manufacturing.

Okay. We'll go to Filippo, Robert and Nick, and then I think we'll go to the breakout.

Filippo Falorni at Citi. So Ramon, going back to the U.S. business, you also made a lot of investments there since you became CEO. Can you give us an update on where you think there's more areas to invest? And particularly on PBNA, there's -- you've laid out a target on improving margins, but also to improve market share for the business. So how you balance those conflict priorities?

I think for the U.S. business, investments will be in the form of systems and digitalization, new technology platforms. So if you think about Frito is investing in some new cooking method, so scale in popping or scale in baking. And those are technologies that we don't have. It's not so much in the beverage business, where I think we have all the technologies pretty much there. And there will be a lot of investment in productivity basically through automation. I think automation will be a big driver of our creating better jobs for our people and it's improving the efficiency of the system. It applies to both businesses, the food businesses and the beverages business, both in the manufacturing part, but also in the move and -- warehouse and move.

Robert, and then we'll wrap it up with Nick after Robert.

I know it was just a couple of weeks ago when we talked on some of this. But I'd love to get kind of any better clarity on the state of the U.S. consumer. There was a lot of weather noise in January. So any better insights. And particularly the lower-end consumers, let's say, the bottom 20%. And tied to that, obviously, a lot of pricing taken over the last 2, 3 years. As you look to provide more value to lower-end consumers, how do you feel your toolkit has developed in terms of packaging, promo targeting by ZIP code and other abilities to target that group.

That's great. We really don't have too much to share other than what we shared 2 weeks ago, it was a good Super Bowl. So that's what happened between then and now. And so -- and we capture good -- it was a good Super Bowl for us. Now in terms of the our capabilities to disaggregate consumer and how do we are able to execute more granularly against the beginning of the month and the end of the month and entry price points. I think we have business that is quite flexible in terms of packaging solutions versus other categories. If you think about our food business clearly has multiple entry points and a lot of flexibility on price and sizing, the same with beverages. The beverage business is a bit more rigid when it comes to price packaging. But I think both businesses are quite flexible. We have developed a lot of capabilities over the last few years in terms of granular understanding of the consumers in different parts of the country. And -- obviously, our DSD gives us and advantage in terms of executing quickly those nuances by Zip code and otherwise, together with our retail partners. So I think we're advantaged in that respect, Robert, in how we can execute granularity and agility both in beverages and foods in the U.S. in particular. But other markets around the world. That's a capability we've developed globally. And if you think about businesses like Mexico where the consumer is even more challenged than here, we're able to execute a lot of price points in the same drug or in the same cooler and give the consumer the opportunity to be connected with our brands throughout the day depending on the cash money they have in their pocket. So I think we feel good about that in terms of relative performance and also to where we were 5 years ago.

Okay. We'll take one more from Nick Modi and then we'll go to the breakout.

Ramon, can you just talk a little bit about Gatorade? Just the kind of more holistic strategy that you have is going to be very -- I think, a very competitive year with, obviously, Coca-Cola trying to get power rated body armor back on track. And just talk a little bit about the marketing pivot when you think about athletes to every day hydration and the consumer insight that was kind of driving that change. Because Gatorade had a -- it's been a great brand over time, but we've had pockets over the last 2 decades where the positioning kind of might have gotten out of sync and you went back and forth.

We continue to see active hydration as a big, big growth space in the LRB if we can help consumers move from tap water, regular water other more functional experiences. This is a big opportunity for everybody participating in LRB and that's what we're trying to do. It's not only going to be Gatorade, but it's going to be a combination between Gatorade, Propel and some other solutions that we have. It's not only going to be ready to drink bottles, but it's going to be powders and tablets, and we're making big investments in the supply chain of those powders and tablets. We think that especially new generations they think about beverages in a different way, and they prefer to have their own bottles and they create their own drinks. So those are the pivots that we're thinking about. Now Gatorade as a brand continues to be super healthy. We continue to be investing in the Gatorade, meaningful amounts of dollars. And I think in the right way with the right messaging. Science is still at the basic of Gatorade, and we now have opportunity for consumers to be tested on their hydration needs and then personalized solutions. So I think the brand continues to be above, I would say, many of the competitors in that space. But the most important thing is that we keep the category growing above LRB. I think that's the real job to be done by the marketing teams, is make sure that we keep bringing more consumers from tap water and bottle water into more complex hydration solutions that provide other benefits and just so electrolyze selling the value of electrolyte, selling the value of other functionality that we need as we we play a football game or we just go to the gym for 30 minutes as most of us do every day.

Okay. With that, we're going to join to go to the breakout. Join me in thanking happy for their sponsorship and Ramon and Jemie for spending time with us today.