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Speaker 1: Shares a PepsiCo at a session high, and this comes

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Speaker 1: after the company reported a strong quarter boosted its sales

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Speaker 1: and profit estimates. Matt, consumer's still willing to pay up

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Speaker 1: for brands from Fredo's to Gatorade, even with inflation impacting

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Speaker 1: demand these days.

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Speaker 2: Yeah, it is interesting that they've been able to keep up.

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Speaker 2: I guess great for their shareholders. And if we start

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Speaker 2: to see commodities prices fall, the question is can Pepsi

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Speaker 2: continue holding onto this pricing power. Let's talk about this

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Speaker 2: right now with the chief financial officer, Hugh Johnson. He

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Speaker 2: joins us right now. Hugh, great to have you on

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Speaker 2: the program. After the earnings report. It looks like you're

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Speaker 2: doing a fantastic job of keeping your margins up even

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Speaker 2: as prices for the underlying commodities rise. If they start

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Speaker 2: to turn around, and we did see PPI drop to

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Speaker 2: almost nothing today, do you think you're going to be

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Speaker 2: able to continue to hold your pricing power.

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Speaker 3: Hey, good afternoon. Great to be with you guys. Yeah,

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Speaker 3: I'll tell you how we think about it a little bit.

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Speaker 3: And if you think about where we've been year to date,

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Speaker 3: our prices have increased basically exactly the same as our

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Speaker 3: commodity costs have increased as well, essentially right in line

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Speaker 3: with each other. And the gross margin and operating margin

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Speaker 3: improvements that you see are a product of the productivity

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Speaker 3: initiatives that we've launched. So to your question right now,

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Speaker 3: our expectation is that we will continue to see commodity inflation,

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Speaker 3: just at a lower level relative to what it's been

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Speaker 3: in the recent past. So we've been in double digits

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Speaker 3: for a while. Our expectation is that number will come down,

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Speaker 3: but still inflationary, and we'll price with that inflation as

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Speaker 3: that inflation becomes more apparent to us. One thing to

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Speaker 3: note on that as well, as we tend to forward

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Speaker 3: buy on commodities by about nine months, so whatever is

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Speaker 3: happening in the marketplace right now takes about nine months

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Speaker 3: to work its way into our financials. By virtue of

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Speaker 3: that hedging strategy that we have.

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Speaker 1: Helpful context on the price decisions, hue for consumers who

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Speaker 1: are feeling stretched, even if they lean into the brands

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Speaker 1: that you've got, is there a breaking point at.

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Speaker 3: A certain point? Yeah, you know, it's interesting right now

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Speaker 3: if you look at what's happening with the consumer, there

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Speaker 3: are both headwinds and tail winds with the consumer. The

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Speaker 3: headwinds are the ones that you all were just talking about,

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Speaker 3: you know, inflation, higher interest rates obviously are challenging household budgets.

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Speaker 3: At the same time, the job market is very strong

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Speaker 3: right now. Wages are escalating and people tend to underestimate

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Speaker 3: or underplay that side of things as well. And the

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Speaker 3: gig economy is offering lots of new opportunities for people

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Speaker 3: to earn money. So when you net all of that out,

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Speaker 3: I think what you see right now is a consumer

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Speaker 3: that's doing okay. They're just cautious, and where they're cautious

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Speaker 3: in particular is big ticket purchases like personal technology like automobiles.

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Speaker 3: But they still they're employed, wages are going up, they

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Speaker 3: have money in their pockets, and we're kind of the

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Speaker 3: affordable treat or the affordable luxury that you tend to

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Speaker 3: spend money on. Anyway, you fill up the car with gas,

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Speaker 3: if you go in, you might buy a pepsi or

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Speaker 3: a mountain dew or and a bag of Lais or

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Speaker 3: a bag of sun chips. So there's a reason that

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Speaker 3: companies like ours are defensive stocks, and it's actually playing

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Speaker 3: out fairly well for us. The other thing that's actually

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Speaker 3: playing too sorry, the other thing playing to our benefit

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Speaker 3: is as consumers are going getting out more, whether it's

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Speaker 3: vacations or restaurants or back to the office, we tend

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Speaker 3: to be present in those places more than most of

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Speaker 3: our competitors, and that's a real tail wind for us.

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Speaker 1: Helpful context there, Okay, Hugh. Those are the momentum parts

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Speaker 1: of this story. The industry has been preparing for a

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Speaker 1: possible announcement from the World Health Organization, specifically tied to

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Speaker 1: Asper tam We could hear that tomorrow. Can you give

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Speaker 1: us a sense has PepsiCo been planning or preparing for

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Speaker 1: that as well?

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Speaker 3: We have been, But in all candor, esper team is

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Speaker 3: probably one of the most studied ingredients in all of

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Speaker 3: food and has been for a long time. I like

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Speaker 3: to talk about it and say aspertame is one of

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Speaker 3: the few things. It's been around PepsiCo longer than I have,

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Speaker 3: because I've been here for almost thirty six years at

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Speaker 3: this point. And the reality of it is in over

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Speaker 3: one hundred studies, it's been deemed as safe over ninety

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Speaker 3: regulatory bodies across countries around the world, including the FDA

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Speaker 3: and the European Food Safety authorities have all concluded that

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Speaker 3: it's saved, and even the WHO itself has said that

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Speaker 3: aspartame is safe. Is an ingredient. So, you know, I

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Speaker 3: do believe that, in fact, this is not going to

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Speaker 3: be a significant issue with consumers based on just the

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Speaker 3: preponderance of evidence. Why bond just aspartame is safe?

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Speaker 2: You why even bother with it? I mean, you've kicked

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Speaker 2: it out of most of your products, right, I think

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Speaker 2: starry contains aspartame, but it's not in diet pepsi or

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Speaker 2: any of the main products. Why include it at all

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Speaker 2: if everybody suspects that it's unhealthy.

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Speaker 3: Yeah, it's a relatively small ingredient in some other sweetener

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Speaker 3: packages as well, but again relatively small. The amount of

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Speaker 3: consumption on this is it a tiny amount. So, as

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Speaker 3: I said, I don't think consumers are really going to

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Speaker 3: lock onto this one as a significant concern, just based

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Speaker 3: on the amount of time it's been out there and

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Speaker 3: the fact that it has been declared safe by so

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Speaker 3: many different bodies.

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Speaker 2: All Right, Hugh, great to have you on the program,

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Speaker 2: especially on the day when you're raising your estimates and

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Speaker 2: your forward guidance. Thanks so much for coming to us

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Speaker 2: from PepsiCo. Hugh Johnson is the chief Financial Officer