Pepsico, Inc. (NYSE:PEP) Q1 2015 Earnings Conference Call - Final Transcript

Apr 23, 2015 • 08:00 am ET


Pepsico, Inc. (NYSE:PEP) Q1 2015 Earnings Conference Call - Final Transcript


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Good morning and welcome to PepsiCo's First Quarter 2015 Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session. (Operator Instructions). Today's call is being recorded and will be archived at

It is now my pleasure to introduce Mr. Jamie Caulfield, Senior Vice President of Investor Relations. Mr. Caulfield, you may begin.

Jamie Caulfield

With me today are Indra Nooyi, PepsiCo's Chairman and CEO; and Hugh Johnston, PepsiCo's CFO. We'll lead off today's call with a review of our first quarter 2015 performance and full year outlook and then we will move on to Q&A. We recognize today is a busy earnings day with a number of other consumer and mega-cap companies reporting. So we've kept our comments brief this morning and intend to conclude the call by 08:45. Before we begin, please take note of our cautionary statement.

This conference call includes forward-looking statements, including statements regarding 2015 guidance and our long-term targets based on currently available information. (Forward-Looking Cautionary Statement)

Unless otherwise indicated, all references to EPS and operating profit growth are on a core constant currency basis. All references to free cash flow exclude certain items. In addition, references to organic revenue results in this call exclude the impact of acquisitions and divestitures, structural changes and foreign-exchange translation.

To find disclosures and reconciliations of non-GAAP measures that we use when discussing PepsiCo's financial results, you should refer to the glossary and other attachments to this morning's earnings release and to the Investors section of PepsiCo's website under the Events & Presentations tab.

As we discuss today's results, please keep in mind that our first quarter comprises the 12 weeks ended March 21 for our North American operations and it is a short quarter for our international businesses reflecting the two months of January and February for most of our operations outside of North America.

And finally, our core Q1, 2015 earnings results include a $39 million pretax gain related to the refranchising of a portion of our India bottling operations. We also recorded a pretax impairment charge of $65 million associated with our dairy joint venture during the quarter. And as you may recall, our Q1, 2014 core earnings included a $31 million pretax gain from the sale of certain agricultural assets in Europe. And now it is my pleasure to introduce Indra Nooyi.

Indra Nooyi

Thank you, Jamie, and good morning, everyone. I'm pleased with our performance in the first quarter of 2015. Our focus on innovation, brand building and marketplace execution, funded in part by productivity initiatives, continues to drive solid fundamental business performance.

In the first quarter, organic revenue grew 4.4% with global snacks up 7% and global beverages up 1.5%. And core gross margins improved by 150 basis points. Excluding the impairment charge and gains Jamie mentioned, core operating margin improved by 65 basis points, core constant currency operating profit grew 11%, and core constant currency EPS grew 16%. However, foreign exchange headwinds persist.

We have and will continue to take actions to