PepsiCo Q1 2010 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Faucher - JPMorgan Chase & Company - Analyst : Thanks, good morning. Hugh, wanted to just to get a clarification on the tax rate. You mentioned the reported tax rate in the comparability. I just want to make sure for the core earnings growth rate you're still using the 27% tax rate guidance, is that correct?

Question: John Faucher - JPMorgan Chase & Company - Analyst : Okay, got it. Thanks. And then looking at Europe, which was probably one of the biggest misses relative to expectations this quarter, can you just clarify in terms of your reporting calendar, I think you are probably about what, halfway through the quarter at this point, so that obviously gives you a pretty good level of confidence. Can you talk about sort of how much you think the sequential improvement you've seen is weather and how much you think is really related to maybe some overall improving macros?

Question: John Faucher - JPMorgan Chase & Company - Analyst : And again, one more sort of specific question. Q2 for you ends in May or ends in June?

Question: John Faucher - JPMorgan Chase & Company - Analyst : Okay, great. Thank you.

Question: Bill Pecoriello - Consumer Edge Research - Analyst : Good morning, everybody.

Question: Bill Pecoriello - Consumer Edge Research - Analyst : Given it's so difficult to read that North America Beverage division with the acquisition there, can you help us understand where price was coming in the quarter? And then on the underlying CSD versus non-carb, you're talking about improvement in recent weeks, so you're seeing this in immediate consumption, you said you were seeing it in both CSDs and Gatorade. So just help us understand a little bit the underlying trends given it's hard to read in the P&L. Thanks.

Question: Bill Pecoriello - Consumer Edge Research - Analyst : Hi, Eric.

Question: Bill Pecoriello - Consumer Edge Research - Analyst : Thank you.

Question: Christine Farkas - BofA Merrill Lynch - Analyst : Thank you very much. Good morning, everyone. I wanted to look a little bit at the PAB volume number. You've indicated volumes down 4% with some benefit or two points benefit from the Dr Pepper agreement. I'm wondering if you can help us understand perhaps some performance in Mexico. Were there weather impacts there, and if your underlying beverage trends didn't improve year-over-year or sequentially with a down six and CSDs were getting slightly better, was it really water that was the offset or something else? Thank you.

Question: Carlos Laboy - Credit Suisse - Analyst : Yes, good morning, everyone. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Carlos Laboy - Credit Suisse - Analyst : Indra, just to stay with International and AMEA, are we to understand that the loss in operating leverage was pretty much all China investment and if that's the case, how long does China remain a drag on operating leverage in that business unit?

Question: Carlos Laboy - Credit Suisse - Analyst : Thank you.

Question: Marc Greenberg - Deutsche Bank - Analyst : Thanks, good morning.

Question: Marc Greenberg - Deutsche Bank - Analyst : Hugh, wanted to dig in on some of the financials around the bottler deal. You've indicated $650 million in charges and $400 million in synergies a few years out. How should we think about the return for PepsiCo on this deal over time and what kind of sign posts should we be looking for to give us a sense that you're getting that return?

Question: Marc Greenberg - Deutsche Bank - Analyst : Thanks, and just a quick follow-up on beverages. Eric, I know you talked about 2% to 3% full year pricing. Can you offer any feedback from the trade ahead of Summer as far as how promotional trends look at this point?

Question: Marc Greenberg - Deutsche Bank - Analyst : Thank you.

Question: Kaumil Gajrawala - UBS - Analyst : Hi, everybody. Good morning. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Kaumil Gajrawala - UBS - Analyst : As it relates to convenience stores we talked about sequential improvements in beverages. Can you give us some insights on what you're seeing on the snack side in convenience stores? And then also as it relates to the comparison, I believe it's about around May when things started turning quite negative at convenience stores in 2009, so do the comps get easier from here based on snacks? And then also for the comps on the beverage side as well?

Question: Kaumil Gajrawala - UBS - Analyst : But the comps get easier as we move forward though correct?

Question: Kaumil Gajrawala - UBS - Analyst : Got it. Thank you.

Question: Jonathan Feeney - Janney Montgomery Scott - Analyst : Good morning, thank you. Just being a little bit more specific following up on Marc Greenberg's question on the deal, I'm surprised to see continued capital expenditure plans as high as they are considering how much beverage capacity and execution power you brought in house and when I think about how that stages in 2011 and 2012, should we expect capital expenditures to maybe slowdown a little bit given that you're getting your hands-on all of these assets right now? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jonathan Feeney - Janney Montgomery Scott - Analyst : And Eric, just following up on your comment about cold drink. Are you talking about cold drink in the US internationally or both?

Question: Kaumil Gajrawala - UBS - Analyst : Okay. I guess I'm just trying to understand how that squares with the reality that convenience stores aren't really growing right now.

Question: Jonathan Feeney - Janney Montgomery Scott - Analyst : Great. Thank you very much. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Lauren Torres - HSBC - Analyst : Good morning.

Question: Lauren Torres - HSBC - Analyst : A question on the step up in investment spend in the second quarter. Hoping you could be just a bit more specific about where that spend is directed and also what gives you the confidence that the spend will materialize to better second half results, particularly talking about the softness in the environment that we expect to persist over the course of the year?

Question: Lauren Torres - HSBC - Analyst : Great, thank you.

Question: Caroline Levy - CLSA - Analyst : Good morning. A couple of questions. One is Eric, thank you for the net revenue per case discussion on March, but I'm just wondering what it looked like in January and February?

Question: Caroline Levy - CLSA - Analyst : Thank you, that's great and then what were the volume trends on Trop and Gatorade in the quarter?

Question: Caroline Levy - CLSA - Analyst : Thank you, so much. Last question, can I just understand, how does Venezuela devaluation affect operating income for the balance of the year? In Pepsi Americas Beverages I'm assuming is a big part of it.

Question: Caroline Levy - CLSA - Analyst : As a one percentage point headwind to growth?

Question: Caroline Levy - CLSA - Analyst : It's total, yes, I just didn't know if in that division there's that -- you've got a 50% devaluation. Is that flowing through that operating income line?

Question: Caroline Levy - CLSA - Analyst : Okay.

Question: Caroline Levy - CLSA - Analyst : Thank you.

Question: Judy Hong - Goldman Sachs - Analyst : Thanks, good morning.

Question: Judy Hong - Goldman Sachs - Analyst : I'm good. I guess my first question is really on Frito Lay. On the positive side, the margin improvement was very impressive in the first quarter. I'm wondering if some of that was timing related and that as you increased spending in the back half, whether margins behavior would be a little bit softer. And then on the volume side, some of the [scanner] data has shown continued sluggishness in the volume side even with pricing moderating and obviously you're investing more behind the brands and innovation. So maybe just talk about the volume performance there just on Frito.

Question: Judy Hong - Goldman Sachs - Analyst : But there wasn't anything in terms of timing of spending that's helped the first quarter versus maybe some of that gets taken out in the second quarter as you talk about spending going up?

Question: Judy Hong - Goldman Sachs - Analyst : And then just a quick follow-up, Hugh. On the synergy numbers, you've raised the cost to achieve the synergies but you haven't raised the synergy target. Obviously you've talked about going after other opportunity in terms of cost savings, but the fact that you're raising the cost to achieve these synergies, how should we think about that as it relates to the fact that you're still looking for the $400 million in terms of cost savings?

Question: Judy Hong - Goldman Sachs - Analyst : Okay, thank you.

Question: Damian Witkowski - Gabelli & Company - Analyst : Hi, good morning. Just anything in particular that's behind the strength in beverages in Turkey this quarter? And then you talk about a very rational pricing environment in the US. Are there any big regions, countries, important countries around the globe where you're seeing opposite of what you're seeing sort of irrational pricing and behavior?

Question: Damian Witkowski - Gabelli & Company - Analyst : Okay.

Question: Damian Witkowski - Gabelli & Company - Analyst : And Indra, just one more thing, in the beginning in your prepared remarks you said you're making progress on the better for you and then you listed Lays and Sun Chips I believe, and whole gains, and that would not be counted as part of the better for you would it?

Question: Damian Witkowski - Gabelli & Company - Analyst : Okay, thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.