Prepared remarks
Good morning, welcome to PepsiCo's 2026 second quarter earnings question and answer session. Your lines have been placed on listen only until it is your turn to ask a question. Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin.
Thank you, Kevin, good morning, everyone. I hope everyone has had a chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today's call, including about our business plans, guidance, and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, July 9th, 2026, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures which exclude certain items from reported results. Please refer to our second quarter 2026 earnings release and second quarter 2026 Form 10-Q, available on pepsico.com, for definitions and reconciliations of non-GAAP measures and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements. Joining me today are PepsiCo's Chairman and CEO, Ramon Laguarta, and PepsiCo's CFO, Steve Schmitt. We ask that you please limit yourself to one question. With that, I will turn it over to the operator for the first question.
Questions and answers
Thank you. In order to ask a question or make a comment, please press star followed by one on your touch tone phone at any time. We will pause for a moment while we compile our Q&A roster. Our first question comes from Bonnie Herzog with Goldman Sachs. Your line is open.
Thank you. Good morning, everyone. I had a question on PFNA. Your volume was flat in the quarter, despite what seems to be stepped up affordability initiatives and innovation. Hoping you could spend some time helping us understand the changes you've made, maybe what's working, what's not working, and then whether you need to lean in further, maybe on affordability or maybe innovation to drive better volume growth. Thank you.
Good morning, Bonnie. Let me step back for a minute and give a full company perspective. There's a lot of things we feel good about in the business, and there are a few things we will be very focused on in the second half to accelerate the business. If you step back, the company in the first half reported almost 7% revenue growth, and we've grown global volumes 3% in foods and 2% in beverages. That's the fastest growth in volume since 2022. Included in that volume growth is volume growth in the U.S. foods business, where it was very strategic for us to get the category back to volume growth and to gain share of volume in the category. We feel good about that turnaround and how the business is performing. There are two pillars to how that happened. One was, as you mentioned, affordability investment, and the second has been growth in the permissible part of the portfolio and the portion-control part of the portfolio. That part is going very well. On the affordability part, we feel good about the investment. I think in the second half of the year we're going to have to optimize the return on investment on some of those pricing investments. It depends by channel, by customer, and the teams are learning. I want you to step back and take the bigger picture that a category that was negative in volume is now positive in volume. We were losing share in volume. We're gaining share in volume, and that is all very positive, and it was the first strategic intent that we had early in the year when we decided to lower the prices of the business.
I think that pretty much covers it.
Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open.
Hi. Good morning, everyone. Ramon, you mentioned in the prepared remarks that in the U.S., consumer behavior was clearly impacted by rising inflationary pressures in the quarter. I was wondering if you can give us an update on what you've seen more recently. Have you seen an improvement in consumer behaviors as gas prices and some other inflationary metrics have come down? As we think about the back half, before you talked about a potential to get to the higher end of the organic sales range, can you give us an update on how you're thinking about the back half at this point? Thank you.
I think, obviously, the Iran war and the impact on gas prices has been meaningful, not only in the U.S., but across the world. Our international business, as you saw, continues to be very strong, and we were able to grow 7%, accelerating. In the U.S., we're seeing the consumer change behaviors, basically an acceleration of some behaviors we saw in the past. Some channels, more the impulse channels, have been impacted, where there is more of a correlation with the price of gas. Certain convenience stores and some other independents are seeing a slowdown in conversion of traffic into purchases. Now, will it change in the coming months? It all depends on the price of gas; that's something beyond our control. We continue to invest in affordability. In those particular channels, we're working with our customer partners on solutions to convert more of the traffic in the store, such as bundles and linking to meals, solutions to address that channel. No, that is the only element that we've been seeing in the last few months. We continue to see, as we look at the second half of the year, a very strong international business, and it's continuing to perform well into the summer. We see an acceleration of our U.S. business, both in foods and beverages, and we continue to have a line of sight to the low end of our long-term 4% to 6% range in the second half of the year. We're fighting for that. We see a lot of green shoots in our portfolio transformation. We feel good about our permissible products, feel good about some of the innovation we've launched. We're going to scale them in the second half. We see our affordability investments returning better for us in the second half as we optimize tactics for different channels and different consumers.
Ramon, it's Steve. Just maybe a little bit on guidance since we talked a little bit about that. If we think about guidance overall, you saw that we reaffirmed our guidance for the year. If I take a step back and look at the performance of the whole company, and to reiterate some of what Ramon said a minute ago, overall net revenue of the company grew 7% in the first half of the year, and Ramon just talked about the volume growth that we're seeing globally that makes us feel really good about the health of the brands. Reported EPS grew 6% in the first half. Constant currency EPS grew 3%. We continue to see strong international performance and a softer North America business than we expected in Q2. How does that play out for the rest of the year? As we look at the second half, we continue to expect the international net business to remain strong. We expect the North America business to gradually improve, at a more moderate pace than we thought coming into Q2, as Q2 was less than what we expected. We do expect some more pressure on the business from a commodity standpoint. We also expect refund claims for tariffs paid last year to help offset some of the commodity pressures and allow us to continue to play offense. The refund claims on tariffs paid last year will be about one full point of EPS growth for the year. The other piece is we expect to keep pushing productivity in the business. We've taken costs out and will continue to do that. We have more work to do here. I think what's important for you to know is we're not making decisions that hurt the top line in our assessment. We're going to continue to make investments in growth. North America advertising and marketing expense is projected to increase in the second half versus prior year; as an example, we're going to continue to play offense. When we add it all up, we're in a position to reaffirm our full-year guidance, and as Ramon said, it may be towards the low end of the EPS range that we've given.
Thank you. One moment for our next question. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open.
Hey, good morning.
Morning, Dara.
Obviously strong international results in the quarter, I wanted to focus on North America a bit. We talked about the sequential improvement in volume in PFNA in Q2, but I don't think it was to the level you expected, and maybe you can also comment on PBNA, where it looked like the volumes were also weaker than expected. Just was hoping for a little more of a short-term report card. Do you think that's less payback on some of the initiatives you put in place? Is it more the general consumer environment? Really what I wanted to focus on is more longer term, just your perspective on the level of spending behind that North American business as we look out longer term. Do you think to revitalize organic sales growth in this environment you might need some level of greater spending, a bit of an earnings reset as you look out? Just how do you think about investment levels behind the business looking out, given both the short-term performance you're seeing and the consumer environment? Thanks.
That's a good question, Dara. The way we think about it is we still see the international business continuing to be very strong; this is a business now that will cross $40 billion this year. International beverage volumes are two-thirds of total company volumes, international foods volumes are over 50%. Clearly the international business is becoming a very scaled and profit-accretive part of our company. We're creating diversification that long term will give us a lot of rewards. When you focus on the U.S., we continue to believe that the three pillars we identified will help us transform and accelerate growth in the U.S. One was affordability investments, making sure our brands are in consumers' lives in the portions and prices they can afford today. The second was to continue to transform the portfolio at a faster pace, following new dietary and consumption habits of consumers. The third was to accelerate away from home as incremental locations for us to capture new occasions for our brands. Portfolio transformation is working very well. We feel good about the no-sugar part of our beverage business. We feel good about functional hydration, our energy business, and some of the innovation that we'll scale in the second half of the year. That part is good. We feel good about the permissible portfolio in foods. It's already $3 billion and growing almost double-digit in portion control. All those elements we explained in our prepared remarks are working, and I think that is really the long-term direction as consumers engage with our categories. The away-from-home business continues to be a priority internationally and in the U.S. It slowed a little in Q2. We think that will help us accelerate in the second half. It's a strategic opportunity where we're innovating, creating new business models, and adding incremental locations. The affordability part, which you're referring to, we accomplished what we wanted: to get volume back into our categories in our core brands. That was not obvious, and we managed to do it in the first half of the year. We're optimizing the return on those investments, and what we learn is that because of the consumer environment and higher gasoline prices, consumers felt more of the economic impact. We will continue to optimize investments for grocery, high-low customers, everyday-low-price customers, and other formats. The system is becoming more knowledgeable about how to get the best return from those investments. What was different this quarter that we weren't planning was performance in impulse channels. That's something we've been working on in the last few months to get more conversion between people getting into the gas station and converting into purchases of beverages and foods. That's something we are working with our partners on. The gas prices have impacted the business; if gas prices come down, that will help. We don't think we need any sort of reset because we have strong productivity—record productivity in the first half. We'll add new layers of productivity in the second half to fund these growth investments, be it price, portfolio transformation, or away-from-home expansion. That's how we're thinking about this now.
I think you've covered it well.
Thank you. One moment for our next question. Our next question comes from Andrea Teixeira with JPMorgan. Your line is open.
Thank you. Good morning. On the guidance for the second half, you're now adding about, I believe, $0.07 to $0.09 in EPS from the tariffs and reinvestment. You also mentioned that EPS would be more back-loaded into Q4. Just want to double-click on what Ramon said about the affordability pillar. Should we expect more price rollbacks similar to what your biggest customer in the U.S. has recently announced rolling into other retailers? If so, can you give us some examples of how these reinvestments have converted into better volumes? You talked about convenience and gas, and I'm wondering about anything you can point out with one of your biggest partners that would allow us to think about volumes finally reflecting in those channels and away-from-home. When you think about the $0.07 to $0.09 reinvestment, that implies more flattish Q3. I just want to double-check that math. If that's the case, is that mostly to absorb commodity pressures you highlighted or for A&P investments, or should we think about the affordability price reinvestments being the bulk of it? Thank you.
Andrea, it's Steve. Thank you for your question. It's good to hear from you. I think on the first part, we're going to continue to run our play. We have a strategy that we believe in. Ramon talked a little about maybe we'll have to make some tweaks based on what we're learning from the value standpoint, but we're going to continue to run our play there. On the impact from the tariffs, I'll talk a little about Q3 and then Q4 since I shared some in my prepared remarks. On the positive side, we continue to expect international to be strong. We do expect about approximately one point of EPS benefit from tariff refund claims likely in Q3. We expect a gradual improvement in North America, and we will be using the tariff refunds to help offset some commodity inflation that we're seeing and allow us to continue to play offense in the business. That's how we're thinking about that. Also unique to Q3, we expect to have a higher tax rate year-over-year than what we've seen so far this year, so that should go into the math. There will be timing of certain costs and investments that we expect to impact Q3 more than Q4. We'll continue to focus on productivity. We expect more productivity in Q4 and Q3. That's how we're thinking about the overall math of the back half.
Andrea, if you think about the big picture, the impact of oil prices on our cost of goods globally and the impact of higher gas prices on demand are new elements we are compensating for with higher productivity. The tariff refunds come in handy and create trade-offs we have to make in the business. These are normal trade-offs during the year because there are timing differences on elements of our P&L that we compensate for with others. That's how we're thinking about the overall pool of money we have available to continue with our guidance, which is the higher-order deliverable now: the high growth and the EPS numbers we gave earlier in the year.
Thank you. One moment for our next question. Our next question comes from Kevin Grundy with BNP Paribas. Your line is open.
Great. Thanks. Good morning, everyone. Sorry for beating a dead horse here. I wanted to come back to North America food performance, ask from a little bit different angle, maybe play back some of your comments, Ramon. Specifically, the thrust of the question is around performance currently versus the strength that you saw on the test markets back in the fall, where there was a lot of enthusiasm both from a PepsiCo perspective as well as from a retail perspective. Can you help us delineate between macro factors, like tighter consumer budgets and higher inflation, versus more company-specific factors, and how that looks versus nine months ago when you did the test market work? I guess on the call I'm hearing you're looking for better ROI on some of the price investment, maybe better execution in impulse channels. Really just trying to gauge the key factors that changed since the test market work versus what we should expect now going forward, and why things may get better. Thank you.
I would say the higher-order result is we've been able to accelerate volume growth in the category. Salty snacks is one of the few categories growing volume in the overall U.S. food space. That was the number one intent. The second intent was for us to be a driver of that volume. We're gaining share of volume in U.S. salty snacks, which was also another objective. Is volume as much as we expected? No, not in Q2. It's a couple of elements. I think the consumer is worse off than we anticipated and that's driven mainly by gas prices. Second, the execution of the price investment in some customers had delays for multiple commercial reasons. That has been solved, so we'll see an acceleration in the second half. The consumer reaction to the investments is pretty much along the lines of what we anticipated. I wouldn't question the strategic logic of the investment. There are commercial tweaks we have to make and different circumstances in U.S. consumer budgets given some recent inflation, especially on gas prices. We remain focused, as Steve said, on continuing the playbook. We continue to invest in our portfolio, in affordability, and in away-from-home. We think the food business in the U.S. will continue to grow volume and grow net revenue in the coming quarters.
Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.
Great. Thank you. Good morning, everyone. There's been a lot of focus on North America this morning, so maybe just pivoting to the international business. Ramon, maybe you could give us a walk around the world in terms of what you're seeing around category growth and health of the consumer. Were there any notable differences in any key regions as you moved through the quarter? Steve, maybe not to get too specific, but when you speak to international growth remaining resilient in the balance of the year, should we extrapolate the growth we saw in the second quarter for the balance of the year? Thanks.
Thanks for putting international in the center of the conversation. This is a business we've invested in for the last five to six years, and it's now, as I said earlier, a big part of our global volume, revenue, and profit. It's clearly a success story and will continue to be a big driver of growth in the coming years given per-capita opportunity and share-of-market opportunities globally. Around the world, going into the quarter we were a little concerned about performance in the Middle East and some Asian markets where gasoline prices were elevated. The truth is those markets have remained resilient. In Vietnam, Thailand, China, and some Middle East markets, our procurement capabilities and agility are proving an advantage in pivoting faster than competition on raw material availability and inflation mitigation. Europe remains resilient and is performing pretty well. The World Cup is helping, and our sponsorship in food is helping us activate the category more effectively. It's creating occasions that we're capturing, and we started Q3 very strong in international. Latin America showed a little less growth than other regions but is trending positive, with the World Cup having a big impact in that part of the world. Overall, broad good performance. Part of that is category acceleration; part is better share of market. I would say better in beverages than in food; in food we still have opportunities to improve share in some markets. We continue to see the business trending well through the summer and into the winter.
Peter, to answer your question on what we would expect in the second half: as I look at the business, signs point toward continued strong growth. Ramon mentioned the volume growth we've seen, which is a good indicator of business health in international. One thing to call out is we do expect some commodity inflation, probably more so in EMEA in the back half of the year; teams have been proactive mitigating some of that inflation. To demonstrate not just top-line growth, but operating performance: in the second quarter, operating margin grew by a full point. We feel good about the top line and about the efficiency of how sales are running through the P&L.
Thank you. One moment for our next question. Our next question comes from Lauren Lieberman with Barclays. Your line is open.
Great. Thanks so much. Good morning. I want to talk a bit about the margin pressure we saw in PBNA this quarter and how to think about profitability over the balance of the year, knowing the ongoing focus on improving margins, and considering ongoing higher inflation. I'm assuming there will be some incremental reinvestment to support your volume ambitions. Just talk a bit about profitability and PBNA. Thanks.
Sure. If you think about PBNA from a margin perspective, operating margin was down about 90 basis points in the quarter, driven by gross profit rate. The gross profit rate decline had three drivers. About half of the rate decline was driven by the business we have through Alani and the commercial arrangement we have there. That's about half the gross profit decline. The other pieces were the convenience and gas channel that Ramon mentioned, which was particularly soft in the quarter, and some product mix effects overall. Those are the three items to call out. On the G&A side, the team continues to push productivity. Going forward, as Ramon talked about, we need to see improvement in convenience and gas. Hopefully we'll get tailwinds from gas prices. We'll continue to push productivity.
Thank you. One moment for our next question. Our next question comes from Michael Lavery with Piper Sandler. Your line is open.
Thank you. Good morning. I wanted to come back to PFNA and ask for color on shelving and distribution updates. At the beginning of the year you expected some upside; curious about timing, how much is still to come, how much might be permanent secondary displays or temporary ones, and how to think about how that unfolds.
The space increases we planned have been rolling out throughout the year and there's still more to come. Some channels have taken a little longer to execute space increases. We will see those come in the second half as commercial conversations come to fruition. I would say increases in permanent perimeter space will come more in the second half, particularly in channels where we've developed different customer solutions. Long-term, this will happen. In the second half of the year we should see acceleration in the return on investments in those customers.
Thank you. One moment for our next question. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.
Yes, great. Thanks so much. Maybe a follow-up, Ramon. From the outside it seems a lot of initiatives discussed coming into the year—affordability, package and product innovation—are largely in the market. Is the go-forward focus more about optimizing and scaling efforts already in motion, or are there additional actions ahead that can serve as catalysts? Shelf space is part of that, anything more along those lines?
We're on the journey of the three pillars I mentioned. On portfolio transformation, most of the innovation we've launched is working well in North America food. We're scaling Naked, scaling Doritos Protein and other new platforms that contribute to permissible portfolio growth and portion-control. In portion control, we've invested in opening price points for multipacks and variety packs that are working well. Portion control and portfolio transformation execution is underway and we're scaling those platforms. Away-from-home acceleration had a couple of supply chain and customer execution elements that slowed in Q2, but it's accelerating in Q3 and will be a pillar of acceleration. On affordability investments, some channels the investments are working well and others required tweaks; we're executing those tactical mechanics of value with customers and will see benefits in the second half. That's the overall picture for the three pillars of North America food acceleration.
Thank you. One moment for our next question. Our next question comes from Peter Galbo with Bank of America. Your line is open.
Hey, guys. Good morning. Thanks for taking the question. Steve, to put a finer point on your prepared remarks, you talked about a gradual rate of improvement in North America for the second half. I wanted to understand if there are big differences between the two segments in the rate of improvement, or if they should look relatively similar as we think about the back half of the year. Thanks very much.
If I had to dissect North America, I would expect more profit improvement faster from the PBNA business than in foods as value investments and the tweaks Ramon mentioned ripple through the system. That would be the additional color. In Q4 I would expect better profit performance than in Q3.
Thank you. One moment for our next question. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open.
Great. Thank you. Stepping back, a strategic question: the difference in performance between the U.S. business and international is notable. You noted higher gasoline prices were an issue in many markets. To what extent is the U.S. market simply more mature while the rest of the world has greater opportunity? Does it make sense, or are you doing it, to perhaps rebalance investment—are you overinvesting in the U.S. and underinvesting internationally given growth potential? You noted international is margin accretive. Also, could you update us on the integration testing in Texas as a way to lower U.S. cost basis? Thank you.
Those two topics are related. We've been investing in international for many years and are careful not to starve international of capital or investment because that will be the biggest source of growth five to ten years from now. The U.S. is critical both short and long term. We believe keeping our brands present in consumer occasions while providing new offerings in foods and beverages and expanding away-from-home will allow North America to continue to compound at a good pace. We do not want to starve international. Some of our big productivity initiatives in the U.S. are precisely to fund U.S. transformation without starving international. We're expanding automation and digitalization to be more effective and productive. One pillar is combining the scale of our two American businesses to change the cost structure, especially on logistics—warehousing, transportation, and delivery. We're making good progress and will provide more detail later in the year or early next year. Where we're testing in Texoma, we're seeing mixing centers as a big idea: combined mixing centers where inventory from categories is combined to give flexibility and lower cost. We're testing combined delivery and combined fleet. These are big transformations that require systems and assets, but progress so far has been positive. There are other transformations in integrating G&A and systems to lower cost and free up investment for growth. We are not starving international to fund the U.S. The international business has enough capital, A&M, and talent to continue to be a strong source of growth for us.
Thank you. One moment for our next question. Our next question comes from Robert Moskow with TD Cowen. Your line is open.
Hi. Thanks, Ramon and Steve. There was an article in the press about six weeks ago about a 10% to 20% price increase you are taking on Frito-Lay smaller bags, and I suspect that is really for the convenience channel. Today's results indicate convenience has been weak. In terms of the investments you are making, are you taking steps to cushion the blow for consumers so that affordability doesn't get worse in that channel from here?
That channel is critical. The way we're trying to increase incidence of purchase there is through bundles and other incentives that we are partnering with customers to implement across the country. We see benefits when we have good offers and bundles—beverages and foods, snacks and foods. We're not trying to raise single-serve prices to pay for investments in the take-home business. That's not what we're trying to do.
Thank you. One moment for our next question. Our next question comes from Chris Carey with Wells Fargo Securities. Your line is open.
Hi, good morning. Can you give a sense of performance and opportunities of some recent acquisitions, specifically Siete and poppi, and in general how you view the M&A environment, willingness for additional acquisitions, and how that factors into your medium-term plans? Thank you.
Both Siete and poppi are doing well. For poppi, transition from its distributor system to our system had an impact earlier this year due to many distributors; that has been resolved and the business is flowing through our supply chain and adding consumption points and customers, and we're seeing poppi grow again at a good pace. Siete was integrated earlier; we had some ingredient supply issues in April and May that impacted performance, and that has been solved as well. Both are critical parts of our strategy to transform the portfolio. We will innovate with our brands into new spaces, and in some spaces buying and expanding a brand in our system is a great return; Siete and poppi are examples. We're also using partnerships like Celsius and Alani Nu. That's another way to expand offerings and leverage our go-to-market capabilities in spaces where scaling an innovation organically would be hard. As you saw in our prepared remarks, we're innovating with our brands in many new spaces, leveraging R&D and teams to provide new solutions: new packs, new functionality, new occasions that continue to add business to our brands in the U.S.
Thank you. One moment for our next question. Our last question comes from Kaumil Gajrawala with Jefferies. Your line is open.
Hey, guys. Good morning. I'm struggling to understand what optimizing return on investment means practically. Does it mean some discounts were not working and are not worth doing anymore? Is it something else to drive more volume? I understand it conceptually, but not practically in terms of what's changing and the goals. Is it a profit intention or shifting where you deploy capital to drive volumes faster than they are now?
I think it means trying to get more volume from investments. There are high-low customers and everyday-low customers, and the mechanics of how you maximize return on trade investments or offers can drive more volume or less. That's what we mean by optimizing return on investment. It's very specific: customer by customer, holiday by holiday, beginning of the month versus end of the month, and how we execute offers with customers. It's straightforward for everyday-low-price customers and more complex for high-low customers, and that's where we're tweaking. Thank you very much to everyone for your time and the confidence you're placing in our stock. Thank you very much and have a great day.