PepsiCo, Inc. (NASDAQ:PEP) Q4 2022 Earnings Call Transcript

PepsiCo, Inc. (NASDAQ:PEP) Q4 2022 Earnings Call Transcript February 9, 2023

Operator: Good morning, and welcome to PepsiCo’s 2022 Fourth Quarter Earnings Question-and-Answer session. 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.

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Ravi Pamnani: Thank you, operator and 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 and plans and 2023 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 09, 2023, and we are under no obligation to update. As a reminder, PepsiCo’s fourth quarter 2022 includes 17 weeks of results. And our fiscal 2022 year includes 53 weeks of results. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results.

Please refer to our Q4 2022 earnings release and 2022 Form 10-K 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 Vice Chairman and CFO, Hugh Johnston. We ask that you please limit yourself to one question. And with that, I will turn it over to the operator for the first question.

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Q&A Session

Operator: Our first question comes from Dara Mohsenian with Morgan Stanley. Your line is open.

Dara Mohsenian: Hey good morning guys.

Ramon Laguarta: Good morning, Dara.

Dara Mohsenian: So I just want to focus on the 2023 topline growth outlook after another very strong quarter here in Q4. Can you just give us a quick update on the business so far in 2023, given there are some concerns around macros and the consumer? Are you seeing momentum continue or any signs of incremental consumer weakness? And then second, how does that translate the price mix? Obviously, very strong pricing in Q4. In theory there is need for more pricing given the continued cost pressures in 2023, but as I just mentioned there are some worries around the consumer and the theory for retailer pushed out, so just help us understand within that organic sales growth outlook how much is price mix? Are you — is a lot of that carryover pricing from 2022? Or are you assuming more pricing in 2023? Thanks.

Ramon Laguarta: Good morning, Dara, this is Ramon. Listen, the way, the way we feel about the consumer is based on employment data and wage growth around the world is positive. In our assumption for the year, we’re thinking elasticities might get worse going into the second half of the year based on multiple scenarios that we have. Obviously, they are very changing. We just had some recent changes in some other in multiple parts of the world. I was feeling that that might happen that there are worse elasticities in the second half of the year. And that’s why we’re guiding to a 6%. We feel comfortable with the way the business is going as you could sell from Q4 a good momentum in our brands and good share momentum in many geographies around the world.

But the key, the most important thing for you to think about is we’re going to keep investing in the quality of our products. We’re going to keep investing in the strength of our brands. We’ll keep making our go-to-market systems stronger. So no matter what happens with the consumer, we’re going to be I think preferred choice for a lot of the consumers and our customers. And that’s how we are planning for next year.

Operator: Thank you. One moment before our next question. Our next question comes from Lauren Lieberman with Barclays Your line is open.

Lauren Lieberman: Great, thanks. Good morning. I was curious in the release there were a couple mentions of two things. One brand exit and portfolio management, and the other was there were a number of impairments. And I know, anyone who have acquired a business pre pandemic is pretty much taking an impairment, so that’s kind of due course. But I thought it might be a good opportunity to get an idea on how some of these businesses have been faring in the sense of what they’ve added capability or portfolio wise or maybe where they’ve fallen short. Again, notwithstanding the pandemic dynamics. And then just color on what some of those brand exits and portfolio management mentions were in reference to? Thanks.

Hugh Johnston: Hey Lauren, it’s Hugh. I’ll handle that one. It was really a couple of things that that drove it. Number one is obviously as you mentioned pre pandemic, interest rates were awfully low and prices were pretty high for a number of these assets. And as we’ve sort of moved forward, we’ve taken a hard look at the cash flows, sort of in a post pandemic world. Combine that with the fact that interest rates are obviously materially higher, so we’re discounting those cash flows at a different rate. The couple that I’d point to, during the course of the year. Mabel in Brazil was one pioneer a little bit as well. And then SodaStream where, SodaStream is more of a consumer discretionary type of purchase compared to our — the balance of our portfolio.

And as you would expect, behave more like a consumer discretionary purchase. So we took the opportunity to look at the numbers going forward on that, and the investment posture, we were going to have in that business. And as a result, we wrote down a piece of that business as well. So I think we put ourselves in a spot now we’re in a, in a higher interest rate world, we’re in a better position in terms of where we’ve marked those assets to.

Ramon Laguarta: Yes, Lauren, strategically SodaStream continues to be a very central to the transformation of the beverage category. We’ve seen that there is a huge opportunity to enable consumers to personalize their drinks and have a type of consumption where there’s no plastics and where there’s a lot of convenience for consumers at home or in offices or even on the go. So it continues to be very central. Hugh was saying there was obviously a situation, especially in Europe, with inventories and the discretionary consumption that we took this opportunity to reassess the value of the asset.

Operator: Thank you. One moment for our next question. Our next question comes from Andrew Teixeira with JPMorgan. Your line is open.

Andrew Teixeira: Thank you. Thank you, operator. Good morning, everyone. If you can talk about how to think about operating leverage, you have historically been able to use about 1 billion per year in productivity, to offset inflation. And now coming in to these year on top of like a very strong inflation, but also really healthy carryover from pricing. How should we be thinking in terms of like the ability to flex your P&L? Any particular unique you invested? I think we all appreciate that you invested a lot more in A&P, strong double-digit growth in the last quarter. How to think about A&P investments into 2023? Thank you.

Hugh Johnston: Yes, I’ll take care of that one Andrew. I have a couple of comments on that. Number one, obviously, inflation is still out there is as a factor for us partly, the fact that inflation is still high, it’s not as high as it was before. But then the numbers are still relatively high. Number two, in terms of the way that we were approaching the year, we’re looking to drive a lot of productivity this year. And at the same time, we’re looking to continue to put investments back into the business because we think that’s what’s driving the top line, and consumers are clearly responding positively to it. So if you net all of that out, my expectation is that our gross and operating margins will be at least in line with where we were in 2022. And perhaps a little bit better.

Operator: Thank you. One moment for our next question. Our next question comes from Bryan Spillane with Bank of America. Your line is open.

Bryan Spillane: Hey, thanks, operator. Good morning, guys. Hugh, I wanted to ask you a question about cash flow and capital allocation. And I guess in terms of cash flow, just the free cash flow this year stepped down versus last year. So if you could talk a little bit about just what’s happening in cash from operations, is it a timing thing? It looks like working capital as ticked up a bit? And then second, the dividend going up 10% this year? Or just what you announced today. So can you just remind us again, just how you’re thinking about capital allocation as part of a total shareholder return model? And, and just how that factors into decision making in terms of capital allocation going forward?

Hugh Johnston: Yes, happy to, Bryan. Let me start broad and then I’ll sort of narrow it in. Very broadly, the capital allocation principles we have are no different than what we’ve had in the past, who are the four basics of make sure we invest in the business, pay the dividend, tuck in acquisitions and share repurchase. If I zero within a little bit more for the environment that we’re in right now, with some of the changes, I think our biggest priorities right now we’re going to be continuing to invest in the business and growing the dividend. And that’s not a just a today’s statement, although obviously 10% dividend growth is a pretty, pretty healthy growth in in our current environment. But I think those are our bigger priorities, relative to perhaps tucking in there and relative to perhaps share repurchase.

If the 10% dividend growth is bigger than what we’ve done in a number of years, and I think you’ll see us prioritize that a bit more over time. So I’m sorry. And then the last piece is about working capital. Yes, the time — we basically had a timing issue one that we’re doing some IT implementations. And in terms of the IT implementations, essentially we paid for it about two weeks’ worth of payables, just to take some pressure off the IT systems because we had some freezes at the beginning of the year. So that’s what pulled that number down. That was probably worth about 500 or so million dollars right at the end of the year. It’s not a material change in cash flow. It’s a two week timing issue. So I think you’ll see that bounce back as we get to the end of 2023.

Operator: Thank you. One moment for our next question. The next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Bonnie Herzog: Hi, thank you. Good morning. So you’ve worked out a new and improved Pepsi, Zero Sugar. So just hoping for some more color behind this initiative? And really how incremental you think this can be? I mean, maybe you guys could give us a sense of how big your Zero platform is currently? And what percentage of your portfolio this could be in the next few years? And then finally, just maybe some insight in terms of how big of a push you plan to be making behind the rollout in terms of marketing spend, activation etcetera? Any color on these initiatives would be helpful? Thank you.

Ramon Laguarta: Yes, Bonnie. Yes, listen. Yes, Zero is, is clearly a segment of the beverage category that is growing much faster than kind of full sugar all over the world. And Pepsi Zero has a Pepsi Max, as we call it in some markets has been very strategic product for us in Europe, and in other parts of the world. In the U.S., we were investing in other parts of the Pepsi brand. Now, this is going to be the center of the strategy for the Pepsi brand. We think that the non-sugar segment of Colas will continue to grow very fast in this country. We’re seeing consumers pivoting. I think the R&D in our company has done a great job in giving consumers Zero sugar choices that are as good as full sugar choices or better from the taste point of view.

And we’re asking consumers Zero sacrifice to pivot to Zero Sugar version. So that’s the principle why we’ve seen that the category will continue to pivot and why the brand will continue to invest in moving consumers into that space. How big it’s going to be? I think eventually, it’s going to be a large part of the brand, not only here in the U.S., but all over the world. We improved the formula. We moved the formula closer to the formula we have in Western Europe and some other parts of the world. It’s more refreshing formula, is closer to our original flavor. And I think I mean, the initial results are very good. The consumer testing was excellent. We’re going to be investing now in the Super Bowl that we continue throughout the year is going to be one of the pillars of growth of our CSD business in the US.

Hugh Johnston: And Bonnie just to give you a data point Pepsi Zero Sugar grew 26% volume in the fourth quarter so that business is really growing.

Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.

Peter Grom: Thanks, operator. And good morning, everyone. So I wanted to ask about the long-term organic revenue algorithm, 4% to 6%. And recognizing that a lot of the upside the past few years has been driven by pricing. But this is now the third straight year, you’re excited to be at the high end or above the high end of the range. And I guess, as you take a step back and look at your performance and think about the path ahead, has anything changed and how you think about that target? You mentioned increased spending and driving the top line, do you have a higher degree of confidence that Pepsi can consistently be at the higher end of that range longer-term? So just like any perspective on whether you feel differently today about the building lots of algorithm versus maybe 2019 will be really helpful? Thanks.

Ramon Laguarta: Yes, of course, we feel good about the return that we’re getting on our investments that we’ve made both in our brands and you see the our A&M has gone up significantly since 2019 and the same with our CapEx, right? We’ve added a lot of capacity, a lot of go-to-market strength to our business. And we see the consumer reacting to that very positively. We’ve also invested a lot in quality and our brands, our products are better or more consistent, are better tasting. So from that point of view, we’re happy to the — we’re winning market share in many markets around the world. So yes, we’re feeling good that we can be close to the top end of the — of our long-term growth algorithm for the continuous future. Now obviously, the last two years, there’s been a bit more pricing that would expect going forward long-term.

But if you think about the mix of growth between developed and developing markets, I think we have tremendous opportunities for growth in developing markets. The per capita is still very, very good. And we have good playbooks to develop those per caps in a lot of those consumer bases. And we know how to grow developed markets as well. So you will see us continuing to invest in our brands, continue to invest in our go-to-market and what drives the top line, what makes consumers stay with our brands. And we’ll guide every year to the particular circumstances of volume and pricing that we see for that particular year.

Hugh Johnston: And Peter, just as a reminder, both Ramon and I have said in the past that our goal is to be at the high end of that guidance. And also as a reminder, recall 5 years or so ago, our long-term guidance was 4% to 6%, but we were struggling to get to 4%. We were averaging somewhere in the low to mid-3s. So it’s obviously a material acceleration where we’ve been as recently as 5 years ago.

Operator: Thank you. One moment for our next question. Our next question comes from Kevin Grundy with Jefferies. Your line is open.

Kevin Grundy: Great. Thanks, good morning everyone. And congratulations on the strong results this year. I would like an update on PBNA, please, on 2 fronts, Mountain Dew and then segment margins more broadly. So market share, nice to see Gatorade performing well, though the company’s market share continues to slide here a bit in CSDs, most notably with one of your power brands in Mountain Dew. So Ramon, perhaps an update there on your investment plans behind Mountain Dew to try to turn around some of the share loss. And then just relatedly, how does the scope of your investment, not just in Dew, but broadly in PBNA, how does that impact your other key priority within that segment of restoring margins towards mid-teens? So thank you for that.

Ramon Laguarta: Thank you, Kevin. We feel good about or very good, actually, about the progress that PBNA is making in this triangle of growing the top line, improving the margins and keeping share. And that’s the balance we’re trying to strike every year as we go forward. Now there are things of the portfolio, we feel very good and things that we have to do work, things that we feel very good as you mentioned, all the sports nutrition category. Gatorade, obviously about Propel and some of the other brands are doing very, very well. That’s a big area of investment. We’re getting the returns. We feel very good about the Pepsi brand. Pepsi brand is growing well. Now we’re investing behind Zero, as we discussed. We feel good about the coffee portfolio.

Finally, we’ve gone beyond some of the supply chain challenges, and that Starbucks range is going to be very, very good for us. Already, we saw it in Q4. It’s going to continue this year. We feel good about Energy. We feel what about Energy, the steps we’re making to improve Rockstar, as I said, the coffee portfolio. And then the Celsius integration into our portfolio has gone very smoothly, and that brand has keeps gaining market share behind our improved distribution, and I think the attractiveness of the product. So that is a very strong set of growth opportunities that we’re going to continue to dial up in our investments and our execution and our customer plans, which are very strong for 2023. Now as you mentioned, an opportunity is Mountain Dew.

Mountain Dew, we keep refining the positioning. We keep refining the product, and we’re going to be investing. But this is just a small part of a very large portfolio, and there’s a lot of positives in that portfolio. Now when you see the triangle, we’re trying to improve the margins as well. As we said, we are not deviating from our long-term goal, actually, not so long-term goal to go to mid-teens with this business. You saw we’re progressing in Q4. It was a good step forward, and that continues to be the plan for 2023 and beyond. So we’re going to dial it up efficiency. We’re going to dial up our investment behind the key brands. And we’re improving our execution, which has been painful throughout the COVID and subsequent year, especially as labor market was very tight.

Hugh Johnston: And Kevin, just to add a few numbers to that. For the year, PBNA grew revenue 11%, which is obviously quite strong, and operating profit grew strongly as well. As Ramon mentioned, the mid-teens margin thesis is still very much intact and the drivers are still very much intact. For the year, we improved operating margins 43 basis points in the business. And in the fourth quarter, margins were up 110 basis points. So we’re making good progress and good momentum on both fronts. Top line has obviously been terrific, and we’re making good progress on the cost side as well, and I expect we’ll continue to see improvement into 2023.

Operator: Thank you. One moment for our next question. Our next question comes from Vivien Azer with Cowen. Your line is open.

Vivien Azer: Hi, thank you. Good morning. I was hoping that we could dive into the Frito-Lay margin expectations, please. Obviously, the top line has seriously benefited from very effective advertising, but we have seen a couple of years of margin compression there. So how should we think about that going forward, please? Thank you.

Ramon Laguarta: Yes. Listen, the Frito business is the jewel of PepsiCo. And this business, we’ve put a lot of investments in the last couple of years and continues to respond every year better to those to those investments. Investments went into quality of product, investments wanting to increased advertising, broader portfolio of brands that we’re supporting. Investments wanting to go to market, even some infrastructure bottlenecks that we had in our distribution systems. The truth is that we feel very good about this business growing very close to 18%, I think, in the — for the full year. And the operating profit growth of Frito this year is in the double digits, which we haven’t seen in like in the history almost. So we’re feeling good about the balance of growth, top line, bottom line that we see in Frito.

And as you can imagine, we will continue to invest in Frito-Lay in the coming years because that’s the highest margin business in PepsiCo and the highest ROIC that we can have in our investment.

Hugh Johnston: Yes. And again, just to put a few numbers to the points Ramon was making. We have a Frito business with a 27% operating margin for the full year, which is a really wonderful operating margin, obviously. And when you have a margin that high, your goal should be grow that business as fast as you possibly can. We grew at 18% in the fourth quarter and 17% for the full year. This is Frito-Lay, 17% full year revenue growth. So look, obviously, you can’t continue to see margins go down. But at the same time, with 11% dollar operating profit growth for Frito-Lay, that’s terrific operating profit growth. That’s an equation we’re certainly happy with for the year. We feel like Frito had just an outstanding year. We’d love to have a couple more like this one here.

Ramon Laguarta: What we feel very strong is about the quality of our commercial execution in a broader sense from the way we’re innovating to the way our brands are coming in front of consumers, both our large brands, right, Doritos, Lay’s, Ruffles, Cheetos, but also the smaller brands, small portfolio there, we’re building a beautiful small brands like Smart Foods or PopCorners or off the Eaten Path and some others that are completing that portfolio to compared to multiple occasions, different type of cohorts. And I think the team is doing a fantastic job.

Operator: Thank you. One moment for our next question. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open.

Robert Ottenstein: Great. Thank you very much. Just wanted to kind of circle back to Dara’s first question and maybe if you could give us a little bit of sense. I mean the 6% sales growth, is there — are you contemplating any volume in that? Or is it all — you could almost be almost a rollover pricing from 2022. So just trying to get a little bit more granular on that. And then how does the — in the U.S., how does the promotional environment look? Are you seeing any sense or any pull from retailers to do a little bit more promo? Thank you.

Hugh Johnston: Yes, Robert, it’s Hugh. Let me try to take a shot at that. Look, obviously, 6% revenue growth in Consumer Products is still a very healthy growth rate, and we certainly feel good about that as the guide. Would we expect volumes to be down? Perhaps they’ll be down a little bit. Let’s see how the year plays out. Right now, the consumer is still quite good. But we also have to plan for multiple scenarios. And in the back half of the year, given interest rates are as high as they are, it wouldn’t be shocking if there were a mild recession in the U.S. and in some of our developed markets. We’ve taken actions in terms of productivity to make sure in a recessionary environment, we’re still well insulated to hit our numbers.

But we’ve got to plan the business such that with interest rates as high as they are, you could certainly see some impact over time on the top line. So that’s kind of the way that we’re thinking about this one. And then let’s see how the year plays out. If the year plays out better, then that’s great. We’ll invest back. And I think we’ll — everybody will be happy with that outcome.

Ramon Laguarta: Yes. I think we’ve discussed in previous conversations. The way we do these processes, we have multiple scenarios of things that could happen actually the last few years, if we’ve learned something is that we should expect the unexpected. So all these scenarios, we feel good about delivering our guidance in any of those scenarios. Now the role of each one of our business unit leaders is to beat the plan. So that’s how we’re starting the year and how we will play the year.

Operator: Thank you. One moment for our next question. Our next question comes from Nik Modi with RBC. Your line is open.

Nik Modi: Thank you. Good morning everyone. Two quick questions. First, Hugh, on China and just the re-opening. Just wanted to get your thoughts on how we should be thinking about some of the implications and if it’s been kind of contemplated in your guidance. I mean, obviously, oil and gas pricing could — is the obvious. But is there anything else we should be thinking about? And then Ramon, I wanted to ask kind of how perhaps you close things about various substrates within the Frito-Lay business. So you think about cauliflower rice, I mean, Frito-Lay dominates corn and potato. And just given long-term, consumers seem to be kind of adopting some of these new substrates. Just wanted to understand the plants PepsiCo has in terms of capacity build? Or if you don’t think these substrates are actually going to be meaningful in the future? Thanks.

Ramon Laguarta: Yes. I mean you mistake that. I’ll cover the China consumer business well. I think, listen, China, obviously, we’re seeing the consumer happy to be free kind of. And the consumer will obviously spend more. I think that’s obvious. So there is an opportunity in reassessing the China demand and what it means for all the businesses in that country. So obviously, we have two meaningful businesses, snacks and beverages. And we’ll — I think we’ll benefit from that increased demand. Will it change the PepsiCo growth? No, I think that it’s an important market, but not to that extent. Now with regards to the Frito-Lay innovation portfolio beyond our potatoes, our corn or wheat, we have already large businesses in rice snacks, for example, you think about the Quaker snacks.

We have a pretty sizable business that is in rice snacks and it’s growing very fast. Within the Frito portfolio, there are also different substrates that we’re playing. Off the Eaten Path is a great example. You have multigrains, then you have smaller substrates. One substrate that we like a lot is Chickpea. Chickpea has a high nutritional values, and it’s I think it’s a substrate that we are starting to work on agro, and we’re starting to work on different layers to create advantage in that substrate. So yes, we see that strategically as an incremental opportunity to broaden our portfolio beyond the more traditional substrates where we build a lot of supply chain advantage and innovation advantage and brand advantage. But I think our brands can expand into other spaces, especially some of those smaller brands, but also we’re thinking about some of our bigger brands as well.

Hugh Johnston: And Nick, just to put a finer point on Ramon’s narrative around China. Well, it’s strategically quite an important market for us, obviously, given the size and potential there. Currently, it’s about 3% of PepsiCo’s sales. So it’s not going to be a major driver in the numbers for a few years.

Operator: Thank you. One moment for our next question. Our next question comes from Kaumil Gajrawala with Credit Suisse. Your line is open

Kaumil Gajrawala: Hi, guys good morning. Can you elaborate a bit more perhaps on the beverage alcohol strategy? It’s been a bit of time now since you first kicked it off. And maybe the big question is you talked about Frito-Lay. You have several very large, very profitable businesses. This isn’t yet one of them. But how big or how far does it have to get before it can be more relevant to the overall Pepsi story?

Ramon Laguarta: Yes. Listen, we see an opportunity in expanding our distribution capabilities to other spaces in the U.S. and maybe eventually in other parts of the world in beverages and also in snacks. So the alcohol distribution strategy that we have is one that is, I would say, embryonary in the way that both geographically and from the amount of brands that we carry in our portfolio. We are very focused in getting it right, in getting the learnings, getting the execution right, is different, right, and selling our soft drinks, our sport drinks or other brands. There are more nuances, regulatory-wise and execution-wise. So we’re in that process of learning. I think strategically, you should see this becoming an important part of our business in the U.S. But we’re going to learn before we scale up.

And I wouldn’t think about this as we’re going to be an alcohol distributor. I think we’re going to choose a few partners that will create brands with us and products, and we will be distributors of a small portfolio of high-potential brands rather than just a lot of brands in our distribution system, which will be too complex and probably little value for us.

Operator: Thank you. One moment for our next question. Our next question comes from Chris Carey with Wells Fargo. Your line is open.

Christopher Carey: Hi, good morning. Hugh, I wanted to actually ask about just SG&A. Certainly, investment has been a key topic for the company as ever, but including this year and especially in Q4 with how the year ended. But I’m also looking at your filings this morning, which show that distribution costs have probably been the one line item where the SG&A increases have been most significant. Clearly, marketing is growing, but not as big of a contributor. And so I’m just trying to understand what’s going on here specifically. Is this your being offensive with investments into your shipping and handling network? Is this natural inflation? Should this level of inflation on that line item specifically continue? Or as freight rates are starting to ease, should we start thinking about inflation here easing and perhaps you can start investing in other areas?

So I’m really just trying to understand the complexion of spending here just being a little bit different than where I would have thought it’d come in. So any context would be very helpful? Thanks.

Hugh Johnston: Sure. Sure, Chris. Let me just share a couple of thoughts on that. Number one, just as a reminder, distribution is obviously highly variable with the volume and with revenue as well because we paid salesman on commissions. So that’s obviously going to be a factor in the numbers. Number two, the costs that are embedded in there also include the cost of creating displays in the marketplace. And that’s part of what we represent as investments. So whether it’s coolers on the beverage side, either in convenience stores or front-end coolers and supermarkets or in mass merchants and the like, and also fountain equipment in the food service channels, where we’re growing at a very healthy clip, is a part of all that as well.

In addition to that, even on the food side, display racks and POS, all of those things that are really outsized contributors to growth that frankly, we’ve created a ton of win-win solutions with our customers on is part of what makes them continue to vote for us as the number one supplier in Cantor. Those investments are value-producing investments for both the customers and us. And so without getting into the granular details of how much exactly is in each of those buckets, I think a lot of what you’re seeing is a reflection of the things that we’re doing in the selling and distribution system to drive the kind of growth that we’ve been seeing.

Ramon Laguarta: Yes. And to your question on Q4, yes, we decided to invest both in consumer, as you saw from our A&M growth in the quarter, and also as Hugh was saying, in making sure our installed equipment base in the market, and this is very relevant in the U.S. But also internationally, we continue to gain space, space being a key lever of for categories like ours that are input-based categories, space and it’s a critical lever of performance in the marketplace, and it is a driver of share of market. So those two were there. We also invested in systems and some of the capabilities, especially digitalization capabilities that we thought we had a window of investment in Q4.

Operator: Thank you. One moment for our next question. Our last question comes from Gerald Pascarelli with Wedbush. Your line is open.

Gerald Pascarelli: Hi, good morning. Thanks very much for the question. Mine is actually on energy drinks. So now that the Celsius transition has been completed, I was just looking for some color around your market strategy for driving distribution for both Rockstar and Celsius in tandem. Are there any specific strategies or considerations around channel mix to be mindful of, in particular given how under-penetrated the Celsius products are at convenience? Any color you could provide on your strategy would be helpful? Thank you.

Ramon Laguarta: Yes. Good question. And clearly, as we said, we have four pillars in the energy strategy. They all become an integrated portfolio as we execute in stores. So having this set of solutions with Rockstar, Celsius, Mountain Dew Energy and coffee gives us the opportunity to go to our customers and strategize with them new space opportunities that we didn’t have in the past. So I think it’s very positive for Celsius, and we’re already seeing that. If you look at the Nielsen numbers or any distribution metrics that you want to check, distribution is improving. Displays are improving. The same with Rockstar. Rockstar was a brand that was very Western-based and some parts of the U.S., and now we’re expanding to other parts of the U.S. So I think there is a lot of synergies in the point-of-sale execution as we have a portfolio that is catering to different cohorts, complements each other and gives our customers the opportunity to get better return on their space.

So that’s the strategy is working well. Clearly, Celsius is gaining market share. Rockstar is growing. As I said earlier, the Starbucks portfolio is growing very fast now that we have better supply chain opportunities. So I think we feel good about Energy. It’s a category that is growing ahead of LRB again, and we need to play strong in that segment to be — to gain share as we were planning to do, obviously, this year.

Ramon Laguarta: Great. I think this is the end of our conversation. So thank you very much for joining us in the conversation today. And especially thank you for the confidence that you’ve placed in PepsiCo with your investments. We wish you the best and hope you all stay safe and healthy. Thank you.

Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.