PepsiCo Earnings Call Nuggets: First Quarter Operating Leverage and CSD Pricing
First Quarter Operating Leverage
Bryan Spillane – Bank of America Merrill Lynch: Just a question on the operating leverage in the quarter. I don’t know how difficult that it’s going to be to try to parse this out, but just trying to get a sense for how much of it was driven just simply by commodity disinflation, how much of it is driven by the pricing that you’ve – pricing actions that I guess in Latin America foods and in Americas beverages? Then how much of it is you’re actually beginning to see more of the productivity kind of drop to the bottom line? So I’m just trying to get a sense for when we look at the margin expansion in the quarter and try to look at it going forward just the weightings in terms of what those items contributed to the margin expansion?
Indra K. Nooyi – Chairman and CEO: Hugh go ahead.
Hugh F. Johnston – EVP and CFO: Bryan, obviously we are getting into a fair amount of detail and in global P&L it is a little bit difficult to parse all of that. No doubt, they were all contributing factors. We clearly did have some pricing in excess of inflation for the quarter, but we also got more than our share of the $900 million of productivity in the quarter and that was flowing through as well. Instead of breaking the specific pieces down, what we’ve really tried to do is just give you guidance on what we expect the outputs to be and at least give you a sense for the difference between what’s happening in gross margin and what’s happening in operating margin. What I would just say is both price in excess of commodity as well as the productivity were significant contributors to the margin expansion.
John Faucher – JPMorgan: Just want to follow-up a little bit Indra on your comments on North America. I guess if we look at the (scanner) data pricing, which is really what we have to work with, your pricing in CSDs accelerated a little bit through the quarter and on a two-year basis you’re ahead of both of your largest competitors in terms of pricing in CSDs. I guess, the big concern given that the weak volume number is profits without a balanced algorithm really or not sustainable and people would argue that’s one of the things that got you in the hole that you’re in heading into 2012. So how do we think about that balance going forward, because to Brian’s point the leverage looks good, but the view point is going to be that it’s not sustainable and you’re going to have to drive some of that back in order to get the volume moving? So any sort of follow-up there?
Indra K. Nooyi – Chairman and CEO: Well, John, I’ll tell you that’s a great question. In the last call, I think we talked about Q1 always being sort of a funny quarter because all the weather-related impacts hit us on Q1. So it’s very hard to read the year from Q1 alone. But having said that, let me tell you that we look very carefully at this trade-off between volume, pricing and profit. We look at it constantly, and we began the year saying we’ve got to take pricing and we’ve got to stick with it because, this is a category where you’ve got to behave in a very responsible and a consistent way so that you don’t destroy value in a business that requires reinvention. That’s the way we approached it. We saw some interesting pricing activity in the first five or six weeks of the quarter and in the second half of the quarter, we started to put in the right actions on pricing very granular, very targeted, still with an eye towards profitability to make sure that we balance volume, revenue and profitability very carefully. If you look at the last six weeks or the last nine weeks, the performance is very different. So believe me John your point is exceedingly well taken. We are trading this thing very, very carefully. By at the end of the day I think this industry requires responsible behavior and we’re going to try to make sure that we play this carbs, non-carbs portfolio very carefully while getting ready for this reinvention of carbonated soft drinks. So we will continue to play this game where we don’t allow volume declines for the balance of the year to be at the magnitude of the first quarter.
A Closer Look: PepsiCo Earnings Cheat Sheet>>