Filippo Falorni

Filippo Falorni inquired about the overall state of the travel retail business, focusing on improvements in Hainan's conversion rates and spending, the outlook for that region, and the performance of other North Asian travel retail markets like South Korea and Japan, especially considering normalized shipment levels in the back half of the year.

Answer

Stéphane de La Faverie, President and CEO, reported strong momentum and market share gains in Hainan across a diverse brand portfolio, driven by eventing. He explained disruptions in Travel Retail East (Beijing/Shanghai airports, universal app) due to retailer transitions, noting that this change is positive for inventory management. He also highlighted market share gains in Japan despite reduced traffic. Akhil Shrivastava, EVP and CFO, added that ELC is outperforming in West Travel Retail, Hainan, Japan, and Thailand.

Filippo Falorni from Citi requested an update on the overall travel retail business, focusing on the improved conversion rates and spending in Hainan, the outlook for this segment, and the performance of other North Asia travel retail markets like South Korea and Japan, especially considering normalized shipment levels in the back half of the year.

Answer

Stéphane de La Faverie, President and CEO, reported strong momentum and market share gains in Hainan across a diverse brand portfolio, driven by eventing. He explained disruptions in Travel Retail East due to the transfer of business from Sunrise to CDF, Wangfujing, and Avolta, including the shutdown of the universal app. He also noted market share gains in Japan despite reduced traffic and readiness for consumer shifts to Korea and other APAC markets. Akhil Shrivastava, EVP and CFO, emphasized ELC's outperformance in Western travel retail, Hainan, Japan, and Thailand.

Filippo Falorni asked about the company's margin outlook for the year, specifically if it remained broadly unchanged for both gross and operating margins, and if the solid Q1 start provided more confidence in reaching the higher end of targets. He also inquired about the embedded investment standpoint and the impact of recent tariff news.

Answer

EVP and CFO Akhil Shrivastava stated that the overall margin guidance of 9.4%-9.9% remained, with gross margin expected to be flat to positive after offsetting tariff impacts, and progress largely driven by SG&A leverage. He noted that Q1's gross margin progress was not heavily impacted by tariffs due to lag. He welcomed the morning's tariff announcements as positive for sentiment but not materially impacting the tariff dollar amount. He reaffirmed the commitment to reinvesting in consumer-facing initiatives. President and CEO Stéphane de La Faverie reiterated confidence in delivering guidance, highlighting strong Q2 holiday plans, positive Golden Week performance in China, and continuous acceleration from Beauty Reimagined initiatives.

Filippo Falorni asked about the company's margin outlook for the year, specifically if the Q1 performance increased confidence in reaching the higher end of gross and operating margin targets, and the embedded investment strategy.

Answer

Executive Vice President and CFO Akhil Shrivastava stated that the gross margin guidance remains broadly unchanged, with Q1 progress driven by SG&A efficiencies. He noted that tariff impacts would be more visible in later quarters. President and CEO Stéphane de La Faverie reinforced confidence in delivering the full-year guidance, highlighting strong Q1 performance and the positive impact of Beauty Reimagined initiatives on demand and market share.

Filippo Falorni of Citigroup asked about the expected savings from the Profit Recovery and Growth Plan (PRGP) for fiscal 2025, other areas being evaluated for future savings, and the expected net reinvestment from these initiatives.

Answer

President and CEO Stephane de la Faverie confirmed they are on target with PRGP for fiscal 2025, noting gross margin improvements and significant workforce reductions. For fiscal 2026 and beyond, he highlighted an accelerated focus on outsourcing and procurement projects. EVP and CFO Akhil Shrivastava added that these savings fuel the 'Beauty Reimagined' growth agenda and that as sales growth returns, OpEx margin should improve significantly, supporting the goal of a solid double-digit operating margin.

Filippo Falorni asked about the expected savings from the PRGP in fiscal '25, other potential savings areas for fiscal '26, and the level of reinvestment from these savings.

Answer

President & CEO Stephane de la Faverie confirmed they are on track for FY25 PRGP targets, highlighting gross margin improvements and over 2,600 position eliminations. For FY26, the focus is on accelerating outsourcing and procurement projects to achieve a solid double-digit operating margin. EVP & CFO Akhil Shrivastava added that savings are fueling the 'Beauty Reimagined' growth plan and that OpEx margin improvement should accelerate with a return to sales growth.

Filippo Falorni asked for clarification on the gap between Q3's organic U.S. performance and strong double-digit consumption growth, questioning if pipeline cycling had a larger-than-expected impact. He also inquired about Q4 U.S. consumption expectations within the 6% global consumption outlook and when benefits from innovation and shelf space gains would appear in consumption data.

Answer

Mandy Fields, SVP and CFO, advised viewing Q3 organic performance in the context of the second half due to shipment timing shifts from Q3 to Q4, with Q4 now outlooked flat to up 2% (previously negative). She reiterated the 6% global consumption rate (vs. 8% previously) and emphasized total company momentum. Fields noted that benefits from spring innovation and shelf space gains should start appearing in consumption data by early March.

Filippo Falorni asked for clarification on the gap between Q3's organic performance in the US and the strong double-digit consumption growth seen in tracked channel data, specifically whether pipeline cycling had a larger impact in Q3 than anticipated. He also inquired about the expected US consumption within the 6% global consumption for Q4 and when the benefits from innovation and shelf space gains would be reflected in consumption data.

Answer

Mandy Fields, SVP and CFO, advised looking at the second half in aggregate due to shipment timing shifts from Q3 to Q4, which now implies Q4 will be flat to up 2% in net sales. She reiterated the global consumption rate at 6% (down from 8% previously) but did not break out US versus international consumption, emphasizing the strong total company momentum. Ms. Fields noted that spring innovation resets are ongoing, and benefits should start appearing in consumption data by early March.

Filippo Falorni asked about the outlook for pricing in the second half, especially given flat total company pricing and negative household pricing in Q2, and the puts and takes for gross margin in the back half, including supply chain costs, cost savings, and commodities.

Answer

Luc Bellet, VP and CFO, stated that after excluding temporary ERP impacts, gross margin is expected to expand in the back half, driven by higher cost savings, reduced incremental ERP-related expenses, and a 50 basis point benefit from the GLAD JV termination. He expects Q3 gross margin to be flat and Q4 to see solid expansion. For price mix, he anticipates a full-year headwind of about 1% due to consumer value-seeking and channel shifting, partially offset by net revenue management. Linda Rendle, Chairman and CEO, added that elevated promotional levels are in line with historical rates, with higher activity in cat litter and trash bags, and noted consumers trading to larger sizes in trash bags.

Filippo Falorni inquired about the outlook for pricing in the second half of the year, given flat total company pricing and negative household pricing in Q2, and sought clarification on the gross margin puts and takes for the back half, including supply chain costs, cost savings, and commodities.

Answer

Luc Bellet (VP and CFO of the Health and Hygiene division) stated that gross margin is expected to expand in the back half, driven by higher cost savings, reduced incremental ERP-related expenses, and a 50 basis point benefit from the Glad JV termination. He projected Q3 gross margin to be flat and Q4 to see solid expansion. For price mix, he expects a full-year headwind of about 1% due to consumer value-seeking and channel shifting, partially offset by net revenue management. Linda Rendle (Chairman and CEO) added that elevated promotional levels, particularly in cat litter and trash bags, impacted household pricing, but these were in line with expectations.

Filippo Falorni requested more details on the second-half innovation plans, including specific categories, differentiation, and the basis for confidence in their success. He also asked for an assessment of the trash bag and cat litter categories, which have faced continued pressure and increased promotional activity, and how sustained this competitive environment might be.

Answer

CEO Linda Rendle discussed recent innovations, including Glad's new fall scent, Brita's modernized pitchers and smaller sizes, and Burt's Bees boosted balm expansion into body care. She confirmed that innovations would span all major brands in the back half, encompassing both base improvements and new-to-world offerings. For trash bags and cat litter, she noted the competitive and promotional environment was largely as expected, with Q1 share declines due to ERP now rebounding. She emphasized balancing long-term value creation in trash bags and expressed confidence in back-half plans for cat litter to drive a turnaround.

Filippo Falorni requested more details on the second-half innovation plans, including specific categories, differentiation, and the basis for confidence in their success. He also asked for a specific drill-down on the trash bag and cat litter categories, inquiring about their assessment and the sustainability of the current promotional environment.

Answer

CEO Linda Rendle highlighted recent innovations in Glad (scents), Brita (modernized pitchers, smaller sizes), and Burt's Bees (expanded boosted balm platform). She confirmed innovations across all major brands in the back half, balancing base improvements with new-to-world offerings. For trash bags and litter, she noted competitive and promotional environments, acknowledged Q1 share impact from ERP, and discussed strategic choices to preserve long-term value in trash while expressing confidence in back-half plans for litter.

Filippo Falorni from Citigroup asked about the underlying assumptions for category growth within the fiscal 2026 top-line guidance, the outlook for the promotional environment, and the anticipated financial impact from tariffs.

Answer

CFO Luc Bellet stated the guidance assumes U.S. categories will grow 0-1%, stabilizing but not yet normalizing. CEO Linda Rendle described the promotional environment as largely rational, except for heightened activity in trash and cat litter, which is expected to persist. Bellet quantified the expected tariff headwind at approximately $40 million, which the company plans to offset through various mitigating actions, including targeted pricing.

Filippo Falorni asked about the viability of the company's 3% to 5% long-term organic sales growth target given softer category growth, and requested details on the gross impact of tariffs and mitigation plans.

Answer

CEO Linda Rendle acknowledged the 3-5% target is predicated on healthier category growth of 2-2.5%, which is not currently visible, and stated near-term growth will be suppressed. CFO Luc Bellet addressed tariffs, estimating a $100 million impact on a 12-month run-rate basis, with $10-$20 million expected in Q4. He outlined mitigation plans including sourcing changes, supply chain adjustments, and targeted, modest strategic pricing.

Filippo Falorni of Citigroup sought clarification on whether the Q2 organic sales beat was driven entirely by the Kingsford shipment pull-forward. He also asked about the increased promotional activity in the Litter and Glad categories and if it was more than anticipated.

Answer

CFO Kevin Jacobsen clarified that the Kingsford shipment contributed less than one point to the Q2 beat, with stronger base business performance being the primary driver. CEO Linda Rendle noted that while Litter promotions were in line with expectations, Glad saw more competitive activity than anticipated, which the company has addressed and factored into its outlook.

Filippo Falorni asked for an update on shelf space recovery and consumer conversion for the Glad and Litter businesses. He also inquired about the gross margin outlook for the second half of the year, given the strong outperformance in Q1.

Answer

CEO Linda Rendle reported strong progress in the Glad business, which has returned to share growth. For Litter, she noted progress in restoring subscriptions and regaining the #1 share position at a key retailer but acknowledged a full recovery will take longer. CFO Kevin Jacobsen projected the back-half gross margin to be around 44% to 44.5%, consistent with the full-year target, following an expected dip in Q2 due to volume deleveraging.

Filippo Falorni asked for drivers of the expected acceleration in organic sales for 2026, particularly in the second half, and sought comments on expectations for the PBNA and international segments.

Answer

Ramon Laguarta, CEO, explained that international business is expected to perform at mid-single-digit growth, similar to last year, with good performance in Mexico, China, and South Africa. The acceleration comes mostly from North America businesses, with continued acceleration in beverages and improving volume and net revenue in the food business throughout the year. He also noted a mechanical acceleration from acquisitions made earlier in the year turning into organic growth.

Filippo Falorni asked for a walk-through of the drivers behind the expected acceleration in organic sales for 2026, particularly in the second half, and commented on expectations for PBNA and international segments.

Answer

CEO Ramon Laguarta explained that the international business is expected to continue performing at mid-single-digit growth, similar to last year, with strong performance in markets like Mexico, China, and South Africa. He noted that the acceleration primarily comes from North America businesses, with PBNA continuing its acceleration from 2024 and 2025, and the food business (PFNA) showing sequential improvement in volume and net revenue throughout the year. Additionally, mechanical acceleration from acquisitions made earlier in the year, which are in high-growth segments and well-integrated, will contribute as they turn into organic growth.

Filippo Falorni asked about the international business, specifically the health of the consumer in regions like Latin America and Asia Pacific (including India), given Q3's negative impact from weather and the observed improvement in September, seeking confidence in the acceleration.

Answer

Chairman and CEO Ramon Laguarta attributed Q3's international deceleration mostly to weather, noting strong September performance and confidence in returning to mid-to-high single-digit growth. He described the global consumer as 'stressed' and making 'choiceful decisions,' particularly in China, but saw growth in India (despite weather/competition blip), the Middle East, and Brazil. Mexico's consumer health was linked to the U.S. and remittances.

Filippo Falorni asked about the international business, acknowledging the negative impact of poor weather in Q3 but noting the improvement in September. He sought insights into the health of the consumer in key regions like Latin America and Asia Pacific, including India, and what factors contribute to PepsiCo's confidence in the acceleration of international performance.

Answer

Chairman and CEO Ramon Laguarta confirmed that most of the Q3 deceleration internationally was weather-linked, with September showing strong recovery, leading to confidence in returning to mid-to-high single-digit growth. He described the global consumer as "stressed," making choiceful decisions, particularly in China. However, he noted growth in India (despite weather impact and beverage competition), strong performance in the Middle East, and better conditions in Eastern Europe than Western Europe. Mexico's consumer health is linked to the U.S. economy and remittances, while Brazil remains strong. Laguarta emphasized managing to compete well and developing per caps internationally.

Filippo Falorni from Citi asked for clarification on the size of the away-from-home business for both beverages and food, its growth outlook, and the long-term opportunity for this channel.

Answer

Chairman and CEO Ramon Laguarta described the away-from-home channel as a significant and margin-accretive growth opportunity for both food and beverages, noting it is a larger part of the beverage business. He confirmed it is a key focus area for increased resources and innovation beyond just expanding physical product availability.

Filippo Falorni asked about the growth expectations for the international business for the remainder of the year, noting its solid performance in the first quarter and seeking color on whether an acceleration is anticipated.

Answer

Chairman and CEO Ramon Laguarta affirmed that the international business remains the company's largest growth engine and is expected to continue its mid-single-digit growth trend. He noted positive signs in Europe, India, and Brazil, while acknowledging some consumer slowdown in China and Mexico. He confirmed the international segment will continue to be a key contributor to overall growth.

Filippo Falorni from Citigroup asked for a breakdown of the low single-digit organic sales guidance for 2025 between North America and International segments, and inquired about the expected timing and drivers of the gradual improvement in North America.

Answer

CFO Jamie Caulfield described the guidance as prudent given global uncertainty. He confirmed that the international business is expected to remain resilient and be a major contributor to 2025 results. He stated the gradual acceleration in North America throughout the year will be driven by the previously mentioned initiatives: innovation, expansion into new spaces, and a greater focus on the away-from-home channel.

Filippo Falorni asked about the International business, seeking to identify the specific markets impacted by geopolitical tensions and weaker consumer sentiment, and to understand the drivers behind the deceleration in convenience foods.

Answer

Chairman and CEO Ramon Laguarta identified areas of deceleration in China, Mexico, and parts of Western Europe, while noting the Middle East is impacted by geopolitical issues. He contrasted this with pockets of strength in Southeast Asia, India, and Brazil. He also confirmed that, globally, the beverage business is currently growing slightly faster than the food business.

Filippo Falorni asked about the company's expectations for the value segment's continued outperformance in the laundry category in 2026, and how competitive dynamics, particularly with new formats like Tide Evo, will evolve for laundry sheets.

Answer

Rick Dierker (CEO) welcomed new formats like Tide Evo, as they increase category awareness, positioning Arm & Hammer sheets as a strong value alternative with good efficacy. He expects the value segment's outperformance in laundry to continue due to ongoing consumer pressure and shaky confidence, leading to sustained value choices.

Filippo Falorni asked about the company's expectations for the value segment of the laundry category in 2026, given its recent outperformance, and the evolving competitive dynamics in the laundry sheet segment with new formats from competitors.

Answer

CEO Rick Dierker stated that new formats like Tide Evo increase awareness for alternative laundry forms, which is positive. He noted that the company's 'Better tier' laundry sheets offer good efficacy and value compared to premium new entrants, and the company is currently the number one brand in this smaller subsegment. He expects the outperformance of the value segment in laundry to continue due to ongoing consumer economic pressures and shaky confidence.

Filippo Falorni of Citigroup asked for details on the countries impacted by the company's tariff guidance and for expectations on the broader commodity and input cost basket.

Answer

CFO Lee McChesney stated that broader inflation remains slightly elevated. Regarding tariffs, after managing the China impact, the primary exposures are now Korea, Thailand, Vietnam, and Europe. President and CEO Rick Dierker emphasized the dynamic nature of the situation, noting the projected 12-month tariff impact had recently decreased from $60 million to $50 million overnight due to policy changes, underscoring the company's need for agility.

Filippo Falorni asked for context on the sales contribution from innovation this year and inquired about potential exposure to China tariffs, particularly for the WATERPIK business.

Answer

CEO Matthew Farrell stated that innovation is contributing approximately 2% in incremental net sales for 2024, which he described as a fantastic result, and noted the innovation pipeline is strong for the next few years. Regarding China, he explained that the company has taken steps to mitigate potential tariff impacts by reclassifying import codes and moving some production out of China, which is most relevant for the WATERPIK business.

Filippo Falorni asked about the gross margin outlook for the second half, specifically what is embedded for pricing and promotions, and inquired about the commodity outlook.

Answer

Richard Dierker (CFO and Head of Business Operations) stated that while inflation on items like pulp and HDPE is slightly higher, it's offset by better productivity. He confirmed the second-half outlook includes 'dry powder' for potential trade, couponing, and promotional spending to support new products, but it is not certain to be deployed.

Filippo Falorni inquired about the significant improvement in emerging market business in Q4 2025, specifically Latin America and Africa/Eurasia, asking about macro trends in Brazil/Mexico and the long-term balance of pricing and volumes with potentially favorable FX.

Answer

Noel Wallace, Chairman, President, and CEO, reported strong aggregate emerging market organic growth (4.5%) in Q4 with a good price/volume balance. Latin America was very strong, with high single-digit growth in Mexico and Brazil across all categories. He noted emerging markets are growing faster than developed markets. While FX has helped short-term, volatility remains. The 2030 Strategy focuses on strategic growth markets with upped investment to capitalize on stronger category growth rates. He also mentioned the middle segment getting squeezed, requiring innovation across all price points.

Filippo Falorni asked about the significant improvement in emerging markets in Q4, particularly Latin America and Africa/Eurasia, seeking insights into the macro environment in Brazil and Mexico. He also questioned the long-term balance of pricing and volumes in emerging markets, especially with potentially favorable foreign exchange.

Answer

Chairman, President, and CEO Noel Wallace reported strong aggregate emerging market organic growth of 4.5% in Q4, with a good balance of price and volume. Latin America showed very strong performance, with high single-digit growth in Mexico and Brazil across all three categories. He noted that emerging markets are growing faster than developed markets. The strategy for 2026 includes upped investment in strategic growth markets and a focus on innovation across multiple price points to drive volume, addressing the squeeze in the middle-income segment.

Filippo Falorni of Citi asked about the gross margin outlook for the remainder of the year, seeking clarity on the drivers of higher raw material costs and potential offsetting productivity measures.

Answer

CFO Stanley Sutula confirmed the full-year guidance for a roughly flat gross margin, explaining that lower tariff impacts are being offset by higher raw material costs—primarily palm, vegetable oils, and tallow—and lower organic sales. Chairman, CEO & President Noel Wallace highlighted that the 'Funding the Growth' productivity initiatives were strong in the quarter and are being accelerated.

Filippo Falorni from Citigroup Inc. questioned the evolution of the pricing contribution to organic sales, especially with new pricing in emerging markets, and asked how pricing would be used to offset tariff headwinds in developed markets.

Answer

Noel Wallace, Chairman, President and CEO, stated that Q1 pricing was largely as expected and improved sequentially on a two-year stack basis. He mentioned pricing actions in Latin America for Q2-Q4 and encouraging pricing in Europe driven by premium innovation. Regarding tariffs, he explained that while some pricing will be necessary, the primary response will be creating value through innovation, alongside other levers like revenue growth management (RGM).

Filippo Falorni inquired about the company's capital allocation priorities, specifically its appetite for share buybacks and its strategic focus and parameters for M&A.

Answer

CEO Noel Wallace outlined the capital allocation priorities as: first, investing back into the business for growth and efficiency; and second, returning cash to shareholders through dividends and buybacks. CFO Stan Sutula reinforced this, noting that record operating cash flow enables this strategy. He highlighted that net share buybacks were $1.1 billion in the year and that any M&A must be strategically aligned to drive long-term value.

Filippo Falorni asked for an initial perspective on 2025, inquiring about which areas of the business are expected to accelerate to cycle tough comparisons, such as innovation, developed market volumes, or the pet food business.

Answer

Noel Wallace, Chairman, President and CEO, stated that the company will continue its strategy of investing in long-term capabilities, funded by gross margin flexibility. He highlighted a focus on accelerating H2 and H3 innovation, maintaining high advertising levels to improve brand health and drive share growth, and using analytics to find household penetration opportunities.

Filippo Falorni asked about the expectation for an improving margin trajectory in the second half, considering U.S. market improvements and a more favorable commodity outlook, and sought quantification of planned interventions (advertising, R&D, promotional investment).

Answer

CFO Andre Schulten declined to provide specific H2 margin guidance, stating it would be an outcome driven by the conviction and need to invest for growth. He identified investment areas as product performance improvements, effective and consistent media communication, and trade-related spending to drive trial and in-store visibility, emphasizing that the focus is not on deep price promotions. CEO Shailesh Jejurikar added that the mix of these investments would vary by category.

Filippo Falorni inquired about the expected margin trajectory for the second half, given anticipated U.S. market improvements and a more favorable commodity outlook, and asked for quantification of planned interventions (advertising, R&D, promotional investment).

Answer

CFO Andre Schulten declined to provide specific margin guidance, stating it would be an outcome of tactical maneuvering to prioritize growth. He outlined investment areas: improving product performance for core propositions, consistent media spending (not necessarily increased year-over-year), and trade-related spending to drive trial and in-store visibility, rather than deep price promotions. CEO Shailesh Jejurikar added that the mix of these investments varies by category.

Filippo Falorni inquired about the reasons for the lowered headwind from commodities and tariffs in the guidance, and how the incremental benefit of approximately $0.20 is being reinvested, given the unchanged EPS guidance.

Answer

CFO Andre Schulten explained that lower commodity headwinds are due to falling oil prices, while tariff reductions stem from exclusions for natural materials not grown in the U.S. and rescinded retaliatory tariffs (e.g., Canada). He noted that the EPS guidance remains unchanged due to early fiscal year volatility, the link between tariff changes and pricing adjustments (limiting net P&L impact), and the strategic decision to preserve investment capacity for innovation and competitiveness to drive sustainable category and share growth.

Filippo Falorni asked about the reasons behind the lowered headwind from commodities and tariffs in P&G's guidance and how the incremental $0.20 benefit is being reinvested.

Answer

Andre Schulten, CFO, attributed the lower commodity headwind to declining oil prices and tariff improvements to exclusions for natural materials not grown in the U.S., along with rescinded retaliatory tariffs (e.g., Canada). He noted that it's early in the fiscal year, the environment remains volatile, and P&G aims to preserve investment flexibility to fund integrated superiority and stimulate category growth.

Filippo Falorni of Citi asked about the drivers behind the pronounced inventory destocking in the U.S. market over the last two quarters and whether this negative impact is expected to continue into fiscal 2026.

Answer

CFO Andre Schulten identified three drivers for destocking: the ongoing channel shift to more inventory-efficient retailers like online and club, retailers managing cash flow amid tariff impacts, and a reaction to slowing consumption. He noted that P&G's guidance assumes inventory levels will remain stable, not rebound.

Filippo Falorni of Citi inquired about consumer sentiment towards American brands globally, particularly outside the Middle East, and asked for an update on the China business, including any risks to the Olay and air care categories.

Answer

Executive Andre Schulten reported no data suggesting a negative impact from nationalistic sentiment, as many P&G brands are perceived as local. He highlighted encouraging progress in China, with SK-II growing 11% and Olay returning to growth. He also noted that excluding the impact of a new law in France, Europe's focus markets would have grown 5%, indicating underlying strength.

Filippo Falorni of Citigroup Inc. requested more detail on the Enterprise Markets business, specifically asking about consumer health in Latin America (Brazil, Mexico) and the growth outlook for the Middle East.

Answer

Andre Schulten, an executive, noted that Enterprise Markets grew 3% on a tough 17% comparison. He described Mexico as currently more difficult but expects acceleration in Latin America in the second half. Europe Enterprise Markets remain strong with significant volume share gains. He stated that the Middle East will likely remain a more difficult environment through the second half, with stabilization being the key driver.

Filippo Falorni sought clarity on the expected pace of recovery in China and the progression of total company organic sales growth throughout the fiscal year, asking if improvement would be sequential or more second-half weighted.

Answer

Executive Andre Schulten stated that predicting China's recovery pace is difficult, which is why the guidance is a range, but noted that sequential improvement is expected from the math of annualization. Regarding quarterly progression, he declined to give a specific forecast but acknowledged a logical expectation for some improvement into Q2, while reiterating that major headwinds persist through the first half.

Filippo Falorni asked if Molson Coors should expect more partnerships like Coca-Cola and Fever-Tree to fill portfolio gaps in a capital-efficient way, or if there's still opportunity for more traditional acquisitions, and requested details on the run-rate savings from the recently announced restructuring.

Answer

CEO Rahul Goyal confirmed a continued focus on beer, but noted that partnerships have successfully leveraged their platform. He indicated a willingness to deploy capital for acquisitions to augment the portfolio, particularly in beyond beer where gaps exist. CFO Tracey Joubert stated that specific cost savings targets from the restructuring are not yet provided, but charges of $35-$50 million are expected in Q4, with some savings redeployed into brands and capabilities.

Filippo Falorni asked CEO Rahul Goyal if Molson Coors plans to pursue more capital-efficient partnerships, similar to those with Coca-Cola and Fever-Tree, to fill portfolio gaps, or if traditional acquisitions remain a key opportunity. He also asked CFO Tracey Joubert for details on the run-rate savings expected from the recently announced Americas restructuring and their timing.

Answer

CEO Rahul Goyal confirmed continued focus on beer and leveraging partnerships to scale brands, while also looking to deploy capital for acquisitions to augment the portfolio, particularly in Beyond Beer where gaps exist. CFO Tracey Joubert stated that specific run-rate savings from the restructuring are still being finalized, with charges of $35-$50 million expected in Q4, primarily for severance. She noted that a meaningful portion of headcount reductions were from open positions, so the full benefit of savings may not be realized in 2026, with redeployment planned for brand investment and capabilities.

Filippo Falorni from Citigroup Inc. asked for more detail on the drivers of the expected margin contraction beyond the Midwest premium, such as volume deleverage and SG&A. He also inquired about July sales trends, particularly for the on-premise business.

Answer

CEO Gavin Hattersley highlighted positive on-premise trends for Blue Moon, Peroni, and Coors Banquet but did not comment on specific July performance. CFO Tracey Joubert explained that margin pressure stems from volume deleverage due to the exit of contract brewing, higher COGS associated with premiumization, and the Midwest premium, which are collectively offsetting productivity and cost savings.

Filippo Falorni asked about expectations for the U.S. beer category's performance for the remainder of the year and inquired about the potential gross impact of tariffs on the business.

Answer

CEO Gavin Hattersley reiterated that the company's guidance assumes the industry will perform better than the approximate 5% decline seen in Q1 but did not provide a specific forecast. CFO Tracey Joubert addressed tariffs, stating the direct impact is not expected to be material as most brands are produced domestically. She noted that while imports like Fever-Tree can be onshored and Peroni is now largely U.S.-produced, the main indirect risk is the Midwest aluminum premium, which is difficult to hedge.

Filippo Falorni of Citigroup asked for details on the key drivers for gross margin in the 2025 outlook, including pricing, mix, and commodity inflation, and specifically questioned the potential impact of aluminum tariffs.

Answer

CEO Gavin Hattersley addressed the tariff concern by stating that nearly all aluminum for the U.S. market is sourced domestically. CFO Tracey Joubert added that while the company does not provide specific gross margin guidance, they anticipate underlying pretax margin expansion driven by positive net pricing, favorable mix from premiumization and reduced contract brewing, and moderating input cost inflation.

Filippo Falorni inquired about the early results of the fall shelf resets, specifically whether the company was able to retain the significant shelf space gained in the prior year and potentially expand it further.

Answer

CEO Gavin Hattersley confirmed a positive outcome, stating that the company successfully retained the significant shelf space gained during the unprecedented resets of last fall and spring, and even managed to gain a little more. He expects future resets to revert to smaller, more typical adjustments.

Filippo Falorni asked for a deeper explanation of the long-term rationale for doubling down on coffee, questioning why it was the best category compared to other fast-growing beverage segments. He also sought reassurance on the confidence in the 2% 40-year coffee CAGR trajectory, given competition from categories like energy drinks.

Answer

Chairman Bob Gamgort, drawing on 40 years of experience, explained that coffee's long-term power stems from its emotional, premiumization, and comfort elements, as well as its rare status as a 'healthy' beverage. He dismissed short-term trends, like the rise of Diet Coke in 1985 or energy drinks today, as temporary cyclical challenges rather than structural changes to coffee's enduring appeal.

Filippo Falorni asked for a deeper explanation of the long-term rationale for doubling down on coffee over other fast-growing beverage categories, and the confidence in the 2% 40-year coffee CAGR trajectory despite competition from energy drinks.

Answer

Chairman Bob Gamgort emphasized the importance of a long-term view, noting coffee's emotional, premiumization, comfort, and health attributes. He stated that coffee is one of the few products deemed healthy and that short-term trends like energy drinks do not suggest a long-term structural change in the category's growth trajectory.

Filippo Falorni asked for Keurig Dr Pepper's perspective on the protein beverage space and how the company plans to participate, while also questioning how the Dyla brands tuck-in acquisition fits into the broader strategy.

Answer

CEO Tim Cofer identified protein as a 'white space' that KDP is evaluating through its 'buy, build, or partner' framework, though he had nothing to announce. He described the Dyla acquisition as an opportunistic tuck-in to enter the attractive powdered drink mix category. He noted Dyla's strong growth and functional product mix provide capabilities to extend other KDP brands into the space.

Filippo Falorni requested more detail on the expected performance cadence for the U.S. Coffee segment and asked about the specific P&L implications and mitigation plans for tariffs on both coffee brewers and raw materials.

Answer

Chief Financial Officer Sudhanshu Priyadarshi indicated that the U.S. Coffee segment's sales and operating income will likely remain under pressure for 2025. This is due to the slower-than-expected timing of industry pricing in Q1 and the incremental impact of tariffs on both green coffee and brewers. He noted that KDP has already announced a price increase on brewers to help manage profit dollars, but the segment's performance is expected to be subdued for the year, while the overall enterprise guidance remains intact.

Filippo Falorni asked about the key factors influencing gross margins in 2025, specifically requesting details on green coffee inflation visibility, hedging, other commodity pressures like aluminum, and whether margin expansion would be at the gross or operating level.

Answer

Chief Financial Officer Sudhanshu Priyadarshi clarified that the 2025 outlook implies modest operating margin expansion, not necessarily gross margin expansion. This will be driven by volume leverage, pricing, strong productivity savings at the high end of the 3-4% range, and overhead discipline. He noted that while hedging and long-term contracts for commodities like aluminum can delay inflation, they do not permanently offset it, and these factors are built into the company's forecast.

Filippo Falorni congratulated the company on strong gross margin performance, asking about the specific levers that drove expansion despite volume deleverage and the updated timeline for achieving the high 40s to low 50s gross margin target.

Answer

CFO Diego Reynoso attributed strong gross margin to procurement savings, improved brewery efficiencies, price increases, and product mix, noting an acceleration in project delivery. He expressed comfort in reaching and maintaining high 40s gross margin, with further expansion dependent on volume, costs, and tariffs. He also highlighted strong internal production (98% in Q3) as a key offset to shipment deleverage.

Filippo Falorni inquired about the drivers behind the strong gross margin performance, particularly how the company achieved it despite volume deleverage. He also asked if the target of high 40s/low 50s gross margin could be reached faster and how shipment deleverage was offset.

Answer

CFO Diego Reynoso clarified the gross margin target is high 40s and expressed satisfaction with current performance, attributing it to procurement savings, improved brewery efficiencies, and distribution footprint optimization, noting an acceleration in project delivery. He explained that strong internal production, reaching 98% in Q3 compared to 66% last year, helped offset shipment deleverage.

Filippo Falorni asked for an update on recent business trends given the soft start to summer, and inquired about the slowdown in Twisted Tea and its interaction with the new Sun Cruiser brand.

Answer

Founder & Chairman C. James Koch acknowledged the industry-wide slowdown, attributing it to poor weather and pressure on Hispanic consumers, but noted Boston Beer is gaining share. He explained that the consumer swap from Twisted Tea to the more premium Sun Cruiser is margin accretive and that the interaction is limited. President & CEO Michael Spillane added that Twisted Tea Light and Extreme are performing well and the brand is regaining shelf space.

Filippo Falorni of Citigroup asked for a quantitative breakdown of how much Sun Cruiser and Truly Unruly contributed to the 5.3% shipment volume growth. He also inquired about the consumer sell-through performance of Sun Cruiser in Q1 and the drivers behind the slowdown in Twisted Tea, seeking reasons for management's confidence in a future reacceleration.

Answer

CEO Michael Spillane stated that the company does not break out shipment volumes by product but confirmed Sun Cruiser is meeting expectations and is margin accretive. For Twisted Tea, he attributed the Q1 slowdown to a challenging macro environment and increased competition, expressing confidence that regaining shelf space, heavy advertising investment, and innovation in high-ABV and light versions would drive future single-digit growth.

Filippo Falorni asked if the planned distribution expansion for Sun Cruiser was incremental and whether higher aluminum costs were factored into the gross margin guidance.

Answer

CEO Michael Spillane confirmed that the planned tripling of Sun Cruiser's distribution is incremental. CFO Diego Reynoso clarified that potential aluminum tariffs are not built into guidance as they are unknown, but noted the company's overall exposure is less significant than competitors due to its U.S. manufacturing footprint. He also specified a recent contract renegotiation was with a co-packer, not a materials supplier.

Filippo Falorni of Citigroup Inc. asked for a broader perspective on the evolution of the beer industry, inquiring about whether recent softness is a temporary headwind or a more structural issue extending into 2025.

Answer

Founder and Chairman C. Koch acknowledged several small, cumulative structural headwinds like cannabis and health concerns. However, he noted that beer pricing is now below inflation and sees a significant opportunity for the beer industry to gain share of alcohol from wine and spirits via the growing 'fourth category,' while also pointing to a recent upswing in industry volumes.

Filippo Falorni requested more detail on the updated 2025 guidance, asking about the top-line expectations for the second half and the key drivers behind the anticipated margin contraction.

Answer

CFO Amit Banati explained that the full-year guidance for a low-single-digit decline does not assume a significant improvement in H2. However, factors like a stronger innovation pipeline and easier Q4 comps could push results to the high end of the range. He noted the guidance assumes continued soft category growth. Margin pressure stems from strategic price investments, fixed cost deleverage, and inflation.

Filippo Falorni requested more detail on the updated guidance, asking if the second half could see a return to positive growth and what assumptions were made for category growth and retailer inventory. He also asked for drivers of the implied margin contraction.

Answer

CFO Amit Banati clarified that the full-year guidance for a low-single-digit decline does not assume an improvement from the first half's performance. He noted that stronger innovation and lapping easier Q4 comps could push results to the higher end of the range. The guidance incorporates observed category softening and cautious consumer sentiment. The margin outlook reflects strategic price investments, fixed cost deleverage, and inflation.

Filippo Falorni asked about the net benefit from the strong U.S. cold and flu season and requested a breakdown of the $150 million gross tariff impact, including the potential risk from future pharmaceutical tariffs.

Answer

CEO Thibaut Mongon explained that in the U.S., distributors replenished inventory more than expected, ending the season at an appropriate level. CFO Paul Ruh detailed that the $150M tariff impact is primarily from China, which accounts for about two-thirds of the impact despite being only 10% of trade spend. He noted Kenvue is assessing the potential impact of pharma tariffs but is not ready to provide a number.

Filippo Falorni asked for clarification on the 2025 organic sales growth guidance, questioning the carry-over impact from Q4's weak pediatric cold and flu season and the distributor disruption in Asia Pacific on Q1 results.

Answer

CEO Thibaut Mongon expressed confidence in the 2-4% guidance, noting the 2024 run rate was closer to 2.5% excluding pediatric pain. He stated Kenvue does not expect a Q1 inventory restock for pediatric products in the U.S. or China. CFO Paul Ruh quantified the combined Q1 headwind from destocking and strategic trade investments at 3-4 points, leading to an expected low single-digit decline in organic sales for the quarter, which he emphasized masks the underlying health of the business.

Filippo Falorni inquired about retailer inventory levels and ordering patterns, especially in skincare, and asked about the potential impact from recent store closures in the drug channel.

Answer

Executive Thibaut Mongon reported that U.S. inventory levels are low and he does not expect further destocking. Globally, he sees cautious ordering in self-care categories due to low illness incidence. Regarding the drug channel, he acknowledged that while future store closures may have a short-term impact, he expects demand to normalize over time as consumers seek out their needed brands in other locations.

Filippo Falorni asked about the key drivers behind the Celsius brand's return to growth and sought more details on the brand's first-ever LTO planned for the fall.

Answer

CEO John Fieldly attributed the brand's acceleration to strategic shifts in promotions, a new 'Live Fit Go' marketing campaign, and successful innovation in the Fizz-Free line. He confirmed the first Celsius LTO is scheduled for the fall/winter season, leveraging learnings from the Alani integration, but did not disclose specific product details.

Filippo Falorni inquired about the retail environment, asking about potential inventory destocking, and also asked about the competitive response to Newell's pricing actions and the overall promotional landscape.

Answer

CEO Chris Peterson stated that retail inventories are in reasonably good shape, with only a minor Q2 impact from retailers pausing direct import business due to tariffs. On pricing, he described the current environment as 'fuzzy' due to tariff noise but noted that competitors are also raising prices, albeit on different timelines. He expects clarity in the next 3-6 months and highlighted Newell's value advantage in categories where its domestic manufacturing base is not subject to tariffs.

Filippo Falorni inquired about the expected net pricing contribution within the full-year core sales guidance and asked if there were active discussions to obtain a tariff exemption for baby gear products.

Answer

CFO Mark Erceg stated that for the full year, the company expects pricing, net of elasticity, to contribute 1 to 2 percentage points to core sales growth. CEO Christopher Peterson confirmed that Newell, along with the broader industry, is actively lobbying for a tariff exemption on baby gear, similar to what was granted by the previous administration, but noted the outcome remains uncertain.

Filippo Falorni of Citigroup Inc. asked for more detail on profitability drivers into next year, seeking to quantify remaining savings from organizational realignment and other programs to understand what is within the company's control.

Answer

CEO Christopher Peterson highlighted the FUEL productivity program, which is delivering over 6% COGS savings this year and has a strong pipeline for next year, as the biggest driver. CFO Mark Erceg added other significant opportunities, including improved innovation economics, automation, attractive marginal economics from volume growth, and a new trade fund management system launching in January.

Filippo Falorni of Citi questioned the outlook for the North American market, specifically asking about trends in the away-from-home channel and among the Hispanic consumer segment.

Answer

Chairman and CEO James Quincey noted that the U.S. business improved sequentially in Q2 amid a resilient consumer environment. He stated that the issues with Hispanic consumers from Q1 were 'largely resolved' by June, with brand metrics recovering. He added that the away-from-home channel reflects the broader economy, with the company successfully winning new accounts like Costco and Carnival.

Filippo Falorni asked about the impact of global trade dynamics and potential tariffs on the business. He also inquired if anti-American brand sentiment was a growing issue in countries beyond Mexico.

Answer

Chairman and CEO James Quincey stated that while they monitor sentiment, they respond to consumer behavior, with the main issues currently concentrated in the U.S. and Mexico. Regarding trade, he described the potential impact as 'manageable' due to the company's local franchise structure, noting that exposure to tariffs on inputs is relatively small and already factored into current pricing plans.

Filippo Falorni asked about the global trade environment, the company's exposure to tariffs on items like aluminum and steel, and the secondary impact on commodities, given its localized supply chain.

Answer

CEO James Quincey emphasized that the business is predominantly local, mitigating broad tariff impacts. He explained the company uses hedging programs, adjusts sourcing, and implements productivity measures to manage commodity variations. CFO John Murphy added that supply chain continuity remains a key priority and an advantage, with the cross-enterprise procurement team actively managing the network to ensure consistent supply.

Filippo Falorni of Citigroup asked about the margin outlook for 2025, focusing on the balance of levers for expansion, such as productivity and inflation, in a scenario with no further major refranchising activity.

Answer

President and CFO John Murphy stated the company is on track for its highest gross margin since pre-COVID and expects underlying expansion to continue. For 2025, he anticipates a more normalized pricing environment and plans to use RGM, cost efficiencies, promotional optimization, and supplier management to offset FX headwinds and agricultural commodity inflation.

Filippo Falorni from Citi inquired about the beer pricing environment, asking how pricing actions are being accepted and whether competitors are increasing promotional activity due to category pressures.

Answer

President & CEO Bill Newlands acknowledged an expected increase in market promotions during times of economic concern, citing Constellation's own price adjustment on its 'Oral' brand to compete with high-end light beers. He maintained that the company's strong brands and consumer loyalty are its ultimate competitive advantages.

Filippo Falorni asked for perspective on the beer pricing environment, questioning how pricing is being accepted by the market and whether competitors are increasing promotional activity to drive volume.

Answer

CEO Bill Newlands acknowledged an increase in promotional activity across the market, which is expected in times of economic concern. He cited Constellation's own adjustment of its Oral pricing to compete in the high-end light segment, but stressed that strong brand loyalty is the ultimate driver of success.

Filippo Falorni asked for clarification on how beer margins can be maintained despite headwinds from net COGS inflation, rising depreciation, and reduced fixed cost leverage from softer volumes.

Answer

CFO Garth Hankinson reiterated that the 39-40% operating margin target is achievable through a combination of positive factors. These include incremental volume growth, pricing in the 1-2% range, cost-saving initiatives that mitigate inflation, and disciplined management of depreciation expense from the company's modular capacity expansion strategy.

Filippo Falorni asked about the outlook for beer margins, seeking details on the potential opportunities and pressures from pricing, commodities, and foreign exchange rates.

Answer

CFO Garth Hankinson reaffirmed that the company views a 39% to 40% operating margin as the appropriate long-term range for the beer business. He detailed that in any given year, tailwinds from volume, cost savings, and pricing are balanced against headwinds from inflation, depreciation from new capacity, and fixed cost absorption, causing results to fluctuate within that range.

Filippo Falorni asked about the drivers for Beer gross margins in the second half of the year, specifically inquiring about the impact of cost savings, commodities, and foreign exchange, including the 90% hedged position on the Mexican peso.

Answer

CFO Garth Hankinson stated that the company has already hit its $300 million cost savings target, which has benefited margins. For the second half, he noted that margins will be impacted by lower fixed cost absorption due to typical volume seasonality (45% of volume in H2) and higher marketing spend as a percentage of net sales, particularly in Q3. This will lead to sequentially lower margins in the second half despite the ongoing benefit from cost savings.

Filippo Falorni from Citi inquired about the sustainability of gross margin drivers and sought an update on the company's hedging strategy against the rising aluminum Midwest premium.

Answer

Executive Hilton Schlosberg confirmed the company uses a laddered hedging approach for aluminum but noted that hedging the Midwest premium is difficult and expensive. He stated that due to rising costs like the Midwest premium, he does not expect the second quarter's gross margin to be as high as the first quarter's, though he did not provide specific guidance.

Filippo Falorni asked about the discrepancy between Monster's reported U.S. results and stronger track channel data, questioning the performance of untracked channels and any observed pressure on Hispanic consumers.

Answer

Executive Hilton Schlosberg acknowledged potential pressure on Hispanic consumer spending and attributed weak January sales to an 'aberration' caused by severe weather. He also highlighted the reporting lag between company sales to distributors and Nielsen's retail data. Rodney Sacks added that recent weekly data shows Monster's growth recovering, suggesting the January impact was temporary.

Filippo Falorni asked about the role of product innovation, such as the new Monster Energy Ultra, in driving the recent improvement observed in the U.S. energy drink category.

Answer

Rodney Sacks, Chairman and Co-CEO, noted that while innovation is a driver, the latest product only reached shelves late in October, suggesting its impact on recent trends was minimal. He believes the improvement is broader across multiple SKUs. Hilton Schlosberg, Vice Chairman and Co-CEO, added that improving macroeconomic conditions and increased foot traffic in convenience stores are also significant positive factors.

Filippo Falorni from Citigroup Inc. followed up on the Prestige fragrance category, asking for a geographic breakdown of its growth and whether the mid-single-digit growth rate is sustainable going forward.

Answer

CEO Sue Nabi affirmed the sustainability of mid-single-digit growth, particularly in the U.S., driven by new users like Gen Z and male consumers. She stated that European growth will likely be driven by mix and pricing, while China offers long-term volume potential due to low penetration. She concluded that the global fragrance category will remain the strongest in the beauty business.

Filippo Falorni of Citigroup questioned the levers for accelerating organic sales growth in fiscal '26, given that some weaknesses from fiscal '25 are expected to persist.

Answer

CEO Sue Nabi outlined several levers for FY26 growth, including the normalization of retailer inventory levels, two major blockbuster launches, accelerated distribution gains for key Prestige brands like Chloe in the U.S., and expansion in emerging markets. She noted these factors, combined with a potential stabilization in China and Travel Retail, will drive a return to growth.

Filippo Falorni questioned how Coty plans to accelerate organic sales growth in fiscal '26, given that some weaknesses from fiscal '25 may persist, and how this aligns with the medium-term outlook.

Answer

CEO Sue Nabi outlined several growth levers for fiscal '26, noting it follows a high comparative from fiscal '24. She anticipates a normalization of retailer inventory levels, two major blockbuster product launches, accelerated distribution gains for key Prestige brands in the U.S., and expansion in emerging markets. These factors, combined with a potential stabilization in currently disrupted markets, are expected to drive a return to growth.