Steve Powers

Steve Powers asked a technical question about the decision to start regularly amortizing the Hostess trademark beginning in the fourth quarter, inquiring about the trigger for this change and the assumed period of depreciation. He also asked for the specific life or rate of depreciation.

Answer

CFO Tucker Marshall explained that the decision to amortize the Hostess trademark was triggered by a reduced long-term growth rate for the sweet baked goods category and brands, from original expectations to a current 2%. This change reflects a prudent approach to investing in the business. He stated that the outlook for amortization for the full year is now $210 million, which includes the step-up in amortization beginning in Q4 by putting the brand on a finite life.

Steve Powers asked a technical question regarding the decision to begin regularly amortizing the Hostess trademark in Q4, inquiring about the trigger for this change and the assumed period of depreciation.

Answer

CFO Tucker Marshall explained that the decision to amortize the Hostess trademark was triggered by a reduction in the long-term growth rate expectation for the sweet baked goods category to 2%, down from original acquisition expectations. This change reflects a prudent approach to investment and resource allocation, moving the brand from an indefinite-lived asset to one amortized over a longer period. The full-year amortization outlook is now $210 million, including the Q4 step-up.

Steve Powers questioned the company's confidence in returning the Meow Mix and Milk-Bone brands to volume growth, given discretionary headwinds. He also asked about the implied price elasticity on the coffee portfolio outside of the high-growth Café Bustelo brand.

Answer

CEO & Chair of the Board Mark Smucker expressed confidence in Meow Mix due to a growing cat population and brand building, and in Milk-Bone due to its broad portfolio and innovation. CFO Tucker Marshall added that Milk-Bone is lapping a plant shutdown and retailer destocking. He confirmed that with Café Bustelo's strong momentum, the implied elasticity on other coffee brands is higher to reach the 0.5 portfolio average.

Steve Powers from Deutsche Bank followed up on free cash flow, asking for an estimate of free cash flow net of any integration, synergy capture, or restructuring cash costs, to gain visibility into the actual free cash flow for the year.

Answer

CFO David Hass reiterated confidence in the free cash flow guidance, stating that aside from the integration capital expenditures add-back, there are no unexpected 'curve balls.' He anticipates increased cash flow from operations, capital expenditures aligned with sales, and benefits from tax provisions (specifically mentioning the One Big Beautiful Bill Act). The primary focus remains on working capital improvements.

Steve Powers asked for a framework on the active customer base in the direct business, comparing current levels to pre-disruption. He also inquired about the aggregate incremental investment in 2026 versus 2025 for customer recruitment efforts and if these efforts are first-half loaded.

Answer

Eric Foss, Chairman and CEO, explained that the 'top of the funnel' demand for customer adds remained strong throughout 2025, with the primary disruption occurring in Q2 and Q3. He noted a significant rebound in customer quits and net adds as the year concluded. Foss reiterated that positive customer nets are expected to return in Q2 2026, and confirmed that recruitment investments are indeed more first-half loaded.

Steve Powers from Deutsche Bank asked for confirmation of the long-term 25% EBITDA margin target and sought more detail on why management is confident the direct delivery business can 'snap back' to its prior trend after Q3.

Answer

CFO David Hass reaffirmed the 25% long-term EBITDA margin target, noting that significant levers like price harmonization have not yet been pulled. He explained the confidence in a 'snap back' is based on the strong underlying demand seen in other business segments (exchange, refill), robust Q1 growth pre-disruption, and an acceleration in digital customer acquisition, indicating the problem is fulfillment, not demand.

Steve Powers asked about the allocation of existing KDP debt across the future Beverage Co. and Global Coffee Co. post-separation. He also questioned the source of future space gains for the energy business in 2026, specifically whether it's due to category growth, disproportionate share gains, or potential cannibalization of other KDP portfolio segments.

Answer

CFO Anthony DiSilvestro clarified that the $9 billion incremental debt and $5 billion assumed JDE Peet's debt will stay with Global Coffee Co., while existing KDP debt and the $4.5 billion convertible preferred will remain with Beverage Co. CEO Tim Cofer explained that energy category growth is driven by structural factors, and he expects both the energy category in aggregate and KDP's portfolio to gain shelf space without cannibalizing other KDP sales.

Steve Powers inquired about the allocation of existing KDP debt across the future Beverage Co. and Global Coffee Co. post-separation. He also asked CEO Tim Cofer about the sources of shelf space gains for the energy portfolio in 2026, questioning if it's category-driven, disproportionate share, or cannibalistic.

Answer

Chief Financial Officer Anthony DiSilvestro clarified that existing KDP debt will remain with Beverage Company, alongside the $4.5 billion convertible preferred equity. CEO Timothy Cofer stated that the energy category has multiple structural growth drivers, and KDP's portfolio (GHOST, C4, Bloom, Black Rifle) added 1.5 share points last year, expecting continued share growth and significant incremental distribution points, particularly in convenience, without cannibalizing other KDP sales.

Steve Powers asked about the allocation of existing Keurig Dr Pepper debt across the future Beverage Co. and Global Coffee Co. following the updated capital structure. He also questioned the source of anticipated shelf space gains for the energy portfolio in 2026, specifically whether it's from category expansion, disproportionate share gains, or cannibalization of other KDP products.

Answer

Chief Financial Officer Anthony DiSilvestro explained that the $9 billion incremental debt and $5 billion rollover from JDE Peet's would stay with Global Coffee Co., while existing KDP debt and the $4.5 billion convertible preferred would remain with Beverage Co. Chief Executive Officer Tim Cofer stated that the energy category benefits from structural growth drivers, and KDP's portfolio added 1.5 share points in 2025. He expects both the category and KDP to gain shelf space, with no anticipated cannibalization of other KDP products.

Steve Powers asked about the allocation of existing KDP debt across the future Beverage Co. and Global Coffee Co. post-separation. He also questioned CEO Tim Cofer on the sources of anticipated shelf space gains for the energy portfolio in 2026, and whether these gains would be cannibalistic to other KDP products.

Answer

Chief Financial Officer Anthony DiSilvestro clarified that existing KDP debt will remain with Beverage Company, while new incremental debt and assumed JDE Peet's debt will go to Global Coffee Co. CEO Timothy Cofer stated that energy category growth is driven by structural factors, and KDP's portfolio expects continued share and shelf space gains, particularly in convenience, without cannibalizing other KDP sales.

Steve Powers asked about the company's comfort level with the risks and opportunity costs of doubling down on coffee and separating it while maintaining refreshment beverage performance. He also inquired about the implications of a potential partial BevCo IPO on existing Keurig Dr Pepper debt.

Answer

CEO Tim Cofer emphasized that execution is key, highlighting the management team's experience in large transactions and the robust plan of the Transformation Management Office. SVP of Finance Jane Gelfand stated that a tax-free separation is sacrosanct, and while a partial BevCo IPO is an option to raise primary proceeds and accelerate deleveraging, no decision has been made on the optimal separation mechanism or debt allocation, which is actively being considered.

Steve Powers asked how KDP became comfortable with the risks and opportunity costs of doubling down on coffee and separating it, while maintaining momentum in refreshment beverages. He also inquired about the implications of a partial Beverage Co IPO for KDP's existing debt, specifically whether it would remain with Beverage Co or transfer to Coffee Co.

Answer

CEO Tim Cofer stated that comfort with the undertaking stems from the management team's extensive experience in large acquisitions, integrations, and separations, emphasizing a robust plan, governance, and dedicated teams. He cited Q3 results as an early proof point of maintaining base business performance amidst transformation. SVP of Finance Jane Gelfand explained that the common element across separation options (spin or partial IPO) is a tax-free separation. She noted that a partial IPO could raise primary proceeds to accelerate deleveraging, but decisions on debt structure and allocation are still being actively considered to maximize flexibility.

Steve Powers from Deutsche Bank asked Freshpet for an update on learnings from the Fridge Island expansion, specifically the move from 16 to 28 stores, and whether other concepts like open-air end caps and bunker coolers are part of this initiative or incremental testing. He also questioned the effectiveness of affordability initiatives, whether further interventions are planned, and if these investments are expected to cause volume growth to outpace sales growth in 2026.

Answer

COO Nicki Baty stated that Fridge Islands are still in the test phase, providing 2.5x capacity, broader assortment, and better holding capacity for omni-channel, leading to improved in-stock rates and brand awareness. She confirmed continued experimentation with end caps, open airs, and bunker units, tailoring approaches for different retailers. Regarding affordability, Baty indicated that Freshpet has made necessary adjustments to its portfolio and does not anticipate a significant shift in mix or investment in this area for 2026, with small, data-driven price movements already implemented.

Steve Powers asked for more details on what Freshpet has learned from the Fridge Island expansion efforts, the understanding sought from moving from 16 to 28 stores, and whether other concepts like open-air end caps and bunker-style coolers are part of the Fridge Island initiative or incremental testing. He also asked about the affordability initiatives, specifically if more interventions are needed and if 2026 volume growth is expected to exceed sales growth due to these investments.

Answer

COO Nicki Baty explained that Fridge Islands are still in the test phase, delivering 2.5 times capacity versus a single fridge, allowing for broader assortment, bringing in new households, and improving holding capacity for omni-channel (click and collect). She noted that the company is very encouraged and will continue to experiment with retailers, picking the right store locations. She confirmed that multiple fridge expansion, end caps, open airs, and bunker units are incremental testing, tailoring approaches for different retailers. Regarding affordability, Nicki Baty stated that Freshpet took a significant step back in Q2 last year to sharpen execution, focusing on winning with top retailers (club, mass). She believes they have done what was needed within the portfolio, with small, data-driven price movements, and does not anticipate a significant shift in mix or investment in this area for 2026, though they reserve the right to review.

Steve Powers asked for details on second-half demand-driving plans, the role of value-focused products, and the company's perspective on competition, particularly the upcoming launch from Blue Buffalo.

Answer

CEO Billy Cyr outlined a multi-pronged approach for the second half, including new advertising messaging, significant distribution expansion in the club channel, and new value-oriented product innovation. COO Nikki Beatty added that the new marketing campaign will emphasize health credentials and will be supported by increased spending in targeted channels like social and digital to complement broad awareness efforts.

Steve Powers from Deutsche Bank asked for details on the company's second-half plans to stimulate demand, the role of value-oriented products, and the company's perspective on competition, particularly the upcoming launch from Blue Buffalo.

Answer

CEO Billy Cyr outlined three key drivers for the second half: a new advertising message, expanded distribution including a significant club store test, and new product innovation. COO Nikki Beatty added that the new marketing creative will emphasize health credentials and that they will increase focus on targeted social and digital channels to reach both the general dog population and specific MVP consumers.

Steve Powers asked about the scope and project plan for the comprehensive review of brands, operations, and capital allocation, including the dividend, and the expected timeline for these initiatives.

Answer

Ryals McMullian, Chairman and CEO, explained the review focuses on the brand portfolio (especially reigniting Nature's Own), supply chain efficiency, and distribution network optimization. Anthony Scaglione, CFO, added that it's a measured, multi-year process, and the dividend is a key discussion point with the board, part of a holistic capital structure evaluation, with a commitment to a strong balance sheet.

Steve Powers asked for more details on the comprehensive review of brands, operations, and financial strategy, including its scope, project plan, and expected duration. He also inquired about the broader capital allocation strategy, specifically addressing the dividend run rate in light of cash flow exceeding GAAP income but 2026 EPS guidance falling below the dividend commitment.

Answer

Ryals McMullian (Chairman and CEO, Flowers Foods) explained the review is in early stages, focusing on the brand portfolio (especially reinvigorating Nature's Own and traditional loaf), supply chain efficiency, and is a multi-year process. Anthony Scaglione (CFO, Flowers Foods) added that the dividend is a top-of-mind discussion with the board, part of a holistic capital structure evaluation, and the company remains committed to its strong balance sheet and investment-grade rating, with more details to follow.

Steve Powers followed up on the consumer environment and Flowers Foods' planning for 2026, asking if the company anticipates the status quo or further deterioration before improvement, especially considering Q3's stabilization followed by weakening. He also asked for more details on Simple Mills' performance since acquisition and future opportunities.

Answer

Chairman and CEO Ryals McMullian indicated expectations lean towards the status quo with potential for improvement. He clarified that the Q3 period 10 dip was largely due to a tough comparison (zero storms this year versus five last year), with trends since migrating back to periods 8 and 9. For Simple Mills, McMullian highlighted strong team collaboration, successful integration, and opportunities in customer engagement and procurement, expressing satisfaction with performance and excitement for 2026 innovation.

Steve Powers inquired about the company's planning stance for 2026, specifically whether they anticipate the status quo to prevail or if conditions might worsen before improving, following Q3's stabilization and subsequent weakening. He also asked for deeper insights into Simple Mills' performance since acquisition, highlighting areas of progress and future opportunities.

Answer

Chairman and CEO Ryals McMullian indicated expectations lean towards the status quo with potential for improvement, attributing Q10's dip to tough comparisons from prior year storms. Regarding Simple Mills, he noted strong collaboration and integration, with performance in line with expectations and excitement for new innovation in the upcoming year.

Steve Powers asked for more detail on the competitive intensity in the branded bread category, the drivers of weakness in the 'other' category (private label and foodservice), the updated tariff outlook, and the company's capital allocation strategy concerning the dividend payout ratio.

Answer

Chairman & CEO A. Ryals McMullian explained that while the promotional environment is elevated, it's stable, with pressure coming from new lower-priced entrants affecting the traditional loaf segment. He noted weakness in the 'other' category was driven by lost private label bid business and softness in foodservice. CFO R. Steve Kinsey clarified that the tariff outlook update is structural, not a delay, and expects costs to pull back. Regarding capital allocation, he stated the board regularly evaluates the dividend based on performance and cash flow, and there is no stated target payout ratio.

Steve Powers asked for details on competitive intensity, the impact of new lower-priced bread products, and the drivers behind weakness in the non-branded 'other' category. He also questioned the CFO about the updated tariff outlook and the company's capital allocation strategy, noting the narrow gap between the dividend and EPS guidance.

Answer

CEO A. Ryals McMullian acknowledged an elevated but stable promotional environment, with new value products pressuring the traditional loaf segment. He attributed weakness in the 'other' category to lost private label business and softness in foodservice. CFO R. Steve Kinsey clarified that the lower tariff outlook is a structural update, not a delay. Regarding capital allocation, Kinsey stated the board reviews the dividend quarterly and has no stated target payout ratio, while McMullian added that the payout ratio is lower on a cash basis due to high D&A.

Steve Powers sought clarification on the definition of 'short term' for the business turnaround and separation postponement, and the geographic focus of the investments (disproportionately U.S. vs. overseas).

Answer

CEO Steve Cahillane confirmed that investments will be disproportionately focused on the U.S. He expects a change in trend in the back half of this year, aiming for the company to exit 2026 with improved trends and target organic growth in 2027. The separation pause has no end date, with future portfolio optionality to be considered once the business achieves organic growth.

Steve Powers sought clarification on the definition of 'short term' for the business turnaround, the timeline for re-evaluating the separation, and whether the investments are primarily focused on the U.S. or include international markets.

Answer

CEO Steve Cahillane defined 'short term' as aiming for a trend change in H2 2026, exiting 2026 with momentum, and targeting organic growth in 2027. He confirmed the separation pause has no end date, and investments will be disproportionately focused on the U.S., with some international opportunities.

Steve Powers asked about the company's profitability in the quarter, specifically noting strong performance in skincare and fragrance, but observing that the makeup segment was operating near a break-even level, and sought clarification on the expected progression of makeup profitability.

Answer

Akhil Shrivastava, EVP and CFO, explained that makeup profitability was temporarily understated due to returns on innovation for Q3 but affirmed that improving makeup margins is a key strategic pillar. Stéphane de La Faverie, President and CEO, detailed efforts to expand makeup distribution (e.g., TikTok Shop, MAC at Sephora U.S.), accelerate innovation, rationalize freestanding stores for profitability, and leverage PRGP savings to drive recovery in the category.

Steve Powers from Deutsche Bank inquired about the company's profitability in the quarter, specifically addressing the makeup segment's near break-even operating level and the expected progression of its profitability contribution moving forward.

Answer

Akhil Shrivastava, EVP and CFO, stated that makeup profitability in Q2 was temporarily impacted by returns on Q3 innovation. He affirmed that improving makeup margins is a key pillar, aiming for profitability similar to other categories through fixed cost right-sizing, PRGP benefits, and sales acceleration from new launches like Double Wear. Stéphane de La Faverie, President and CEO, added that efforts include expanding distribution (TikTok Shop, Sephora U.S. for MAC), accelerating innovation (majority from makeup), and rationalizing freestanding stores for profitability, with PRGP benefits extending into fiscal 2027.

Steve Powers of Deutsche Bank asked for a breakdown of the gap between retail sales and net sales shipments entering fiscal 2026, questioning the contribution from trade inventory, discounting, and channel mix, and how this gap is expected to evolve through the year.

Answer

EVP and CFO Akhil Shrivastava stated that inventory was significantly reduced in fiscal 2025 across travel retail, China, and the U.S., and he expects the gap between retail and net sales to narrow going forward. He noted that in North America, the strategic shift to different channels creates some mix dynamics. President and CEO Stéphane de La Faverie added that the company's fiscal 2026 plan includes gradual net sales improvement as retail and net sales become more aligned, with the most significant inventory reduction work in Travel Retail having been completed in fiscal 2025.

Steve Powers questioned the higher Q4 SG&A spending driven by incremental space expansion, asking if the 4-point top-line shipment headwind for the back half is net of this expansion. He sought clarification on whether the spending is for organic or inorganic expansion (like Rhode) and when the revenue return from this investment is expected.

Answer

Mandy Fields, SVP and CFO, clarified that the 4-point headwind is a net number, inclusive of new space expansion. She explained that space spend covers both incremental space (e.g., Rhode, Ulta expansion) and refreshed spending on existing visual merchandising for spring resets. Tarang Amin, Chairman and CEO, added that historically, space expansion has yielded good returns, but there's an opportunity to optimize efficiency, particularly internationally where costs have been higher.

Steve Powers inquired about the higher SG&A spending planned for Q4, specifically related to incremental space expansion, and how this aligns with the 4-point top-line shipment headwinds. He asked if the headwind is net of the expansion, if revenue gains from this spending are delayed until fiscal 2027, or if the spending is primarily for inorganic (Rhode) expansion, and when the return on this investment is expected to manifest on the top line.

Answer

Mandy Fields, SVP and CFO, clarified that the 4-point headwind is a net number, already accounting for any new space expansion. She explained that space spending encompasses both incremental space (for brands like Rhode and e.l.f. at Ulta) and refreshed spending on existing visual merchandising and fixturing for spring resets. Tarang Amin, Chairman and CEO, added that historically, space expansion has yielded strong returns, citing the Target example. He also noted an opportunity to optimize the efficiency of this spend, particularly for international expansions which have incurred higher costs.

Steve Powers of Deutsche Bank pressed for more detail on Q2 gross margins, questioning why offsets like pricing and the Rhode acquisition wouldn't be more significant. He also sought to confirm the math suggesting the price increase should offset the annualized tariff impact.

Answer

Senior VP & CFO Mandy Fields acknowledged the positive offsets but reiterated a balanced approach due to the flow-through of higher-cost inventory and ongoing tariff uncertainty. CEO & Chairman Tarang Amin confirmed the logic that the price increase could offset the estimated $50 million annualized tariff impact, but emphasized the company is modeling consumer elasticity conservatively until the actual market response is observed.

Steve Powers asked about BellRing Brands' ability to leverage existing capacity for new innovations, such as higher protein shakes and products with different drinking experiences, and the implications for scaling, distribution, and initial profit margins.

Answer

President and CEO Darcy Horn Davenport explained that some innovations will leverage existing co-manufacturers, while others may utilize new ones, benefiting from their strong operations function and national co-man network. She confirmed that all new products will use existing distribution channels, and the team is proficient in new product startups.

Steve Powers inquired about BellRing Brands' ability to leverage existing capacity for new innovations like higher protein shakes and differentiated drinking experiences, and the implications for scaling, distribution, and upfront profit margins.

Answer

Darcy Davenport, President and CEO, explained that some innovation will utilize existing co-manufacturers, while others may use new ones, leveraging their strong operations and national co-man network. She confirmed that all new products will use existing distribution channels, with exploration into DSD solutions.

Steve Powers asked for a summary of changes observed in the categories and business over the last six months, how these influenced 2026 plans and updated long-term views, and why the current outlook is considered appropriate for the year ahead and longer term.

Answer

President and CEO Darcy Davenport highlighted that category momentum and Premier's market position remain unchanged. She noted increased competition, specific Q1 dynamics, and strong plans for the rest of the year, including new partnerships, advertising, and innovation, as key influences on the outlook.

Steve Powers asked about the changes observed in BellRing Brands' categories and business over the last six months, how these influenced the 2026 plans and updated long-term views, and the confidence in the landed outlook.

Answer

Darcy Davenport, President and CEO, BellRing Brands, highlighted that category momentum and Premier's market position remain strong. She noted increased competition, with leading brands (like Premier) expected to continue winning, while insurgent brands will see a shake-out and legacy brands will decline. Davenport expressed confidence in the 2026 plan, despite a challenging Q1 due to unique club channel dynamics, citing strong category health, rapid growth in other channels, new partnerships, advertising, and innovation.

Steve Powers of Deutsche Bank pressed for clarity on why Q4 consumption guidance wasn't stronger given Q3's momentum and sought a definitive answer on whether fiscal 2026 is expected to be a 10%+ growth year.

Answer

CEO Darcy Horn Davenport reiterated that minor puts and takes influenced the outlook, with a short-term pallet gain in Q4 being offset by assumptions of increased competitive pressure. She clarified that while 10%+ growth is the company's long-term algorithm and goal, they are still in the planning process and cannot commit to a specific number for fiscal 2026 at this time.

Steve Powers asked about PBNA's expected contribution to growth and profit margin, specifically drilling down on how the energy portfolio will contribute to the segment's progress, its materiality to 2026 plans, and early returns on Celsius's category capacity or Alani Nu onboarding.

Answer

CEO Ramon Laguarta expressed satisfaction with PBNA's progress, noting a focus on increasing competitiveness through execution, affordability, and brand building in soft drinks and functional hydration. He confirmed plans to continue improving PBNA margins in 2026 towards target. Regarding energy, he highlighted PepsiCo's effective participation in this fast-growing profit pool through a combination of distribution margin and Celsius ownership. He noted Celsius's continued growth and positive early returns from Alani Nu's integration, with improving execution metrics and expected acceleration as distribution completes. He mentioned good collaboration with Celsius and a combined portfolio share close to 20% in a growing category.

Steve Powers asked about PBNA's expected contribution to growth and profit margin, specifically drilling down on how the energy portfolio will contribute and early returns from Celsius's category capacity and Alani Nu's onboarding.

Answer

Ramon Laguarta, CEO, stated that PBNA's focus is on increasing competitiveness in soft drinks and functional hydration, with plans to continue improving margins towards their target. For energy, he expressed satisfaction with their participation through a distribution margin and Celsius ownership, noting Celsius's continued growth and positive, though early, integration of Alani Nu. He mentioned good collaboration and a portfolio share close to 20% in the growing energy category.

Steve Powers requested more detail on the productivity interventions in PBNA aimed at right-sizing the fixed cost structure. He asked about the expected progress by the end of 2025 and whether more work would be needed in 2026. Additionally, he inquired about the current status of the "One North America" initiative, noting its omission from the current remarks.

Answer

Chairman and CEO Ramon Laguarta detailed Frito-Lay's interventions, including rationalizing inefficient manufacturing nodes, optimizing warehouse infrastructure (partially combining with beverage business), and right-sizing go-to-market labor as the market stabilizes. He noted that productivity per FTE is back to levels seen a couple of years ago due to fixed cost reductions over the past six to seven months, with further interventions expected in 2026 to invest in affordability and new platforms. EVP and CFO Jamie Caulfield added that significant carryover benefits from these actions are expected, especially in the first half of 2026. Regarding "One North America," Laguarta explained it's being tested in Texas, focusing on combining businesses in one warehouse for distribution, and the final solution will be nuanced, not a one-size-fits-all approach.

Steve Powers requested more detail on the productivity interventions in PBNA to right-size the fixed cost structure, asking about the progress by the end of 2025 and if more work is needed in 2026. He also inquired about the status of the 'One North America' initiative, which was omitted from the remarks.

Answer

Chairman and CEO Ramon Laguarta clarified that Frito-Lay's interventions include rationalizing inefficient manufacturing nodes, warehouse infrastructure (due to automation and beverage business combinations), and right-sizing go-to-market labor. He noted productivity per FTE is back to levels of a couple of years ago and interventions will continue into 2026. CFO Jamie Caulfield added that significant carryover benefits from these actions are expected in H1 2026. Regarding 'One North America,' Ramon explained it's being tested in Texas, yielding benefits, and the final solution will be nuanced, not a one-size-fits-all approach.

Steve Powers of Deutsche Bank inquired about the top one to three most critical initiatives for driving top-line momentum in the North American food (PFNA) and beverage (PBNA) businesses, and what success would look like by the end of the year.

Answer

Chairman and CEO Ramon Laguarta outlined key priorities, including stabilizing the food category through value investments, improving competitiveness in subsegments like tortilla chips, and relaunching major brands like Lay's and Tostitos. For beverages, the focus is on no-sugar colas and sports drinks. Laguarta defined success as achieving sequential top-line improvement to return to the low end of the company's long-term growth algorithm in the coming quarters.

Steve Powers sought more clarity on the expected 2% overall category growth for 2026, specifically its regional breakdown (North America vs. rest of world) and pacing throughout the year, given Q4 2025 choppiness. He also asked for an update on the drivers and progress towards the 40% adjusted gross margin target by the end of the decade, independent of Kenvue.

Answer

Chairman and CEO Mike Hsu highlighted strong volume momentum in 2025 and bullishness on 2026 innovation. CFO Nelson Urdaneta explained that Q4 2025 category growth was impacted by discrete factors like Hurricane Helene and pantry loading, but recent data hovers around 2%. He expects organic growth to accelerate in the back half of 2026, with both North America and international personal care growing in line or ahead of categories. For margins, Nelson Urdaneta noted 2026 cost neutrality, strong productivity (around 6%), and strategic price-pack investments made in late 2024, all contributing to margin expansion and keeping the company on pace for 40% gross margin and 18-20% operating profit by 2030, excluding Kenvue.

Steve Powers requested more detail on the expected 2% category growth breakdown between North America and the rest of the world, the pacing of this growth in 2026, and an update on the drivers and progress towards achieving 40% adjusted gross margin by the end of the decade, independent of Kenvue.

Answer

Chairman and CEO Mike Hsu highlighted strong volume momentum and bullish innovation for 2026. CFO Nelson Urdaneta explained that Q4 2025 category growth dipped due to discrete factors, but the 2026 outlook starts around 2%, with organic growth accelerating in the back half. For margins, he noted strong progress despite a step back in 2025 due to input costs, expecting 2026 costs to be flat and productivity around 6%, putting Kimberly-Clark on pace for 40% gross margin and 18-20% operating profit by 2030, excluding Kenvue.

Steve Powers questioned the current pricing environment, asking for Kimberly-Clark's outlook on pricing, competitive promotional activity, and the potential for consumer acceptance of any future price increases amid inflationary pressures.

Answer

Chairman and CEO Mike Hsu stated the company's philosophy is to drive volume and mix while maintaining discipline on pricing net of commodity costs (PNOC), aiming for it to be zero or positive. He clarified that promotions are used tactically for innovation trials, not for base growth, and that promotional intensity remains below pre-COVID levels. He affirmed confidence in their ability to use pricing to offset commodity inflation where necessary.

Steve Powers inquired about the expected progress and sequential acceleration by category segment for the second half of the fiscal year, and the timeline for the company to integrate all operational enhancement and reinvention initiatives.

Answer

CFO Andre Schulten noted that base period effects would aid family care, baby care, and fem care, with baby care already returning to share growth. He also pointed to strong innovation in laundry (Tide Boost, Tide evo) and beauty (Olay, SK-II). CEO Shailesh Jejurikar indicated that while many platforms are already built, achieving an even distribution of future capabilities across the portfolio would likely take 12 to 18 months.

Steve Powers asked for more detailed expectations on sequential acceleration by category segment for the second half of the fiscal year and the timeline for integrating P&G's operational enhancements and reinvention initiatives across the portfolio.

Answer

CFO Andre Schulten noted expected improvements in family care, baby care, and feminine care due to base period effects, along with strong innovation in laundry (Tide Boost, Tide Evo) and beauty (SK2, Olay). CEO Shailesh Jejurikar stated that many foundational platforms, like the data lake, are already built, and the full, even distribution of future capabilities across the portfolio is expected to take 12 to 18 months.

Steve Powers requested further elaboration on the Greater China business, specifically the evolution of the market, its trending throughout the quarter, and the confidence in sustaining the observed progress through the year.

Answer

CFO Andre Schulten attributed China's 5% growth to fundamental changes in the business model, including go-to-market strategy, distributor incentives, strong local innovation, and improved consumer communication and customer collaboration. He cited SK-II (up 12%), baby care (up 20%), fabric care (up 5%), hair care, and Olay as key drivers, expressing confidence in the progress despite expected market volatility.

Steve Powers asked for more perspective on China's market evolution, how P&G's business trended throughout the quarter, and the confidence in sustaining the observed progress.

Answer

Andre Schulten, CFO, highlighted the China team's successful fundamental changes across the business model, including go-to-market strategies, distributor incentives, local insights-driven innovation, and communication. He noted strong progress in baby care (20% growth), SK-II (12% growth), fabric care (5% growth), and Olay, expressing confidence in the interventions despite expected market volatility.

Steve Powers of Deutsche Bank asked for perspective on incoming CEO Shailesh Jujurukar's unique attributes, Jon Moeller's goals as Executive Chairman, and P&G's strategy to create its own 'tailwinds' for growth in fiscal 2026.

Answer

President, CEO & Chairman Jon Moeller highlighted Shailesh Jujurukar's extensive leadership experience across P&G's largest businesses and markets. Moeller explained that the new restructuring program is a primary example of creating tailwinds by generating financial headroom to reinvest in innovation and commercialization to accelerate growth in a challenging environment.

Steve Powers asked about the degree to which Love Made Fresh has contributed to base pet business progress and any evidence of favorable interplay between the Fresh initiative and Blue Buffalo, also inquiring about back half impact and phasing considerations for Q3 versus Q4.

Answer

Jeff Harmening, Chairman and CEO, stated it's too early to determine Love Made Fresh's impact on the base business, attributing current pet progress to core brand strategies. Kofi Bruce, CFO, outlined Q3 profit expectations to be down due to divestiture and investments, with Q4 seeing significant tailwinds from trade expense timing and the 53rd week.

Steve Powers asked for an update on the $20-$25 million annualized tariff headwinds related to EU and Southeast Asian markets mentioned last quarter, inquiring about mitigation steps taken and the outlook for 2026. He also questioned the category growth expectations for 2026 relative to the company's low single-digit top-line growth forecast, and the implications of rolling out the S/4HANA ERP system to the Home & Personal Care (HPC) business on pursuing strategic solutions or potential carve-outs.

Answer

CEO David Maura and CFO Faisal Qadir confirmed that most EU/Southeast Asian tariffs have been eliminated, clarifying that the overall annualized tariff exposure has been significantly reduced from $450 million to $70-$80 million, with direct spend in China for GPC and H&G expected to be $15-$20 million by the end of 2026. Faisal noted that Home & Garden expects growth from normalized weather, while Global Pet Care shows signs of stabilization and market share gains. HPC remains challenging due to consumer demand and competition. Maura explained that the S/4HANA rollout to HPC aims for efficiency and a single source of truth, which will not impede strategic solutions but rather enhance the business's value to potential partners by creating a more flexible and dynamic operating infrastructure.

Steve Powers inquired about the implications of rolling out the S/4HANA ERP system to the Home & Personal Care (HPC) business, specifically whether it would delay or impede strategic solutions for the segment, or if it's modular enough for a potential carve-out.

Answer

David Maura, Executive Chairman and CEO, stated that the S/4HANA implementation aims to create efficiencies and reduce corporate costs, and will not slow down any strategic solutions for HPC. He believes it will actually enhance the business's value to potential partners by creating a more flexible and dynamic operating infrastructure, making it more 'plug-and-play' for future combinations.

Steve Powers asked how the corporate restructuring will specifically enable increased speed and agility in the Americas organization, and sought clarification on the balance of investments between beer and beyond beer, particularly which is seen as the bigger growth driver.

Answer

CEO Rahul Goyal explained that the restructuring aims to bring leaders closer to the customer and consumer agenda, enabling faster execution, regional focus, and driving decision-making and accountability closer to markets. Regarding investments, he stated that marketing pressure will continue on big beer brands, while beyond beer needs to grow to impact the total enterprise, with the balance sheet used to augment the beyond beer portfolio. More details on the specific balance will be shared later.

Steve Powers asked CEO Rahul Goyal how the Americas restructuring would specifically enhance speed and agility. He also sought clarification on the balance of investments between the larger beer business (focusing on premiumization) and the Beyond Beer segment (as a potential larger growth driver), and how this influences capital allocation.

Answer

CEO Rahul Goyal explained the restructuring aims to bring leaders closer to the market, enabling faster execution, regional pivoting, and shifting resources based on opportunities, while driving decision-making and accountability closer to the markets. He stated that strong marketing pressure will continue for big beer brands, and Beyond Beer needs to achieve sufficient scale to impact the enterprise, with the balance sheet used to acquire scale brands. More details on the exact balance of investments are forthcoming.

Steve Powers asked about Simply Good Foods' strategy for future competition in the high-growth, low-sugar, high-protein category, how competitive views have evolved, and how these are integrated into fiscal 2026 planning. He also questioned the impact of increased CapEx on M&A capacity.

Answer

President and CEO Geoff Tanner highlighted the category's strong growth and Simply Good Foods' investments in R&D, sales capabilities, and an agile supply chain to manage competition. He emphasized the company's focus on increasing organizational output and speed. CFO Chris Bealer affirmed that cash priorities remain unchanged, with the company capable of investing in CapEx, share buybacks, and M&A, given strong cash generation and low net debt levels.

Steve Powers inquired about Simply Good Foods' strategy for managing future competition within the strong low-sugar, high-protein category, and how these competitive dynamics are factored into fiscal 2026 business planning. He also asked CFO Chris Bealer about the company's appetite and capacity for M&A given current organic challenges and increased CapEx.

Answer

President and CEO Geoff Tanner acknowledged the competitive nature of the high-growth category, emphasizing Simply Good Foods' investments in R&D, sales capabilities, and an agile supply chain. He highlighted the mainstreaming of the category, leading to increased addressable market and focus on expanding physical availability outside traditional aisles. Tanner stressed the need for an agile organization with faster innovation and digital marketing. CFO Chris Bealer stated that the company's cash generation, low net debt, and structured framework allow for simultaneous investment in capital, share buybacks, and M&A, confirming no change in M&A capacity.

Steve Powers asked for more detail on early elasticity analytics and where consumers are likely to be more accepting of pricing versus more price sensitive, as McCormick begins to implement tariff-related pricing in the Consumer business. He also asked Marcos Gabriel about the early planning thoughts for 2026 mitigation, specifically if the balance between pricing and sourcing/savings initiatives is even, or skewed one way.

Answer

Brendan Foley, Chairman, President, and CEO, stated it's too early to provide real insight on trends or outcomes regarding elasticity, as they have very little data. He expressed confidence in their analytics to predict impacts. Marcos Gabriel, Executive Vice President and CFO, stated that 2026 mitigation is more skewed towards savings (CCI, productivity, alternative sourcing) across all lines of the P&L, with the residual being addressed through surgical price initiatives.

Steve Powers asked about McCormick's planning posture regarding pricing implementation in response to tariffs, specifically seeking details on early elasticity analytics in the consumer business and expectations for consumer acceptance of pricing. He also inquired about the early planning thoughts for 2026 mitigation, asking if the balance between savings/productivity initiatives and pricing is skewed towards one over the other.

Answer

Chairman, President, and CEO Brendan Foley stated it's too early to provide real insight into elasticity trends from early pricing data, but expressed confidence in the analytics used. Executive Vice President and CFO Marcos Gabriel indicated that for 2026 mitigation, the approach is more skewed towards savings and productivity initiatives (CCI across all P&L lines, alternative sourcing), with surgical pricing as the residual lever.

Steve Powers questioned the decision to slightly lower the brand marketing outlook rather than reinvesting efficiencies to support top-line growth, and asked if the second-half contribution from innovation and distribution would be evenly spread.

Answer

Chairman, President & CEO Brendan Foley clarified that the outlook change reflects productivity gains from CCI, not a reduction in investment intensity, and that A&P spending will still be up significantly year-over-year in the second half. He confirmed that the benefits from innovation and distribution are expected to be evenly contributed across Q3 and Q4, while any surgical pricing would be more weighted to Q4.

Steve Powers asked why the company slightly reduced its brand marketing outlook instead of reinvesting efficiencies, and whether H2 distribution and innovation gains would be skewed to Q3 or Q4.

Answer

CEO Brendan Foley clarified the change reflects CCI productivity in media buying, not a pullback in investment, which will still increase year-over-year in H2. He noted they constantly reinvest savings, citing hot sauce in Q2. He expects new item and distribution gains to be evenly spread across Q3 and Q4, while any surgical pricing would likely be more weighted to Q4.

Steve Powers asked about Lamb Weston's customer service scorecard in North America, specifically if it's universally strong or if there are still areas for improvement. He also inquired about the timeline for the new Argentina facility to reach target utilization levels and the impact of competitive activity in Brazil.

Answer

CEO Mike Smith acknowledged that while they track customer engagement and metrics regularly, there are still opportunities for improvement, which they are addressing through structural changes, personnel adjustments, and innovation, emphasizing a continuous drive for higher service. He confirmed the Argentina plant is operational and ramping up, noting that reaching target utilization takes time, similar to other startups, and much of its capacity will be exported to the Brazilian market.

Steve Powers asked about Lamb Weston's customer service scorecard in North America, encompassing product quality and order fill rates, inquiring if it is universally strong or if there are still areas prioritized for improvement. He also asked for a timeline for the new Argentina facility to reach target utilization levels and how competitive activity in Brazil might impact its ramp-up.

Answer

CEO Mike Smith acknowledged that there are still opportunities for improvement in customer engagement and key metrics, which the company is actively addressing through structural changes, personnel adjustments, and innovation. He emphasized a continuous drive for higher commitment and service. Regarding the Argentina facility, Mr. Smith confirmed it is operational, actively qualifying products, and ramping up, but noted that reaching target utilization takes time, similar to other line startups, with much of its capacity destined for the Brazilian market.

Steve Powers from Deutsche Bank requested clarity on the 'positive customer momentum' assumed in the fiscal 2026 outlook, asking if it reflects carryover business or new, incremental wins. He also asked how the company is assessing and preparing for risks related to potential new tariffs and trade policy changes.

Answer

President & CEO Mike Smith confirmed the momentum includes both carryover from strong Q4 volumes and new business wins, citing a large QSR chain's transition to frozen fries as an example. CFO Bernadette Madarieta addressed the tariff risk, noting that while they supply most customers regionally, the primary impact would be on imported oil and ingredients. She quantified the potential impact of the proposed August 1 tariffs at approximately $25 million.

Steve Powers sought clarification on the full-year EBITDA guidance, questioning the confidence in staying above $1 billion given tariff headwinds. He also asked if the strategic recalibration in fragrances and cosmetics creates an opportunity cost for the skincare initiatives.

Answer

CFO Laurent Mercier confirmed the math, stating that while H1 EBITDA is pressured by tariffs, productivity actions and savings from the 'all in to win' plan will be at full speed in H2, providing confidence in exceeding $1 billion for the full year. CEO Sue Nabi addressed the strategy question by affirming that while scenting is the primary focus, skincare remains a key part of the company's future. She noted investments in skincare will be more radical and careful, leveraging the brands' small size for natural growth without diverting essential resources from the core fragrance business.

Steve Powers questioned the confidence in the full-year EBITDA guidance of over $1 billion, given the stated tariff headwind. He also asked if the strategic recalibration in fragrances and cosmetics creates an opportunity cost for skincare initiatives.

Answer

CFO Laurent Mercier expressed confidence in exceeding $1 billion in EBITDA, explaining that while tariffs hurt H1, productivity actions and savings from the "All In to Win" plan will accelerate in H2. CEO Sue Nabi stated that while the company is betting heavily on scenting, skincare remains a key part of Coty's future and investments will be managed carefully without detracting from the core business.

Steve Powers noted that case growth outpaced revenue growth, resulting in a lower price per case, and asked for a breakdown of the drivers, such as promotions, geographic mix, or segment mix.

Answer

Hilton Schlosberg, Vice Chairman & CEO, confirmed the analyst's assessment. He explained the lower price per case was a result of several mix shifts, including a record 41% of sales coming from international markets, significant growth in lower-priced 'affordable brands' abroad, and faster growth in the Strategic Brands segment relative to the core Monster Energy Drinks segment.

Steve Powers asked about the potential negative impact on organic growth from simplifying the portfolio and reducing complexity, and also inquired about the potential need for incremental restructuring and the associated cash costs to reach the desired operational state.

Answer

CFO Amit Banati responded that it was premature to comment on specifics while the broad strategic review is underway. He noted that addressing the long tail of SKUs is a near-term opportunity. Banati stated that the outcome of the strategic review will inform any future decisions regarding restructuring and associated costs, while also highlighting that cash flow in the first half of the year was ahead of the prior year.

Steve Powers asked about the potential consequences of organically reducing complexity, specifically the potential headwind to organic growth from SKU rationalization and the need for incremental restructuring and associated cash costs.

Answer

CFO Amit Banati stated it was premature to specify the impacts while the strategic review is ongoing, but noted the long tail of SKUs could be addressed 'fairly quickly.' He pivoted to cash flow, highlighting that first-half performance was strong and the full-year outlook for cash remains in the same neighborhood as the prior year, despite lower earnings guidance.

Steve Powers sought clarity on the 2025 objective for the Skin Health & Beauty business, asking whether the goal is merely stabilization or if the company realistically aims for growth next year.

Answer

Executive Thibaut Mongon stated unequivocally, 'We are focused on returning the segment to growth and expect to do that in 2025.' He explained the strategy involves fueling growth in EMEA and countering U.S. category deceleration through better execution of the company's playbook, including improved innovation and marketing campaigns, rather than relying on a recovery in Asian consumer sentiment.

Steve Powers of Deutsche Bank sought confirmation on the Q3 outlook, considering the favorable lap of a prior-year ERP disruption, and inquired about the scale of recent inflationary pressures and potential pricing actions for 2026.

Answer

CFO Ruben Baldew confirmed the 2.5% favorable ERP comparator for Q3 but cautioned that July started weak due to weather. He detailed that the full-year inflation forecast has risen from 4% to 4.5%, primarily due to poor pea crop yields from the hot, dry weather. Baldew stated that while some pricing will be taken, most of the inflation recovery will be addressed in 2026 negotiations, balanced against the need to remain cost-competitive.

Sought confirmation on the impact of lapping last year's ERP disruption in the Q3 outlook and asked for details on rising inflationary pressures and the company's pricing strategy for the remainder of 2025 and into 2026.

Answer

Management confirmed that the 2.5% favorable impact from lapping last year's ERP disruption is factored into the Q3 guidance. They noted that full-year inflation expectations have increased from 2.5% to 4.5%, primarily due to poor crop yields from the hot, dry weather. Significant pricing actions to recover these costs are planned for 2026, as most negotiations occur annually in Q1, though some smaller price increases will happen this year.

Steve Powers of Deutsche Bank asked about the VMS (vitamin) business, specifically how easily separable it is and what the stranded overhead considerations might be. He also questioned how the company benchmarks its spending and capabilities against peers who are launching major restructuring programs.

Answer

President and CEO Rick Dierker explained that the vitamin business is fairly compartmentalized with separate manufacturing and dedicated functional teams, though some corporate costs would need to be addressed in a sale. Regarding spending, Dierker emphasized the company's 'pay as you go' philosophy, preferring to embed long-term investments into its evergreen model rather than pursuing large, one-off restructuring programs.

Steve Powers of Deutsche Bank sought more detail on the prioritization of innovation within the 2030 strategy. He asked whether the focus would be on more innovation overall, more premium products, or innovation with better ROI, building on the success of the 2025 strategy.

Answer

Chairman, CEO & President Noel Wallace clarified that the new strategic focus is on enhancing H2 (breakthrough) and H3 (transformational) innovation, which requires longer development times and more resources for incubation. He also noted a need to improve the agility of H1 (incremental) innovation in a few specific geographies where the company needs to be quicker.

Steve Powers from Deutsche Bank sought confirmation that the normalized EPS run-rate exiting fiscal 2026 is around $7 after adjusting for ERP impacts. He also asked about the potential risk of structural destocking by retailers as they leverage Clorox's improved capabilities.

Answer

CFO Luc Bellet confirmed that adding the ERP impact back to the midpoint of the guidance range is the correct way to approximate the normalized EPS base. CEO Linda Rendle stated she does not see a structural destocking risk, as the ERP implementation primarily enhances Clorox's internal efficiency and cost structure, rather than fundamentally altering retailer inventory management processes.

Steve Powers from Deutsche Bank asked about the expected rebound timeline for Mexico and India, other potential market watch-points for Q3, and where the implied second-half reinvestment would be targeted.

Answer

Chairman and CEO James Quincey expressed confidence in a rebound for Mexico, citing an easier comparison and strong marketing plans. For India, he remains bullish long-term, pointing to new campaigns and a refranchising deal to boost execution. He confirmed that second-half reinvestment is partly due to productivity savings being realized early and is intended to drive momentum for the rest of 2025 and into 2026.

Steve Powers sought to clarify if the expected "good balance" of volume, price, and mix in North America for the second half meant all three components would be positive. He also questioned if Kellanova could maintain its return on investment as competitors also increase their spending.

Answer

Steven Cahillane, Chairman, President and CEO, avoided a specific forecast but stressed the return to volume growth is the key focus. He reiterated that the competitive environment is rational and returning to pre-pandemic norms, not becoming overly aggressive. He expressed confidence that investing in strong brands, innovation, and quality merchandising will continue to drive the business effectively in this environment.