PepsiCo, Inc. (PEP) Q4 2021 Earnings Call Transcript

PepsiCo, Inc.  (NASDAQ: PEP) Q4 2021 earnings call dated Feb. 10, 2022

Corporate Participants:

Ravi Pamnani — Senior Vice President, Investor Relations

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Ramon L. Laguarta — Chairman and Chief Executive Officer

Analysts:

Dara Mohsenian — Morgan Stanley — Analyst

Bonnie Herzog — Goldman Sachs — Analyst

Lauren Lieberman — Barclays — Analyst

Andrea Teixeira — JP Morgan Chase & Co. — Analyst

Bryan Spillane — Bank of America — Analyst

Laurent Grandet — Guggenheim Securities — Analyst

Vivien Azer — Cowen & Company — Analyst

Kevin Grundy — Jefferies — Analyst

Robert Ottenstein — Evercore ISI — Analyst

Christopher Carey — Wells Fargo — Analyst

Presentation:

Operator

Good morning, and welcome to PepsiCo’s 2021 Fourth Quarter Earnings Question-and-Answer Session. [Operator Instructions] Today’s call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Ravi Pamnani, Senior Vice President of Investor Relations. Mr. Pamnani, you may begin.

Ravi Pamnani — Senior Vice President, Investor Relations

Thank you, operator, and good morning, everyone. I hope everyone has had the chance this morning to review our press release and prepared remarks, both of which are available on our website. Before we begin, please take note of our cautionary statement. We may make forward-looking statements on today’s call, including about our business plans, 2022 guidance and long-term financial targets and the potential impact of the COVID-19 pandemic on our business.

Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 10, 2022, and we are under no obligation to update. When discussing our results, we refer to non-GAAP measures, which exclude certain items from reported results. Please refer to our fourth quarter and full year 2021 earnings release and 2021 Form 10-K available on pepsico.com for definitions and reconciliations of non-GAAP measures, and additional information regarding our results, including a discussion of factors that could cause actual results to materially differ from forward-looking statements.

Joining me today are PepsiCo’s Chairman and CEO, Ramon Laguarta; and PepsiCo’s Vice Chairman and CFO, Hugh Johnston. We ask that you please limit yourself to one question.

And with that, I will turn it over to the operator for the first question.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from Dara Mohsenian with Morgan Stanley.

Dara Mohsenian — Morgan Stanley — Analyst

Hey, good morning guys.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Good morning, Dara.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Morning.

Dara Mohsenian — Morgan Stanley — Analyst

So I wanted to focus on the 2022 top line guidance, obviously very strong Q4 results, but look, you’re guiding towards the higher end of the long-term range in terms of 6% organic sales growth in 2022, despite a really tough comparison if we look at 2021. So I just wanted to understand the key drivers for 2022 top line, particularly price mix versus volume and any thoughts on demand elasticity? And then, also just from a broader long-term perspective as you look out beyond 2022, are you more confident your strategies are sustainably paying off? Could top line growth be more at the higher end of that mid single-digit long-term top line range? How do you think about the long-term beyond 2022, given what’s expected to be pretty robust growth, despite the tough comp? Thanks.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Yeah, I mean, this is hard and maybe Hugh can add. We see our category is very healthy moving into ’22 and long-term, both our convenient foods and beverages, so that makes us feel very comfortable. The investments that we’ve made over the last three years in brands, in market and we will go to market systems and more insights of better execution, that’s clearly paying off in the form of share of market gains in — across multiple developing markets, snacks and beverages, so we feel good about our ability to continue to grow ahead of our categories in ’22 and beyond. And obviously, we are big players in those categories, so we carry the responsibility to make this category stay healthy and say, growing faster than food overall. So that’s how we see our long-term and we — obviously, if you think about next year, yes, we’re at the top end of our long-term guidance. This year, obviously, we — I mean, last year, we obviously crossed that long-term guidance. So is it compounded? Yes, we are at the high end of 4% to 6% and obviously, we — that’s the objective of the whole organization to stay within that guidance and beat it in good years.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah, the only thing I’ll add there in terms of some of the financial pieces of it. You saw in Q4, we had about 5 points of volume and about 7 points of price mix. Obviously, we — as our hedges roll off and we move into a new round of commodities, we’re going to price in a way that allows us, at least for the full year to try to keep our margins pretty well intact, which means that, that 7 pricing will probably be around there, maybe even a little bit stronger for the year. We’ll see how it plays out, I mean, and react to what happens with the facts in the marketplace, but it’s going to be a pretty healthy pricing year to accommodate the cost increases.

Dara Mohsenian — Morgan Stanley — Analyst

And if I can follow-up, what are you assuming in terms of demand elasticity and what’s been the experience so far you’ve seen in terms of consumer demand elasticity to pricing? Seem like they’re clearly wasn’t a lot in Q4, but what are you assuming for 2022? Thanks.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah, so I mean, for ’22, Dara, you are right. Obviously, there wasn’t a lot in Q4, but that’s a relatively short period of time. Right now, we built multiple scenarios around elasticity and where we have plans to react to any of them. So frankly, we’ll — we’re going to have to be very agile this year in the way that we plan, but you know that our history on guidance is. We tend to have multiple ways to get there and we’ll react to what the marketplace gives us.

Dara Mohsenian — Morgan Stanley — Analyst

Thanks.

Ramon L. Laguarta — Chairman and Chief Executive Officer

And I think, Dara, if you think about all the investments we’ve made in the last few years, both in the brand strength or some of our net revenue capabilities, even our execution capabilities, the granularity that we can execute in the stores, that’s clearly giving us a lot of, I would say, tools to play the marketplace and to manage the price increases in a better ways than we used to do it in the past. So we’re also contemplating that as a factor as we are building our ’22 scenarios.

Dara Mohsenian — Morgan Stanley — Analyst

Great. That’s helpful. Thanks.

Operator

Our next question comes from Bonnie Herzog with Goldman Sachs.

Bonnie Herzog — Goldman Sachs — Analyst

All right. Thank you. Good morning. Actually had a question on your A&M spend in the quarter. I guess, on a dollar basis, it seem to have almost doubled in the quarter versus Q3. And then, came in at may be a record as a percentage of sales at almost 8% in the quarter versus your typical, call it, I don’t know 6.5%. So I just was hoping you guys could give us a little more color on where you stepped up the spending in the quarter and then how much you think that did contribute to your robust top line growth in Q4? And then I’m thinking about it, typically, there is a lag with spending, so I’m also wondering if this is partly what you expect to drive your top line guidance at the high end of your long term growth goal?

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah. Hi, Bonnie. It’s Hugh. A couple of things on that. One, A&M for the year was up 11% for the quarter. It was up 15%, but remember, when you’re dealing with the quarter that’s not necessarily what’s in the marketplace, that’s sort of the A&M curve and we book A&M on the revenue curve. In terms of spend, spend was up in the quarter. For sure, I don’t know that it was disproportionately up relative to the rest of the year. And in terms of go forward, I expect our A&M as it generally has, will probably be in or around the same level of growth as the sales growth number is. Obviously, we feel terrific about the advertising we’re doing. We think it’s having the right impact, but we clearly were the beneficiaries of — in North America, some reduction and we think that’s also played well. We generally are spending in a competitive level and we’re trying to compete on quality of the A&M, not necessarily the quantity of the A&M.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Yeah, Bonnie. One of the things where we’re — I think we’re getting better at is measuring our return on investment on our marketing and we’re — the more data we have, and obviously, we’re becoming a better data company, we are able to put better numbers to those investments and have the marketing teams and the commercial teams overall choosing different levers that give us the best return overall and that’s playing very well. It’s obviously one of the reasons why we’re gaining market share across many categories. Strategically, we want to continue with this kind of investments being very rational in the way we invest A&M, but understanding that a company like ours, the current competence is building brands and that’s what give us in situations like we’re having this year where we have to price, we have consumers following us in spite of higher prices. So I think, strategically, it’s a very important element in our overall growth strategy.

Bonnie Herzog — Goldman Sachs — Analyst

Okay, helpful. Seems to be working. Thank you.

Operator

Our next question comes from Lauren Lieberman with Barclays.

Lauren Lieberman — Barclays — Analyst

Great. Thanks. Good morning. Wanted to just talk about PBNA volumes, because accelerated sequentially and on a two-year basis and now putting up growth-on-growth, and I was just curious, how you might kind of bucket the drivers of that and I’m going to guess part of it, you’re going to say, oh, it’s a little bit of everything. But zeros have been in the market, I think arguably all year. I thought maybe there is something to be said for the reorganization of the markets and that may be starting to click in in a different way, so just curious on any perspective on the accelerating trends in PBNA that will be great? Thanks.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Yeah, listen, Lauren. The — I would say, if you take a bigger picture, I think there is a elevated in-home consumption that has stayed like that. I think, home as a have is a clear trend and we’re seeing, we’re capturing pretty good of that consumption at home and obviously, during the quarter, there has been more mobility across the multiple markets in the U.S. obviously — but globally, I would say, and then some of the away-from-home business has accelerated as well. So what you see there is a combination of all these channels, I think, playing at a very high level. Then if you go into our own business, I would say, the combination of branding, better execution and the truth is that in Q4, we’ve seen an improvement sequentially of our supply chain and some of our large brands, and I would name Gatorade, for example, clearly has improved substantially in its running rate and fill rate in the last part of the quarter, so that’s reflected as well in a better overall performance for the business. But we’re very pleased in general with the way the North America business is performing in beverages and in snacks as well, and both the margin expansion, the top line, the fact that it grew with the market a bit faster than the market in a very challenging year with a lot of supply chain complexities and bottlenecks for several reasons. So we’re very pleased, we are feeling comfortable as well for ’22, very strong commercial programs, very strong brand programs and as you were saying probably a better execution machine for many reasons, data and intelligence, but also more empowered organization that makes more local decisions and that’s obviously reflected in the performance of the business.

Operator

Thank you. Your next question comes from Andrea Teixeira with JP Morgan.

Andrea Teixeira — JP Morgan Chase & Co. — Analyst

Thank you. Good morning. I have a question on sports drinks and then, a clarification on the pricing. First, on Gatorade, it was a brand that obviously was pressured in 2021 from supply chain challenges and competition. And as you go into ’22, can you talk about the supply dynamics there and inventory for the brand? And then, on the pricing, I think, embedded in your guidance, I understand that it’s assuming only the pricing that is already in the market. And therefore, I wanted to see if we can bridge from Hugh’s comments and seeing the visibility of the gross margin curve potentially recovered by the end of the year and potentially, being up year-over-year for the full year? Thank you.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Yeah, I’ll — let me talk to you about the Gatorade and then Hugh can talk more about the pricing. We are very optimistic with the sports drink category but we think a bit broadly than just hydration. We think about overall nutrition and the way Gatorade is playing in that space along with some other brands like PROPEL, Muscle Milk, Evolve and some other assets that we have in that space. It is growing very fast. We see continued consumer adoption of this category. Consumers are exercising more and we think that’s a very positive trend for the — for this segment. When it comes to Gatorade, the brand equity is stronger than ever and the innovation that was done this year and you will see more next year, be it Zero, be it Gatorlyte, be it some of the more science-related with a Sweat Patch and how we can be a much more customized for the consumer based on their hydration profile. So there is a lot of positive value that I think we can create in higher parts of the category with Gatorade and some of the other brands. So we feel good about the demand momentum. On the supply, obviously, we have reacted to the situation and we’ve expanded capacity both our sales and some of our co-packers and we’re ready for what we think will be another year of successful growth for Gatorade and continue to build the brand in spaces that will be hard to match by competitors. So that’s how we are approaching Gatorade and the full category next year.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah. Andrea, how are you? I’ll expand on the — your question on the other side, our assumptions on the guidance are based on the pricing that we have in the marketplace right now and that pricing is based on the visibility that we have into both the productivity in the cost structure and commodities, which we have pretty good visibility into — on the commodities about eight or nine months of the year as you would expect based on some of the things I’ve communicated in the past. Q4 is a bit — still a bit open, but there are obviously pricing windows as we get into the fourth quarter as well. So as those facts become more known, we’ll make decisions on that front. Regarding your question on margins, obviously, we don’t give guidance on margins, but I think given the combination of what we know about cost and what we know about pricing, we ought to be able to get through the year pretty well intact on margins, acknowledging the fact that earlier in the year the cost pressure is a little bit higher than it is later in the year.

Operator

Thank you. Our next question comes from Bryan Spillane with Bank of America.

Bryan Spillane — Bank of America — Analyst

Hey, good morning.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Good morning, Bryan.

Bryan Spillane — Bank of America — Analyst

Just two — maybe just two follow-ups. One is just Hugh your answer in response to Andrea’s question, when you’re saying margins, you’re talking about EBIT margins or gross margins?

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Both, actually.

Bryan Spillane — Bank of America — Analyst

Okay, okay. And then on, my question is about just the share repurchases coming back in this year, Hugh can you talk a little bit about where we stand now in terms of cash return to shareholders? I think part of the motivation to maybe pull back on repurchases at the beginning of ’21 was your capex is going to be elevated for a while and I know you’re watching the leverage — the credit rating. So is this just a — now there is more comfort with being able to return more cash to shareholders or is it a change in capex outlook? Just trying to understand if we can — how you’re thinking about that?

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah, I mean, we — obviously, we made the decision not just based on what we see this year but we see over the next couple of years. Number one, we really have put the gear on cash generation last year, which gave us a little bit of extra room. In addition to that, obviously, we have the Tropicana transaction, which bought us some room as well and we just really closed that over the course of the last week or so. So the combination of those two factors led us to the decision. As I mentioned last year, capex will be elevated for another year or two, but frankly, I think that’s well within the sort of overall envelope that we’re working on and we got comfortable with going back to share repurchase and obviously, it’s a one of the levers we use to help drive company performance and shareholder returns.

Operator

Thank you. Our next question comes from Laurent Grandet with Guggenheim.

Laurent Grandet — Guggenheim Securities — Analyst

Hey, good morning, Ramon, Hugh. Well, I do — I’d like to focus this morning on the energy platform, so it has been about two years since the acquisition of Rockstar and unlocked the energy platform, an advantage PepsiCo has over your competitor that is limited because of its contract with Monster, so could you please update us on where you are seeing your — where you’re heading? Because the beginning has not been — has been a bit more challenged and expected with bank management, Mountain Dew right name change and Rockstar taking a bit more time to set their eye. So that is a high growth, high profitability segment of the business. It has an impact on PBNA and the rest of the business. So could you please update us on what you’re seeing and where you are heading? Thanks.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Hey, Laurent, good to talk to you. Listen, we’re executing the playbook as we told you, we’ve been quite consistent on the last few calls and we’re quite pleased with the — what we’re seeing. Obviously, Rockstar, we always said it was the most complex transformation, we repositioned the brand, we changed packaging. We’re seeing growth in Rockstar, both in the areas where it’s more developed — areas of the country was more developed and new areas, obviously, where our distribution system is making a difference. And we’re seeing, especially very good performance in new innovation segments like No Sugar and some more Hispanic focused innovation. So we’re hopeful on Rockstar and we’re seeing the metrics that we set for ourselves are becoming reality.

Then, on Mountain Dew Energy, we have this legal situation, which we move very quickly, super agile actually. The team did a great job turning that in six weeks and it’s in the market and it’s gone back to the platform exactly where it was. So clearly, there is a consumer that likes the product and we are ready to now invest, obviously, this year in building that platform under the Mountain Dew Energy branding and that’s a pretty good position even though we had that legal situation. With bank, which was the other part of the of the strategy, we — after that initial hiccup, I think, we’re — actually we’re doing pretty good job as a distributor of the brand and the brand is more points of sale than it used to be, and we continue to focus on driving that performance during the length of the of the contract. And then, the other one that we’re very pleased is the Starbucks relationship, that is — that JV relationship is better than ever I would say and both Doubleshot, Tripleshot is growing at a very high levels, and I don’t know if you’re aware, we just launched Baya Energy, which is a full natural energy brand. New brand to the system. It’s the first time we launched it both in retail and in Starbucks outlets. Great product. Good levels of caffeine coming from natural source. We’re very optimistic on that platform. It’s very incremental, if you see the full portfolio of brands that we have on energy, so Baya will be a positive addition incremental.

So I think, the machine is firing in a lot of cylinders. It’s always — it is an area of focus. You need to test and learn and adjust and tweak your execution. I’m pleased with what I am seeing. The other element that we don’t talk so much about Rockstar is that mid-year, it’s going to be in 70 international markets. It was in 10 markets. We expanded in ’21 to, I think, it was 22, 23 market. Now next year — this year ’22, we will be in 70 markets. So clearly, another part of the growth story of Rockstar as we acquire the business. So we’ll keep updating you in our regular calls, but we’re positive on how the full energy strategy is working.

Operator

Thank you. Our next question comes from Vivien Azer with Cowen.

Vivien Azer — Cowen & Company — Analyst

Hi. Good morning. Thank you. I wanted to follow-up please on Dara’s question on price elasticities. Hugh, I appreciated your comment that you guys are looking at multiple scenarios and clearly, do have a lot of levers at your disposal. But I was hoping, you could dive a little bit more please on Pepsi Beverages North America and specifically, how you think about cross-category elasticities across our U.S. beverage business? And as a quick follow-up to that, to the extent that consumers’ ability to absorb pricing were to diminish at all like are there certain categories you’d be watching more closely as a leading indicator of that? Thank you.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah, happy to go there a bit. And as I said, elasticities to me are basically a portfolio of risks that we try to manage rather than kind of zeroing in on single number, right? And a portfolio as complex as this, it’s hard to have that conversation. What I would tell you Vivien that we’ve seen over the last couple of years is in the North America beverage business, category elasticities are relatively low. I think, the reason for that is, particularly in the multi-serve area, prices are pretty remarkably low, right? Whether you’re looking at 2 liters or 12 packs and if you compare those prices to elsewhere in the world. The prices in this market are actually quite low. It’s a tremendous value for consumers. So as we sort of move into a world of higher inflation, I do expect the category prices probably will go up and at least to-date, we haven’t seen much in the way of elasticity. As you might imagine, I can’t point to any one. I think, we sort of watch elasticities on everything, both the value packages and the premium packages and the good news is our system is agile enough to react to it, but right now, the elasticities are in line with our expectations. And frankly, that’s what gives us confidence in the guide for the year.

Operator

Thank you. Our next question comes from Kevin Grundy with Jefferies.

Kevin Grundy — Jefferies — Analyst

Great. Thanks. Good morning, everyone. Thanks for the question. First is a clarification on Laurent’s line of questioning around energy. Ramon, can you just comment, you mentioned firing on all cylinders and you’re pleased with energy, would you rule out M&A? So if you could just comment on that, that’d be helpful. My broader strategic question is really on the business venture with Boston Beer regarding Hard MTN Dew. Can you just update us on how that partnership has progressed and importantly, as you spend more time studying the alcohol space, can you provide some updated thoughts on broader ambitions to play, not only as it pertains to new product innovation, but also the potential to distribute non-PepsiCo alcohol products through your distribution? So thanks for that.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Yeah, Kevin, listen on M&A, I think we have sufficient brands, right? To play in that space. So I — we’re not thinking about any M&A in the energy space at this point. Now, with regards to alcohol, great question and I think it’s a very interesting development for the LRB category and for the alcohol category. So clearly, consumers are choosing to converge in a way and so we see that space is strategically very incremental. It’s sizable and it’s profitable, so obviously, we would like to participate in a consistent and structural way for us. Obviously, we will play from the brand point of view and innovation, licensing our brands to beer manufacturers that can help us with the manufacturer. We don’t have the technologies to make some of these products, but we are creating strong partnerships. You mentioned one and I think, we have brands that can extend into those spaces, so that will be one way, how we do it.

On the other hand, I think there is a very interesting play for us to leverage some of our distribution assets to provide capital distribution and consistent execution across the country and we are working on that solution. We have obviously some market test undergoing and we will continue to roll out those — that potential distribution opportunity. I think it could be an advantage for us if we do it well and that’s what we are planning to do, so we see us participating from the consumer point of view and also from the infrastructure and execution and granularity of execution point of view as well. Those two area could create value for PepsiCo long-term.

Operator

Thank you. Our next question comes from Rob Ottenstein with Evercore.

Robert Ottenstein — Evercore ISI — Analyst

Great. Thank you very much. We focus mostly on the U.S. today. I was wondering, if you could talk a little bit about how you’re viewing your global footprint. In the past, for instance, the company has made acquisitions to expand the offerings in Russia and South Africa. Any thoughts along those lines in other geographies? Any things that is going on on the international side that we should be aware of in terms of strategic direction or changes of how you’re looking at the business? And then just a quick follow-up on the hedging and the commodities. It would be — I think, it’d be helpful if — to the extent you can kind of talk about some of the key commodities and what percentage of your cost structure they represent? Thank you.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Great. Robert, I’ll talk about international a bit and then Hugh can talk about the commodities and you know we’re quite limited on what we’d say about our detailed P&. The — on international, I’ve always said and continue to say this is the — by the largest growth opportunity we have in PepsiCo. I think, where — we have a strong market positions in snacks and pretty good in beverages in many markets, some others a more challenging positions but we’re working to strengthen those. I think we have a portfolio of brands and we have the portfolio of assets and the team’s in place to continue to work on that opportunity. Last year, we grew double-digit internationally pretty much across the board from Asia to Middle East, Africa. Europe was very close to double-digit full year, if I recall and then Latin America beat double digit, so pretty good performance. And if I look at the top 15 markets for the company, we are gaining share in most of those markets, which is to me the key indicator of progress in the system. Obviously, as we scale up of those markets, profitability gets much better and that’s the model we’re applying to — we’re trying to play. For next year, we will see good signs. Obviously, the geopolitics in some parts of the world are complex. We hope that that will not materialize in anything that will impact our system and we see inflation going up everywhere. We have the brands and we have, again the capabilities to price that’s what we’re doing in majority of the markets. We feel good about the elasticities as we discussed earlier, both developing markets and emerging. I’m a bit more cautious on emerging markets. I want to see a few more months to understand how the consumer is kind of absorbing all this high cost in multiple parts of their budget — household budget, but we’re feeling good about how consumers are staying loyal to our brands in spite of some of our pricing decisions. So, yeah, nice recovery international maybe.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Yeah. So in terms of commodities, just a couple of facts. Number one, the overall commodity basket is, I don’t know $16 billion, $17 billion. It’s a super broad basket. There is not a single commodity that even accounts for 10% of the overall spend, so fairly diverse basket. But that said, clearly commodities are inflationary pretty well across the board, and that’s what we’re dealing with. So…

Operator

Thank you. Our last question comes from Chris Carey with Wells Fargo.

Christopher Carey — Wells Fargo — Analyst

Hey, good morning. Thanks so much. Just on that last line of questioning there on commodities. You expect pricing to offset commodities just in the context of your comments on full-year margins? And then, on North America, there was a comment in the prepared remarks just around your expectations for PBNA margins to expand next year. I think the margin drivers of this business have obviously evolved with the product mix and pricing and I wonder, if you could just comment on how you see the drivers of that business go forward in the context of evolution of the business? Thanks so much.

Hugh F. Johnston — Vice Chairman and Chief Financial Officer

Sure. In terms of commodities and the way we approach it from a pricing perspective, obviously, we always try to do what we can in terms of productivity to manage an inflationary environment, but obviously, when inflation is this high, we need to take some pricing. In general and developed markets, we do price through the commodity increases. In developing and emerging, we have the variable to consider of affordability and consumer reaction to it and our history has been, it will initially price through two-third to three quarters and then go back and get the rest of it later. That said, overall, as I mentioned early in the call, I think the combination of our productivity and our pricing should put us in a position where we ought to be able to keep margins pretty well intact for the year. So that’s kind of where I think we land on that. And in terms of PBNA, we do expect margins to continue to improve as we’ve talked about in the past. Drivers are generally the same ones that we’ve talked about. It’s a combination of some pricing, some product mix as the energy category is more successful for us, some level of productivity as we get returns on the investments we’ve made in capacity, in digitalization and the like and we continue to use Global Business Services as a mechanism to drive G&A productivity as well. So it’s a broad bucket of actions that over the course of several years will get PBNA margins closer and closer to the company average.

Ramon L. Laguarta — Chairman and Chief Executive Officer

Great. I think, this is the last question. So just would like to say thank you for everyone to join us today and for the confidence you’ve placed in PepsiCo and in all of us with your investment and we hope that you stay safe and healthy. So thank you very much.

Operator

[Operator Closing Remarks]