Good morning, and welcome to PepsiCo’s First Quarter 2013 Earnings Conference Call. Your lines have been placed on listen-only until 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. Jamie Caulfield, Senior Vice President of Investor Relations. Mr. Caulfield, you may begin.

Thank you, operator. With me today are Indra Nooyi, PepsiCo’s Chairman and CEO; and Hugh Johnston, PepsiCo’s CFO. We’ll lead off today’s call with a review of our first quarter performance and 2013 outlook, and then we’ll move on to Q&A. In an effort to get to as many analysts’ questions as possible within the hour, we have kept our prepared remarks relatively short this morning, and we are going to have a one question limit, so we should be able to get through the full queue of analysts when we get to Q&A. Before we begin, please take note of our cautionary statement. This conference call includes forward-looking statements, including statements regarding 2013 guidance based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted in such forward-looking statements. Statements made on this conference call should be considered together with the cautionary statements and other information contained in today’s earnings release and in our most recent periodic reports filed with the SEC. Unless otherwise indicated, all references to EPS and total operating profit growth are on a core basis. In addition, references to organic revenue results in this call exclude the impact of acquisitions and divestitures, structural changes, and foreign exchange translation. To find disclosures and reconciliations of non-GAAP measures that we may use when discussing PepsiCo’s financial results, please refer to the glossary and other attachments to this morning’s earnings release and to the Investors section of PepsiCo’s website under the Investor Presentations tab. As we discuss our results today, please keep in mind that our Q1 reporting period is the 12 weeks ended March 23 for North America businesses and is the months of January and February for the vast majority of our businesses outside North America. And now, it’s my pleasure to introduce Indra Nooyi.

Thanks Jamie, and good morning everyone. Last February, we announced and then executed a number of important actions to strengthen and ensure the long-term success of our business. Since then, we have driven greater productivity, significantly increased our advertising and marketing investments, and upped our execution in the market. Today, I am very pleased to report strong first quarter results. We had mid single-digit organic revenue growth, double-digit core EPS growth, and a significant improvement in cash flow. We feel good about these results in what has been, and continues to be a competitive landscape and a volatile macro environment. The first quarter has us confident that we are on track to meet our 2013 financial guidance. Our organic revenue growth was 4.4% right in line with our mid single-digit long-term target, with particularly strong growth at Frito-Lay North America, Latin American snacks, international beverages, and snacks and beverages throughout Asia, Middle East, and Africa. Organic revenue growth reflected a good balance of volume and net pricing. Our overall servings increased 3%, with snacks volume growth of 4% and beverage volume growth of 1% in an organic basis, but our international beverage volume growth was very strong, up 9% on a reported basis and 6% on an organic basis. More specifically, developing and emerging markets volume was particularly impressive with snacks volume growth of 5.5% and beverage volume growth of 7% of an organic basis. North American beverages volume was negative driven by specific decisions we made to take pricing and sustain it during the quarter. We had good profit flow through with core gross margins improving almost 130 basis points in the quarter, core constant currency operating profit up 9% and our core operating margin up more than 80 basis points. Each of our four business units grew core…

Thanks Indra and good morning everyone. I will spend just a minute covering the financial results and guidance in a little more detail and then we will open the lines to your questions. For Q1 organic volume grew 4% in snacks and 1% in beverages with international organic volumes up 6% in beverages and 5% in snacks. Organic revenue grew 4.4%, our core gross margins improved by about 130 basis points and we reinvested almost 50 basis points in A&M. core operating margin improved by 80 basis points and core constant currency operating profit grew 9%. Net interest expense increased by $12 million reflecting higher debt balances, our core effective tax rate was 24.5% approximately 220 basis points below Q1, 2012 and core constant currency EPS grew 13%. So between core constant currency division operating profit growth of 7% and core constant currency EPS growth of 13% we got about six points of leverage, one point from corporate unallocated some of which is timing related. Slight leverage from net interest expense, three points from tax rate which will reverse as we’re forecasting the full year rate to come in at approximately 27% and one point from weighted average share count which was down 1% year-on-year. Overall the quarter came in as expected with pricing actions, commodity inflation and productivity all in-line with our expectations. On a reported basis net revenue was up 1%, and that was driven by a 0.5 point drag from 4x and at 3 point negative impact from structural change reflecting the China we’re franchising. And reported operating profit and EPS included to be $111 million net monetary asset write down in Venezuela that we talked about on the Q4 call. We generated over $700 million in cash flow from operations in the quarter, a $1.4 billion…

Thank you. (Operator Instructions) Our first question is coming from Bryan Spillane with Bank of America.

Hi, good morning.

Good morning Bryan.

Just a question on the operating leverage in the quarter, and I don’t know how difficult that it’s going to be to try to parse this out, but just try to get a sense for how much of it was driven just simply by commodity disinflation, how much of it is driven by the pricing – pricing actions, I guess, in Latin America foods and in America’s beverages And then how much of it is you’re actually beginning to see more of the productivity kind of drop to the bottom-line. So I’m just trying to get a sense for when we look at the margin expansion in the quarter and try to look at it going forward just the weightings in terms of what those items contributed to the margin expansion.

Obviously we’re getting into a fair amount of detail and in a global P&L it's a little bit difficult to parse all of that. No doubt they were all contributing factors, we clearly did have some pricing in excess of inflation for the quarter but we also got more than our share of the $900 million of productivity in the quarter and that was flowing through as well. Instead of breaking the specific pieces down what we really try to do is just give you guidance on what we expect the outputs to be and at least give you a sense for the difference between what’s happening in gross margin and what’s happening in operating margin. What I would just say is at both price in excess of commodity as well as productivity, we’re significant contributors to that margin expansion.

Your next question comes from the line of John Faucher with JPMorgan Chase.

Just want to follow-up a little bit Indra on your comments on North America, if we look at the scanner data pricing which is really what we have to work with, your pricing in CSDs accelerated a little bit through the quarter and on a two year basis you’re ahead of both of your largest competitors in terms of pricing in CSDs and I guess the big concern given the weak volume number is profits without a balanced algorithm really are not sustainable and people would argue that’s one of the things that got you in the hole that you’re in heading into 2012. So how do we think about that balance going forward because to Bryan’s point the leverage looks good but the view point is going to be that it's not sustainable and you’re going to have to drive some of that back in order to get the volume moving? So any sort of follow-up there?

In the last call I think we talked about Q1 always being sort of a funny quarter because all the weather related impacts hit us on Q1. So it's very hard to read the year from Q1 alone but having said that let me tell you that we look very carefully at this trade-off between volume, pricing and profit, we look at it constantly and we began the year saying we’ve got to take pricing and we’ve got to stick with it because this is a category where you got to behave in a very responsible and a consistent way so that you don’t destroy value in a business that requires reinvention that’s way we approached it. We saw some interesting pricing activity in the first five or six weeks of the quarter and at the second half of the quarter we started to put in the right actions on pricing, very granular, very targeted still with an eye towards profitability to make sure that we balance volume, revenue and profitability very carefully and if we look at the last six weeks or the last nine weeks the performance is very different. So believe me John, your point is exceedingly well taken, we’re threading this thing very, very carefully but at the end of the day I think this industry requires responsible behavior and we’re going to try to make sure that we play this carbs, non-carbs portfolio very carefully while getting ready for this reinvention of carbonated soft drinks. So we will continue to play this game where we don’t allow volume declines for the balance of the year to be at the magnitude of the first quarter.

Your next question comes from the line of Judy Hong with Goldman Sachs.

On some of your emerging market or developing market, performance I guess it's been now a few quarters where your profitability is starting to really ramp up. So can you just give us some perspective on the sustainability of that kind of profit improvement, your level of investment that’s going into those markets and the potential for continued I guess profitability, improvement how much of that is going to really drive your overall profit growth performance.

Judy, emerging and developing market have been growing robustly from a GDP perspective and the differential between developed markets and emerging and developing markets tend to be about between three and six points in terms of GDP growth. So if you look across the world, emerging, developing markets have robust growth. That’s the macroeconomic factor. Over the past five or six years, as you well know we have been investing to shift our portfolio to be more balanced between emerging and developing markets and developed markets because prior to 2006 we tended to be more of a developed market predominantly U.S based company. So the last six years we have been working very hard to diversify the portfolio. So what you’re beginning to see right now is a result of all those investments beginning to pay off bit by bit. When you first make the investments it is dilutive to profitability but you have to make those investments between M&A and organic investments we had to do it. Now, bit by bit, as developed markets don’t grow as robustly as it did pre-2005, and as the developing and emerging market investments start to payoff, the combination is beginning to yield results. Now, if you are asking for projection, I mean, that’s very hard to give you a projection, all that I tell you is the overall PepsiCo algorithm works, because we have this nice mix of developed and developing and emerging markets, and as margin improves in those markets and developed markets also continued to grow the overall portfolio works, the overall financial profile works.

Your next question comes from the line of Ali Dibadj with Sanford Bernstein.

Hey, guys. Thanks.

Good morning, Ali.

Hi, how are you?

Very good. Thank you.

Good. Want to ask a little bit about this balancing act that is certainly going on in North America, it sounds like successfully, particularly on North America CSDs, where you are seeing volume as what volume is, we are going to try to do better, but it is what it is, and we are going to try to drive profitability to try to….

And so the question being Ali?

I think he is asking the balancing act between profit and market share.

Yeah, good ahead.

Yeah. So, Ali, I guess, what I would say is this, as Indra mentioned in her opening remarks, we are basically trying to do two things. Number one, we want to make sure that we ensure our competitiveness, and that’s something that we think is important for the long-term of the business. At the same time, we do think that this is a – it’s a good business, it’s a business that generates a lot of cash flow, and obviously, we are looking for it to generate profit growth as it did in Q1 with PAB delivering 4% profit growth, which is certainly a positive, I think in the industry. The balancing act that we are ultimately going to manage to is ensuring that within the categories we are being smart about how we manage each of the categories, where we choose to gain share, where we choose to hold share. The second thing that we are going to be doing is we will be playing a price package game to ensure that we do look to across the package portfolio to get price realization, where we can, and in that vein one of the things that you know we are doing this year is what we have called our hybrid EDD, which is to try to balance out holiday and non-holiday pricing to try to send the message to consumers that not to buy only when the product is deeply discounted. And then obviously the last decision that we have made is a decision to invest in research and development to address some of the core dissatisfiers with some of the products with the belief that innovation is the way really to create sustainable value in the category. And I think that’s what we are looking to do in the North American beverage space, and we think it’s a successful strategy.

And Ali, the other thing as we talked in our earnings call, it’s interesting because the North American beverages we participate in every sub-segment of the North American beverage business. So, we have to be careful that we don’t take too much – take pricing down too much in one category and source from a more profitable part of the other sub-category. So, we have to make sure we play this overall category game very, very carefully. And because we have owned the operating businesses around the world in snacks, we are very, very cognizant of how you play the game in a big operating business. It’s very different from playing the game in a franchise business, and we have volumes of learning’s from around the world from our various operating businesses. And I think we are borrowing a page from that playbook to participate in this NAB, in the North American Beverage business.

Your next question comes from the line of Dara Mohsenian with Morgan Stanley.

Good morning.

Good morning, Dara.

So, Hugh, given that the 9% core profit growth in Q1 despite the 11% ad increase, your full year guidance implies a few hundred basis point slowdown at least in the balance of the year on core profit growth, and I know you mentioned commodities get worse, but I was hoping for a bit more detail on why you would expect that level of deceleration. And also can you quantify what you are expecting on commodities in the balance of the year relative to Q1?

Yeah. So, I think a couple of things to keep in mind on that, Dara. The first and probably the biggest factor is the world’s certainly a volatile place. And as we look forward into the balance of the year, we are certainly thinking about our guidance in the context of the world being a volatile place and at the same time ensuring that we deliver our guidance through thick and think in terms of the challenges that we might face. The second piece to consider is given that we have seen some success in terms of moving the top-line with investments that we have made in the business we’re only going to do things that we view as creating sustainable shareholder value but to the degree that there are opportunities to invest in the business to create sustainable shareholder value. We’re obviously going to be looking towards doing that as well. And then the last piece I talked about core division operating profit growth of 7% for the quarter and core division operating profit growth of 6% for the year. So that’s about a one point gap and frankly with the timing of the A&M expenses, with the timing of commodities that gap isn't so large that just sort of the general quarterly movements in those expenses would move the number from a 7 through a 6 in a relatively undisruptive way. So that’s basically how we get there and hopefully that gives you a little bit of a sense of the context as to how we are thinking about it as well.

Your next question comes from the line of Bill Schmitz with Deutsche Bank.

Can you just give us some color on the organic growth rate and some of the bigger country? So Russia, China, exiting the partnership, Brazil and Mexico and maybe Gatorade on the organic side too and then the second part of the question is maybe how March is looking at some of the international markets because I know (inaudible) in February so maybe some update on what is going to happen in March and what’s your view is going forward?

So organic growth pretty much in every one of those markets was strong and we talked about it in our earnings. China, volume grew organic revenue grew, if you look at the UK, you look at Russia; you look at every country pretty much across the board we had organic revenue growth whether it was developed or developing. I don’t think there was any country around the world they will wear. We did not have some organic growth. So we feel good about the growth rates even though many of these international markets were just two months. India grew 9%, Egypt grew 20%, Saudi grew 21%, Pakistan grew 37%. I could go on and on but every one of these grew mid-single digits or even in the 20s or 30s. So good revenue performance across the board. The first quarter is a two months quarter, it's a lowest, it's the smallest quarter in the year and so the cost and the profits are not fully balanced. So what I would say to you is that we had very good growth margins in EMEA for example we had 438 gross margin basis point improvement in gross margins but it's a small quarter, so let’s wait and see how that evolves through the year but all that I tell you is that Latin America, EMEA doing well margins expanding profit going well, Russia doing well. Western Europe, we’re going to watch and wait and see what happens to the macroeconomic environment and North America we have talked enough about it. So overall I would say it's a good outlook for our developing and emerging markets.

Your next question comes from the line of Caroline Levy with CLSA. Caroline Levy – CLSA: I wonder if you could actually just the last part of the last question was around Gatorade and Trop and talk about the strategy for this year and longer term the repositioning that happened at Gatorade and what the volume was like this quarter.

Actually Gatorade and Tropicana had very good quarters and sequentially the performance is sustaining itself. Again as you well know and Gatorade we’re playing sports nutrition game between Gatorade Juice, Gatorade Hydration and Gatorade Recover and as a system that business is doing well. We are staying very true to our premium sports nutrition positioning and we continue to play the games that way. We’re beginning to gain share and sports nutrition even though we had low priced competition come in with really aggressive pricing. We held our ground and we’re beginning to gain shares. So we feel very good about our sports nutrition strategy. In the case of Tropicana between Tropicana Trop 50, name of the Tropicana franchise also includes Naked, but let me just speak to Tropicana. Again, coming out of the first part of Q1, going to the second part, and now going into Q2, we are beginning to gain share in the chilled juice category, just a lot of great advertising, incredible execution focus in all of our traditional strongholds. And we are seeing impressive performance gains in Tropicana. And just look for us to grow the Naked franchise, it’s continued to bring innovation into the Tropicana franchise and the launch of Tropicana Farmstand, which is our fruit and vegetable product is also doing very, very well. So, continued to look for innovation from Tropicana, we feel good about tailwinds of those categories, because they are more in the nutrition space coupled with the fact that our brands are very strong.

Your next question comes from the line of Mark Swartzberg with Stifel Nicolaus.

Yeah, good morning.

Good morning Mark. How are you?

Good morning Indra. I am good. Thank you. Two-part question, it looks like in C stores, there is an increasing divergence between what you are seeing on the snacks side of your business and the beverage component of your business and how do you say, we have only got two months here. So, perhaps on the beverage side, we should not make too much of that. Can you speak to how accurate that assessment is and kind of what kind of promise these tie-ins with AB and the promotions you have kind of incrementally from a (indiscernible) perspective, how you feel they might address that issue? And then kind of related to that, but could we speak a little bit more about how this large format effort on the promotional side, changing the promotional calendars is actually going, it sounds like the aim is good and you have had some success to an extent, but perhaps the pace of success in terms of getting a better promotional environment is a little slower than you would have thought about a year ago?

Convenience stores in the first quarter, especially the first part of the first quarter perhaps not a very good performing channel. I wouldn’t say, we are talking about our business, as a channel, convenience stores did not perform very well, because weather impacted convenience stores significantly, and you can’t do anything about Mother Nature. So, convenience stores didn’t perform well, but now as the weather is improving across the country little bit slower than we would like, because snow in the West in April doesn’t feel that good. But we are seeing trends improving convenience stores, and we are very strong in convenience stores both in beverages and snacks. And we are beginning to see sequential improvement. And because of the underperformance in the first part of Q1 of the channel itself and now that we are seeing sequential improvement, we think the year for C stores would still end up with sort of 3.5%, 4% growth in the channel. And if the channel grows at that rate, you should expect to see good performance from PepsiCo in that channel. I would be honest with you the divergence between snacks and beverages, is not that much both our businesses are doing fairly well in the convenience stores. And I think that as the year goes on, you start to see better performance in the convenience store channel. And in terms of – you wanted to add something Hugh?

Yeah, if I can add just particularly to the convenience store please as well. I mean, as Indra mentioned, that the weather lapped in convenience is particularly challenging for beverages. I mean, we had a particularly warm winter last year lapping that now with a really long extended winter. That’s just going to have a more natural effect on beverages than it will on the snacks business. And I think the divergence that you are referring to can be more attributed to that than it can be to anything else. It’s also indicated in the overall performance of the convenience channel, which was down obviously in the first quarter. And as Indra mentioned, we expect the full year that channel to be up 3.5%, 4%. So, we don’t normally like to use weather as much of a conversation piece, but I think in this case, because it’s just so historic and it does have such a significant impact on that channel in that particular set of businesses, it is a relevant factor.

Your next question comes from the line of Bonnie Herzog with Wells Fargo.

Thank you. Good morning.

Good morning, Bonnie.

Hi. I just had a follow-up on the C store channel and then Frito-Lay. I was actually hoping you could give us a little more color in some of the new initiatives in this channel such as your individual store plan events that you started to implement, curiously how broad-based this initiative will be, and then maybe could you talk about any other changes you have been making in the important channel?

Well, Frito-Lay has always had the convenience store as a very, very strong go to market outlet and continues to be that way. Frito had terrific performance in Q1 and to get to that level of detail on how individual store planograms are working on. My suggestion is that at some point if you want to visit Frito-Lay and get a better sense of what they are doing in these stores we invite you to do that.

In addition to that I don’t know what’s going as its planograms oriented. We obviously have made the move with certain packages in terms of moving into a larger volume on size and in addition to that we got some terrific innovation out in convenient stores right now and that innovation obviously really does help Frito-Lay, it is so sensitive to flavor innovation and convenience is where you tend to get a lot of trial on that stuff early on. Frankly if that works really well and we feel very, very good about it.

Your next question comes from the line of Damian Witkowski with Gabelli & Company. Damian Witkowski - Gabelli & Company: In the past you have called the U.S. pricing environment probably one of the most irrational you have seen in the industry and I’m wondering if you have changed your mind about that with what happened over the last couple of years and pricing seeming to be a little bit more rational and then the second part is are we seeing any of that in the international markets especially ones that are growing and getting bigger?

I made that comment a couple of years ago when pricing was crazy but I would say that it's become rational. I would say in burst it becomes irrational and I think if we continue to focus just on volume and mainly on volume I’m talking mostly about beverages. If we only focus on volume growth it does lead to some irrational pricing especially when quarters have to end or when people are trying to make some volume number just to report something good. I think in this LRB category in particular it's very, very important. We thread volume and value very carefully. It's a big profitable category and we run the risk of sucking the profits out if we don’t play this game responsibly. So that’s the tact we have chosen to take and I hope that how the industry gets played out. We see burst of responsible behavior then at times we see action that we can’t even explain but I guess this is part of free markets and competition so we will keep playing this.

Your final question comes from the line of Ali Dibadj with Sanford Bernstein.

My question is a little bit broader which is really around whether we should philosophically think of the global portfolio being one of part generating cash and profit in North America beverage in particular, particularly North America CSD to then take that and invest in parts of the global business that are actually growing more robustly. So emerging markets, snack markets in particular, is that the model you guys explicitly think about and talk about internally like some other CPG companies and retail companies do or is that just more organic in the way it's been happening.

Actually that’s a very insightful observation because I think every company needs, if you go back to road share metrics that Boston Consulting came up with I think in the 60s or 70s, you’re really talking about how you have some cash cows to go off and invest in big broad stars and that’s how we all have to play the portfolio because a portfolio complete comprised of growth vehicles. You can’t sustain in the investment. You do need some cash cows to be able to invest in growth engines. Having said that I think that mature low growth businesses especially if they are big and have consumer appeal and also right to reinvention and I think it's very important that established players reinvent their categories as opposed to allowing others to reinvent it and push them out and there are examples, many, many examples of big companies especially companies based here in the U.S. that did not reinvent their categories. So I think we adopt today behave responsibly, generate the cash in the North American business, grow responsibly and wait for international growth but reinvent North America simultaneously, which is why we have stepped up all our R&D investments in sweeteners, flavoring agents, new processing technologies. Unfortunately, the timing is a bit off, because R&D projects don’t result in major breakthroughs in the same timeframe with which you can manage responsibly. So, you got to give it little bit more time to yield results. So, you are absolutely right in saying you have got to play the overall portfolio carefully. And what I feel good about the PepsiCo portfolio, we have a very good mix of growth businesses, businesses that generate cash and good returns to keep funding this growth. And I think our portfolio is so well-balanced in terms of snacks, beverages, geographic mix, different growth rates, that we are able to manage it sensibly and deliver the kind of profits that I think this portfolio is capable of generating well into the future.

That was our final question. I’d now like to turn the floor back over to Indra for any closing comments.

Thank you all. In closing, I just like to say that we are pleased with the way we are navigating through an uncertain and volatile environment. We have taken all the steps necessary to strengthen and position ourselves for sustainable long-term growth. I think the first quarter of 2013 is an excellent example of how well constructed and developed portfolio coupled with disciplined execution and reinvestment can drive high-quality top and bottom line results. So, I thank you for your time and for the confidence you have placed in us with your investment. Have a great day.

Thank you. This concludes today’s conference call. You may now disconnect.