Unnamed: 0 int64 | symbol string | quarter int64 | year int64 | date string | company_name string | company_id float64 | text string |
|---|---|---|---|---|---|---|---|
6,000 | ORCL | 3 | 2,025 | 2025-03-10 17:00:00 | Oracle Corporation | 22,247 | Safra Catz : Yes. I mean this is the motivator, the ability to have your system do so much of your work. As I was signing off with my finance and audit committee and talking with my Chief Accounting Officer, they have the entire description of the balance sheet issue, all the different balance sheet parts all done because of our products. That is such a time saver and so much incredible productivity and insight that you're disadvantaged if you do not use this. And that's why I know every quarter, I mention again, we're announcing. Of course, it's Monday. I couldn't announce Sunday or a Saturday or of course, Friday, something you do only if you have bad news. I mean, I had to announce the 10th. And imagine so much of the work that my teams do is enabled because of these advanced technologies. And it is your way to get there. Ultimately, everyone is going to come to it and it should be motivating them because it is such a massive not only productivity improvement. And as a result, lower cost, but it also gives you incredible insight into your business. It’s really amazing.
Operator: And your final question comes from the line of Mark Moerdler with Bernstein Research. Your line is open.
Mark Moerdler: Thank you very much for taking my question. And really, congratulations on how incredibly well this is being executed. We know Oracle spends less on CapEx per dollar of IaaS pass revenue. than your larger hyperscale cloud provider peers. But how should we understand why CapEx is lower? And how should we think about the trajectory of CapEx given the strength of RPO and especially the strength of OCI and OCI AI? Thank you. |
6,001 | ORCL | 3 | 2,025 | 2025-03-10 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison : Okay. Well, I'll take a crack at that. So we can start our data center smaller than our competitors. And then we grow based on demand. So building these data centers are expensive, and they're really expensive, if you don’t – if they're not at least half full. So we tend to start small and then add capacity as demand arises. And that allows us to have higher utilization. That's one thing. The other thing is we have a high degree of standardization and automation inside of our cloud. So the operating in the cloud also gives us better margins, now that you will not see that on CapEx. That will be on operating profit. But it's really the combination of starting smaller that affects and growing with demand that affects CapEx and then overall margins, the fact that we have a high degree of automation which lowers our labor cost dramatically. By the way, more importantly than -- more important than lowering our labor costs with no labor, there's no human error, there is no human mischief. So we're much more reliable and much more secure because we don't have a lot of human beings in our data centers.
Mark Moerdler: Makes, a lot of sense. Thank you.
Ken Bond: Thank you, Safra. Thank you, Larry. Thank you, Mark. A telephonic replay of this conference call will be available for 24 hours on our Investor Relations website. Thank you for joining us today. And with that, I'll now turn the call back to Abby for closing.
Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect. |
6,002 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Operator: Thank you for standing by, and welcome to the Oracle Corporation Second Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Thank you. I'd now like to turn the call over to Ken Bond, Head of Investor Relations. You may begin.
Ken Bond: Thank you, Rob, and good afternoon, everyone, and welcome to Oracle's second quarter fiscal year 2025 earnings conference call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. Additionally, a list of many customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available from our Investor Relations website as well. On the call today are Chairman and Chief Technology Officer, Larry Ellison; and Chief Executive Officer, Safra Catz. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates, or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. And these forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you from placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the market price of our stock. And finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra. |
6,003 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: Thanks, Ken, and good afternoon, everyone. Q2 was another excellent quarter with total revenue at the high end of my constant currency guidance, and EPS was actually $0.01 above the high end. These results are being driven by the fact that our largest revenue component, cloud services and license support, now represents 77% of total revenue and is also our fastest-growing line item, which in turn, is driving the acceleration of overall revenue growth. We expect cloud revenue to reach $25 billion this fiscal year. This is happening for several reasons. First, our cloud is faster and is less expensive than other clouds. We remain the preferred cloud for AI workloads as well as for non-GPU cloud infrastructure services. In addition, our ability to deploy our cloud in many sizes gives our customers flexibility, and our multi-cloud agreements with Microsoft, Google, and AWS provide customers more choice in how they can migrate their Oracle databases to the cloud. And our strategic SaaS applications continue to grow rapidly. And we are also seeing more of our industry-based cloud applications come online, which immediately contribute to revenue growth. You can see all of this in the momentum in the acceleration of our cloud growth and the 50% growth of our $97 billion RPO number, remaining performance obligation. And today, we're telling you again that revenue growth will accelerate further in the coming quarters. Turning to Q2, and I want to remind you that our quarter ended on Saturday a week ago, and here we are announcing our results, and that's only possible because we use Oracle Fusion. Now as for the numbers, we saw all segments exceeding our internal forecast. Now as the dollar strengthened in the quarter, the 1% currency benefit for total revenue and the $0.02 to $0.03 benefit for EPS that were present in my August guidance retreated with total revenue and EPS in Q2 essentially unaffected by currency movement. As usual, as I go over things today, I'll be discussing our financials using constant |
6,004 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | unaffected by currency movement. As usual, as I go over things today, I'll be discussing our financials using constant currency growth rate as this is how we manage the business. So here it goes. Total cloud revenue, that's SaaS and IaaS, was up 24% at $5.9 billion with SaaS revenue of $3.5 billion, up 10%, and IaaS revenue of $2.4 billion, up 52%, on top of the 50% growth reported last year. As a reminder, we exited the advertising business last quarter, which had the effect of lowering the total cloud revenue growth by 2% this quarter. Total cloud services and license support for the quarter was $10.8 billion, up 12%, driven again by OCI, our strategic cloud application and autonomous database. Infrastructure subscription revenues, which includes license support were $6 billion, up 17%. Record level AI demand drove Oracle Cloud Infrastructure revenue up 52%. But excluding legacy hosting infrastructure, cloud services revenue was up 55%. Our infrastructure cloud services now have an annualized revenue of $9.7 billion. OCI consumption revenue was up 58% as demand continues to outstrip supply. Growth in the AI segment of our infrastructure business was extraordinary. GPU consumption was up 336% in the quarter. And we delivered the world's largest and fastest AI supercomputer, scaling up to 65,000 NVIDIA H200 GPUs. Cloud database services, which were up 28% and now have an annualized revenue of $2.2 billion. As on-premise databases migrate to the cloud on OCI, either directly or through our database-at-cloud services with Azure, Google, and AWS, we expect the cloud database revenues collectively will be the third leg of revenue growth alongside OCI and strategic SaaS. We are currently live in 17 cloud regions with database-at-cloud services and have another 35 planned with Azure, Google, and AWS. Database subscription services, which includes database license support, were up 5%. Application subscription revenue, which includes product support, were $4.8 billion and up 7%. Our strategic back-office SaaS |
6,005 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Application subscription revenue, which includes product support, were $4.8 billion and up 7%. Our strategic back-office SaaS applications now have annualized revenue of $8.4 billion and were up 18%. Software license revenues were up 3% to $1.2 billion, including Java, which saw excellent growth. So, all in, total revenues for the quarter were $14.1 billion, up 9% from last year. Now shifting to gross profit and operating income. The gross profit dollars of cloud services and license support grew 9% in Q2. As our cloud businesses continue to scale, the gross margins of both cloud applications and cloud infrastructure have each been trending higher. We continue to display expense discipline, which, of course, we're known for, especially with R&D, sales and marketing, and G&A expenses, which collectively continue to grow slower than revenue, a trend that I expect to continue. The Q2 operating income grew 10% and the operating margin was 43%, up 60 basis points from last year. The non-GAAP tax rate for the quarter was actually 20.1%, which is higher than my 19% guidance. Even as higher tax rate lowered EPS by $0.02, we still hit the high-end of my constant currency guidance. Actually we did better. The non-GAAP EPS was $1.47 in U.S. dollars, up 10% in USD and 10% in constant currency. The GAAP EPS was $1.10 in USD, and that's up 24% in USD and 23% in constant currency. At quarter end, we had $11.3 billion in cash and marketable securities. The short-term deferred revenue balance was $9.4 billion, up 8%. With CapEx at $4 billion for the quarter, free cash flow was negative $2.7 billion and operating cash flow was positive $1.3 billion. Given the demand that you see in our RPO numbers and the additional demand we see in our pipeline, I expect fiscal year 2025 CapEx will be double what it was in fiscal year FY '24. As always, we remain careful to pace and align our CapEx investments appropriately and in line with booking trends. On a trailing 12-month basis, operating cash flow was up 19% at $20.3 billion and free |
6,006 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | and in line with booking trends. On a trailing 12-month basis, operating cash flow was up 19% at $20.3 billion and free cash flow was $9.5 billion. Our remaining performance obligation or RPO, is now at $97.3 billion, up 50% in constant currency and reflects the growing trend of customers wanting larger and longer contracts as they see firsthand how Oracle Cloud Services are benefiting their businesses. Further, our cloud RPO grew nearly 80% and now represent nearly three-fourth of total of total RPO. Approximately 39% of the total RPO is expected to be recognized as revenue over the next 12 months, and we continue to see the growth of current RPO accelerate. We have now about 98 cloud regions live and many, many more to follow. That we have more cloud regions than any of the other hyperscaler reflects the strategic advantage of our Gen 2 architecture. We can start a new cloud region with a handful of racks and then scale up with customer demand. Additionally, our data centers are highly automated and identical in features and function varying only in scale. This size and flexibility and deployment optionality of our cloud regions continue to be a significant advantage for us. As we've said before, we're committed to returning value to our shareholders through technical innovation, acquisitions, stock repurchases, prudent use of debt, and a dividend. This quarter, we repurchased nearly 1 million shares for a total of $150 million. In addition, we paid out dividends of $4.4 billion over the last 12 months. And the Board of Directors again declared a quarterly dividend of $0.40 per share. Before I dive into specific Q3 guidance, I'd like to share some overarching thoughts about the financial benefits I expect we will see over the coming quarters and years. To start, we continue to see excellent demand for our cloud services, which you see in our RPO growth. And while this growth is stellar, our pipeline is actually growing even faster, and our win rates are growing higher with the recent win at Meta being a prime |
6,007 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | our pipeline is actually growing even faster, and our win rates are growing higher with the recent win at Meta being a prime example of why we expect that our RPO balance will climb again in Q3. Meta was not booked in the Q2 quarter, only in Q3. In fiscal year 2024, we signed some big deals and many have begun to generate revenue. We expect that those will continue ramp higher in the second half and be a key contributor to revenue growth acceleration this year and next. For fiscal year 2025, we remain very confident and committed to full year total revenue growth growing double-digit and full year total Cloud Infrastructure growing, faster than the 50% reported last year. Okay. Let me now turn to guidance, which I'll review on a non-GAAP basis. In terms of currency, we've seen a dramatic shift due to significant strengthening of the U.S. dollar. To put this in perspective, Q2, we expected currency to have a $0.03 positive effect on EPS. For Q3, assuming exchange rates remain the same as they are now, currency should have a $0.03 negative effect on EPS and a 2% negative effect on revenue. However, as the dollar strengthened, it may not hold out the whole quarter and may be different. All right, total revenue, are expected to grow from 9% to 11% in constant currency and are expected to grow from 7% to 9% in USD at today's exchange rate. Total cloud revenue is expected to grow from 25% to 27% in constant currency and is expected to grow from 23% to 25% in USD. Non-GAAP EPS is expected to grow between 7% to 9% and be between $1.50 and $1.54 in constant currency. Non-GAAP EPS is expected to grow between 4% to, 6% and be between $1.47 and $1.41 in USD. I should mention, that my Q3 EPS guidance is negatively impacted by $0.05 due to an investment loss in another company that we are a partial owner of. Lastly, my EPS guidance for Q3 assumes base tax rate of 19%. However, like in Q2, onetime tax events and other things can cause actual tax rates to vary. And with that, I'll turn it over to Larry for his comments. |
6,008 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Thank you, Safra. Oracle Cloud Infrastructure trains several of the world's most important generative AI models. Our major AI customers include OpenAI, xAI, Nvidia, Cohere, and most recently, Meta with their large-scale Llama models. Oracle continues to win large AI training workloads because we're faster and less expensive than the other infrastructure clouds. And we just extended our AI performance advantage by delivering the largest and fastest AI supercomputer in the world, scaling up to 65,000 Nvidia H200 GPUs. The Oracle Cloud trains dozens of AI models and embeds hundreds of AI agents in cloud applications. Oracle's AI agents automate drug design, image and genomic analysis for cancer diagnostics, audio updates to electronic health records for patient care, satellite image analysis to predict and improve agricultural output, fraud and money laundering detection, dual-factor biometric computer log-ins, and real-time video weapons detection in schools. Furthermore, the vector capabilities of the new AI version of our database, Oracle 23ai, enables our customers to easily use their existing data in their existing databases to augment and specialize the training of industry standard generative AI models like ChatGPT, Grok and Llama. The Oracle Cloud and the Oracle 23ai vector database makes it easy for our customers to build their own AI agents and use their own data to reap the benefits of the AI revolution. Oracle is training AI models and developing AI agents that will improve the rate of scientific discovery and economic development and corporate growth throughout the world. The scale of this opportunity is unimaginable. As Safra said, this fiscal year, total Oracle Cloud revenue should top $25 billion. And this is just the beginning of the beginning. Back to you.
Safra Catz: Thank you, Larry. Rob, if you could please poll the audience for questions.
Operator: [Operator Instructions] Your first question today comes from the line of Mark Moerdler with Bernstein. Your line is open. |
6,009 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Mark Moerdler: Thank you very much for taking my question and congratulations on the quarter. I'd like to gain better insight into OCI. OCI is designed differently from its larger peers, deliverable in just 10 and shortly 3 racks of servers. Can you explain how the architectural difference impacts how you build and deliver OCI racks and how it will impact how many data center regions you could have compared to your peers? And then how might this affect your CapEx growth over the next five years? |
6,010 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Okay. Well, all the data centers are the same racks. So you can think of it as completely modular. We have a basic rack and to build a region, it takes 6 racks, the smallest region we can build. So our racks started under 50 kilowatts. And our biggest data centers -- excuse me, so our basic small data centers, 50 kilowatts. And our data centers -- the largest data center we're currently building now is 1.6 gigawatts. So that's quite a range, 50 megawatts to 1.6 gigawatts. And when we build them and we put them in inventory, the racks are pretty much the same. So it's very easy for us to manufacture these. It's lower cost to manufacture these. The inventory is less because they're all kind of the same. Furthermore, every cloud region has all of our services. They have all the same services. So it's easy for customers. We don't have to provision like our competitors do. Our competitors have some of their services in some regions and some of their services in other regions. We have all of our services in all of our regions, even though we are both smaller in terms of the -- our smallest region and larger in terms of our largest region than our competitors. When all of our racks are the same and all of our services are the same, they become very easy or, I should say, easier to automate. They're all identical. We have one suite of automation tools that works in all 100 of our current regions. And it makes it possible because of the high degree of automation to run not dozens of regions but hundreds or, even theoretically, thousands of regions as individual customers are dedicating their own region. Individual customers are buying complete Oracle regions and installing them. If you -- what seems like it would be on-premise, though it is a full Oracle Cloud region, just happens to be in a dedicated data center to that customer. We are selling a lot of those as well. So it allows us to address a market that our competitors can't reach. So standardization, automation, and from the smallest to the |
6,011 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | it allows us to address a market that our competitors can't reach. So standardization, automation, and from the smallest to the largest data centers give us a huge advantage in competing in this marketplace. |
6,012 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: On the CapEx side, what we can do since our competitors always have to land with extremely large footprints before they can even get started, we can land with smaller footprints, have consumption and expand as customers need it. And this allows us to really match our capital expenditure with ultimately our revenue because it only -- we don't have to spend a long time with empty centers because we literally can start small and just fill them up as our customers are consuming. And I think this is really something that is expressed also in the profitability of our cloud and keeps showing up because of that.
Mark Moerdler: It's extremely helpful. I really do appreciate it. Thank you.
Operator: Your next question comes from the line of Siti Panigrahi from Mizuho. Your line is open.
Siti Panigrahi: Thanks for taking my question. It's impressive to see OCI growth 52% and even database-as-a-service up 28%. So as you execute on your multi-cloud strategy, can you provide some color on the database migration to cloud or even database-as-a-service traction? And what are you hearing from customers as they prepare to migrate on-prem database to cloud? And how should we think about the contribution to revenue going forward?
Lawrence Ellison: Well…
Safra Catz: You go ahead, Larry and then I'll finish. You go ahead. |
6,013 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Well…
Safra Catz: You go ahead, Larry and then I'll finish. You go ahead.
Lawrence Ellison: All right, let me start. As I mentioned and as you caught in my talking, 28%, it's now annualized revenue, just the cloud database services of $2.2 billion. And imagine most -- that is mostly -- nearly entirely OCI without even the database at AWS and Azure and Google. That also, though, has grown from zero to 100 million-plus run rate, already past 100 million and will be hundreds of millions probably as an exit. So these cloud regions have only started opening. As I mentioned, though, we do now have 17 open and twice as many opening. So I think what you're going to see is the database, as it moves to the cloud, is really only at the beginning. In addition though, I want to remind you that Cloud@Customer and our Alloy partners are also contributing to this. And we have an enormous pipeline of customers who want to bring their databases to the cloud, but one of -- but a number of them want to do it in their own dedicated regions that are just their own for either regulatory reasons or sovereignty reasons, again an offering that only we have, that none of our competitors have. |
6,014 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Yes. Again, Microsoft is the only partner where we -- where the contract is more than a year old. So Google is much more recent and AWS even more recent than Google. So we're at the very beginning of multi-cloud. And as Safra said, it's going to exit well over $100 million in its first year. The first year is starting when we got AWS when we had all three. It will be a multibillion-dollar business. It will be a combination of AWS and Google and Azure, plus all of these Cloud@Customer, dedicated region, Cloud@Customer. We're going to have hundreds of those regions. The demand for -- from individual customers, large banks, telecommunication companies, building half a dozen or so data centers. They want us to build a half a dozen data centers, sometimes more inside their own dedicated facilities. So they'll run the Oracle Cloud in dedicated regions. And again, we'll end up with hundreds of those, and it clearly is going to be a multi -- a very large, rapidly growing multibillion-dollar business for us.
Siti Panigrahi: That's great color. Thanks, Larry and Safra.
Safra Catz: Ken, I think I misspoke. Could you actually say the line correctly that I was supposed to say about guidance?
Ken Bond: Sure, absolutely. Non-GAAP EPS is expected to grow between 4% to 6% and be between $1.47 and $1.51 in U.S. dollar. Thank you.
Safra Catz: Sorry, I don't know what I said exactly, but that is correct. Thanks.
Operator: Your next question comes from the line of Brad Zelnick from Deutsche Bank. Your line is open.
Brad Zelnick: Great. Thank you. And congrats on the continued acceleration at scale. Larry, as Oracle leads with larger and larger GPU clusters, there's healthy industry debate around scaling laws with Elon Musk allegedly pushing the envelope of what's possible. I'm curious to hear your perspective as to whether there's diminishing returns on the amount of compute thrown at model training and Oracle's ongoing leadership in AI infrastructure and GPU superclusters. |
6,015 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Well, there's two elements to speeding up training. One is building larger and larger GPU clusters made up of faster and faster GPUs. So it's a GPU cluster itself. The second element, something Oracle has been very, very focused on is building networks that rapidly move large volumes of data into those GPU clusters. As you make these GPU clusters larger and faster, it's putting more and more demands on the network to be able to move huge amounts of data into those GPU clusters. So, the GPU clusters aren't sitting there waiting for the data. If they're sitting there waiting for the data, it becomes very inefficient. If you're paying by the minute and you -- and half the time, 30 seconds, you don't have the data available, obviously, that's a scaling problem, and that's an economic problem and that's a performance problem. Oracle differentiates itself in its data centers by investing heavily in building networks. And by the way, switch software, all sorts of network software and network hardware to move data more quickly. We think we'll be able -- the demand is really -- as the GPU clusters get bigger and faster, the critical thing is for us to be able to move the data faster. And we are investing heavily in that and we think we're going to maintain our advantage there. And that will -- as we make our networks faster, the AI training will get faster. If we don't -- if no one makes the networking faster, then I think there's a potential bottleneck. But we're trying to avoid that bottleneck by speeding up our networking.
Brad Zelnick: Thank you.
Operator: Your next question comes from the line of Raimo Lenschow from Barclays. Your line is open. |
6,016 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Brad Zelnick: Thank you.
Operator: Your next question comes from the line of Raimo Lenschow from Barclays. Your line is open.
Raimo Lenschow: Perfect. Thank you. Can I shift gear a little bit and go back to the -- or go to the SaaS part of the business? If you look there, if you look at your growth rates, I mean, we're at kind of a late-stage point of the cycle where people usually don't look at back office systems. But you guys putting up like really solid growth numbers there, you're outgrowing your peers. Can you talk a little bit of what's going on there? Thank you. |
6,017 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: Actually, I don't agree with you that folks aren't looking at their back office systems. In fact, I think there's enormous amount of pressure to be more efficient for many companies. The competition is fierce in almost -- in basically all industries right now. And as companies, when they look at us, for example, that's why I always point out that it's what is at day nine, and that includes three weekends, three weekend days since our quarter closed. That just shows how efficient you can be in running your operations. And a lot of company executives actually come up to me and say, we need to do that. We need to do more and spend a lot less doing it. And we see enormous -- really enormous pipeline in customers who understand that they can first automate and simplify their own businesses to spend less, so they can invest in the things that differentiate them. But there's also enormous interest in using their data for AI and using those systems, we have, I don't know, dozens and dozens of AI agents that can really help companies spend a lot less and really do a better job serving their customers. So, we find enormous interest in this area. And no one has the capability and the data and the AI capability that Oracle can bring to a customer. So, actually, I think it's been one of the most exciting times in back office and in front office, too. We have -- even our front office systems also taking advantage of so many of our capabilities for our customers. So, this has been a great time. And in fact, our booking trends, which you don't see yet in revenues because we wait until they're implemented, our booking trends have taken a marked step-up. We were going over those just today and they've accelerated from last year quite significantly.
Raimo Lenschow: Great. Thank you.
Operator: Your next question comes from the line of Kirk Materne from Evercore ISI. Your line is open. |
6,018 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Operator: Your next question comes from the line of Kirk Materne from Evercore ISI. Your line is open.
Kirk Materne: Yes, thanks very much and congrats on the results. Safra, you talked a little bit about the pipeline strength at the end of your prepared comments. Can you just talk about your line of sight in terms of capacity coming online, so that you all can recognize some of the revenue that's associated with the demand that you're seeing specifically around on the OCI side? Thanks.
Safra Catz: Yes. So, the second half of this year is, and especially -- well, the second half, we're in it, is going to see a lot of capacity come online that we've been waiting for and that we've been working on. So, we expect that you're going to see that turning into revenues. This is -- everything is accelerating even more. And in addition, though, we also expect our RPO to start moving up the actual base RPO number, which is, of course, up 50% year-over-year. But the number itself, we expect it to spike in this quarter and for the end of the year. So, we expect both capacity to come online for our customers, which it is. And so it will burn down some of our RPO, but we also simultaneously expect to sign a number of very large contracts to -- that will make our RPO number go up, too.
Operator: And your final question comes from the line of John DiFucci from Guggenheim Securities. Your line is open. |
6,019 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Operator: And your final question comes from the line of John DiFucci from Guggenheim Securities. Your line is open.
John DiFucci: Thank you. Safra, you've shown us -- I'm going to switch gears a little bit and go down to the bottom line here versus the top line. You've shown us for years that Oracle is not going to do what I'll call empty business that you don't make good profit on. It's been a while, but you've previously said that OCI gross margins have improved consistently. You just mentioned it again in your prepared remarks. And I think the last time you actually threw out a number was a while ago, but it was in the low 30s for gross margins for OCI. And that was several quarters ago. Can you give us an update on the progress of that, especially given the massive growth you're seeing?
Safra Catz: It's really amazing, but we are continuing to benefit from a number of things in OCI, so our gross margin percentage continues to improve. And I know that many of you think that GPU business or OCI base infrastructure business is not as profitable. And yet our margins in that business just continue to improve because of the number of things that Larry mentioned. For example, the way we run our cloud, the way we set up our cloud, everything is automated, everything is run. Because we are a software company to the core, we're always optimizing our software capabilities, which gives us really enormous leverage. Our operating margins in OCI again improved. And it's just going to -- it's been really fantastic. So they improved in OCI, our SaaS margins improved, everything is improving with scale for us even in -- even as we're investing. So we just -- it just continues to improve.
John DiFucci: That's great to hear and we continue to watch closely. So thank you.
Ken Bond: Thank you, John. A telephonic replay of this conference call will be available for 24 hours on our Investor Relations website. Thank you for joining us on the call today. With that, I'll turn the call back to Rob for closing. |
6,020 | ORCL | 2 | 2,025 | 2024-12-09 17:00:00 | Oracle Corporation | 22,247 | Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. |
6,021 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Operator: Hello, and welcome to the Oracle Corporation Q1 Fiscal Year 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the conference over to Ken Bond, Head of Investor Relations. You may begin. |
6,022 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Ken Bond: Thank you, Sarah, and good afternoon, everyone, and welcome to Oracle's First Quarter Fiscal Year 2025 Earnings Conference Call. A copy of the press release and financial tables, which includes a GAAP to non-GAAP reconciliation and other supplemental financial information can be viewed and downloaded from our Investor Relations website. Additionally, a list of many customers who purchased Oracle Cloud Services or went live on Oracle Cloud recently will be available from the Investor Relations website. On the call today are Chairman and Chief Technology Officer, Larry Ellison; and Chief Executive Officer, Safra Catz. As a reminder, today's discussion will include forward-looking statements, including predictions, expectations, estimates or other information that might be considered forward-looking. Throughout today's discussion, we will present some important factors relating to our business, which may potentially affect these forward-looking statements. These forward-looking statements are also subject to risks and uncertainties that may cause actual results to differ materially from statements being made today. As a result, we caution you against placing undue reliance on these forward-looking statements, and we encourage you to review our most recent reports, including our 10-K and our 10-Q and any applicable amendments for a complete discussion of these factors and other risks that may affect our future results or the marketplace of our stock. And finally, we are not obligating ourselves to revise our results or these forward-looking statements in light of new information or future events. Before taking questions, we'll begin with a few prepared remarks. And with that, I'd like to turn the call over to Safra. |
6,023 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: Thanks, Ken, and good afternoon, everyone. Before I go to our Q1 numbers, I thought I'd take only a moment to review some of the things that you'll be hearing about over the next couple of days from Oracle. We are at Cloud World in Las Vegas, and Cloud World is where we come together with our customers and partners to share experiences and showcase our latest products and services. Our customers are our best folks people when they share how our technologies transform their enterprises. The innovations from our labs and research centers in combination with feedback from our customers have helped us build superior products and services. You'll hear about new cutting-edge features within OCI, database, analytics, Fusion, NetSuite and our industry applications. We will also be showing new capabilities that we've been working on for a while, including embedded AI agents infusion and those drive productivity and efficiencies for our customers when they're rolled out. And as an Oracle Fusion customer myself, I take great pride once again in my team's ability to have us announce earnings and give guidance nine days after the quarter ended. Many, many of our customers ask us how to replicate our results. And at Cloud World, we will be having a lot of Oracle playbook conversations this week. You've already seen today's announcement of our partnership with Amazon Web Services, which has now joined Microsoft Azure and Google Cloud in making OCI and Oracle available in their respective clouds. Needless to say, we think our multi-cloud strategy will expand the ubiquity and popularity of our differentiated technologies, especially the Oracle Database. Larry will share more details in just a moment. But now to Q1, which was clearly another outstanding quarter, with total revenue at the high end of my guidance and earnings per share of $0.04 above the high end of guidance. Currency was essentially in line with my guidance. And as usual, I'll be discussing our financials using constant currency growth rates as this is |
6,024 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | in line with my guidance. And as usual, I'll be discussing our financials using constant currency growth rates as this is how we manage the business. Total cloud revenue, that’s SaaS and IaaS was up 22% at $5.6 billion, with SaaS revenue of $3.5 billion, up 10% and IaaS revenue of $2.2 billion, up 46%, on top of the 64% growth reported last year. As a reminder, we exited the advertising business last quarter, which had the effect of lowering the total cloud applications revenue by 2% this quarter. Total cloud services and license support for the quarter was $10.5 billion, up 11%, driven again by our strategic cloud applications, autonomous database and OCI. Application subscription revenues, which includes product support were $4.8 billion and up 7%. Our strategic back-office SaaS applications now have annualized revenues of $8.2 billion and were up 18%. Infrastructure subscription revenues, which includes license support, were $5.8 billion and up 14%. Infrastructure cloud services revenue was up 46% and up 49% when you are excluding our legacy hosting services. Our infrastructure cloud services now have an annualized revenue of $8.6 billion, OCI consumption revenue was up 56% and demand continued to outstrip supply. Cloud database services, which were up 23% and now have annualized revenues of $2.1 billion. Very importantly, as on-premise databases migrate to the cloud, on OCI directly or through our database at cloud services with Azure, Google and AWS. We expect those cloud database revenues collectively will be the third leg of revenue growth alongside OCI and strategic SaaS. Database subscription revenues, which includes database license support, were up 4%. Software license revenues were up 8% to $870 million, including Java, which saw excellent growth. So all in, total revenue for the quarter were $13.3 billion, up 8% from last year. Shifting to gross profit and operating income. The gross profit dollars of cloud services and license support grew 9% in Q1 as our cloud businesses continue to scale the |
6,025 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | The gross profit dollars of cloud services and license support grew 9% in Q1 as our cloud businesses continue to scale the gross margins of both cloud applications and cloud infrastructure has each been climbing higher. We continue to display operating expense discipline with Q1 operating income growing 14% and the operating margin was 43%. The non-GAAP tax rate for the quarter was 18.9% with non-GAAP EPS at US$1.39, up 17% in USD, up 18% in constant currency. The GAAP EPS was US$1.03, up 20% in USD and up 22% in constant currency. Including in my guidance at the beginning of the quarter was the expected completion of an assessment of the useful lives of our server networking equipment, including an increase of the estimated lives from five years to six years effective at the beginning of this fiscal year. This change in accounting estimate reduced Q1 operating expenses by about $197 million. At quarter end, we had nearly $11 billion of cash and marketable securities, a short-term deferred revenue balance was $11.5 billion, up 2%. Operating cash flow for Q1 was $7.4 billion, while free cash flow was $5.1 billion. On a trailing 12-month basis, operating cash flow was $19.1 billion and free cash flow was $11.3 billion. Our remaining performance obligations or RPO is now $99 billion, up 52% in constant currency. Now while we typically see a seasonal decline of RPO in Q1, we signed several large deals this past quarter, resulting in a sequential increase in RPO compared to the decline that we typically see based on our experience over the previous five years. Further, our cloud RPO grew more than 80% and now represents nearly three-fourth of total RPO. And approximately 38% of total RPO is expected to be recognized as revenue over the next 12 months, which reflects the growing trend of customers wanting the larger and longer contracts as they see firsthand how Oracle Cloud services are benefiting their businesses. We spent $2.3 billion on CapEx this quarter, given the demand that you see in our RPO growth and the |
6,026 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | their businesses. We spent $2.3 billion on CapEx this quarter, given the demand that you see in our RPO growth and the additional demand we have and see in our pipeline, I expect the fiscal year 2025 CapEx will be double what it was in fiscal 2024. As always, we remain careful to pace our investments appropriately and in line with booking trends. We now have 85 cloud regions live, another 77 planed with more to follow. We have public cloud regions. We have dedicated cloud customer regions. We have national security regions. We have sovereign regions. We have Oracle alloy regions with our partners, and we have multi-cloud regions with Azure and Google Cloud and now shortly with AWS as well. This sizing flexibility and deployment optionality of our cloud regions continue to be significant advantages for us in the marketplace. As we've said before, we're committed to returning value to our shareholders through technical innovation, strategic acquisitions, stock repurchases, prudent use of debt and the dividend. This quarter, we repurchased 1.1 million shares for a total of $150 million. In addition, we paid out dividends of $4.4 billion over the last 12 months. And the Board of Directors again declared a quarterly dividend of $0.40 per share. Before I dive into specific Q2 guidance, I'd like to share some overarching thoughts and the benefits that I expect they will bring over the coming years. First, the Oracle database is thriving, and the multi-cloud agreements we now have with Microsoft, Google and AWS make it easier for our customers to run their Oracle databases in the cloud. Second, we are rapidly expanding our OCI capacity to meet the demand that you see in our 52% RPO cloud growth. Third, while much attention is focused on our GPU related businesses, our non-GPU infrastructure business continues to grow much faster than our competitors. And finally, our strategic SaaS app continue to grow while we are starting to see more and more of our industry-based cloud apps come online. All these trends point to |
6,027 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | to grow while we are starting to see more and more of our industry-based cloud apps come online. All these trends point to revenue growth going higher. We will discuss the implications of these positive trends at our financial analyst meeting on Thursday. For fiscal 2025, we remain very confident and committed to full year total revenue growth growing double digits and full year total cloud infrastructure revenue growing faster than last year. Let me now turn to my guidance for Q2, which I'll review on a non-GAAP basis. If currency exchange rates remain the same as they are now, currency should have about a 1% positive effect on total revenue and as much as a $0.03 positive effect on EPS, hard to know for sure. However, the actual currency impact may be different. Total revenues are expected to grow from 7% to 9% in constant currency and are expected to grow between 8% and 10% in USD at today's exchange rate. Total cloud revenue is expected to grow from 23% to 25% in constant currency and 24% to 26% in USD. Non-GAAP EPS is expected to grow between 6% to 10% and be between $1.42 and $1.46 in constant currency, and non-GAAP EPS is expected to grow $0.08 to $0.12 and be between US$1.45 and $US1.49 in USD. My EPS guidance for Q2 assumes a base tax rate of 19%. However, onetime tax events could cause actual tax rates to vary. And with that, sorry, it was so long. And with that, I'll turn it over to Larry for his comments. |
6,028 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Thank you, Safra. Today, Oracle has 162 cloud data centers, live and under construction throughout the world. The largest of these data centers is 800 megawatts, and it will contain acres of NVIDIA GP clusters able to train the world's largest AI models. That's what's required to stay competitive in the race to build one, just one of the most powerful artificial neural networks in the world. The stakes are high and the race goes on. Soon Oracle will begin construction of data centers that are more than a gigawatt. Building giant data centers with ultra-high apartments RDMA networks and huge 32,000 node NVIDIA GPU clusters is something that Oracle has proven to be very good at. It's the reason we're doing so well in the AI training business. It's important to remember that we first developed those high-performance RDMA networks to interconnect our Exadata CPU cluster hardware that powers our Exadata database cloud service. The Oracle Database Cloud service running on Exadata and Exascale RDMA clusters, provide an order of magnitude, better performance, better scalability, better reliability and better security than other databases. And it's still the world's only autonomous, fully self-driving database. Our large and loyal customer base understand and appreciate the many technical advantages of using the Oracle database. And those customers wanted us defined a way to make the very latest and best Oracle technology available on other clouds in addition to OCI. We found a way. With today's AWS announcement, our customers will be able to use Oracle's latest Exadata and Exascale RDMA clusters with the latest versions of our database software, from within the Microsoft Azure cloud, from within the Google Cloud and from within the AWS cloud. This will enable customers to use the Oracle database anywhere and everywhere. That has always worked well for our customers and for our database business. We believe our cloud partnerships with AWS and Microsoft and Google will turbocharge the growth of our |
6,029 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | our database business. We believe our cloud partnerships with AWS and Microsoft and Google will turbocharge the growth of our database business for years to come. Back to you. |
6,030 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Ken Bond: Thank you, Larry. Sarah, if you could please poll the audience for questions.
Operator: Thank you. [Operator Instructions] Your first question comes from the line of John DiFucci with Guggenheim Securities. Your line is open.
John DiFucci: Thank you. Larry and Safra, I mean there's a lot of good stuff here, but I'd like to ask a question on margins. You keep putting up strong cloud numbers, especially the OCI numbers that look -- when you give the guidance and you look at what you have to do to hit them, they look really difficult to do to say the least. We also assume that upside to RPO and you've pointed out, Safra, the sequential increase. I think the last time there was a sequential increase was because you bought Cerner and they just added RPO because of that. I assume a big part of that's OCI too. You mentioned it's cloud, three quarters of it. So that indicates there's more to come, right? So given the mix of business continuing to lean into that lower margin OCI, and I know you have -- that's changing over time, but it's still lower margin today, how should we think of overall margins versus profit for the entire company going forward? |
6,031 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: Okay. Let me start with this and maybe then Larry can add on. So first of all, I want to remind you that, that -- remember that third leg of the stool I mentioned, which is our database and autonomous database, that is also part of OCI. And that is beginning to really expand. And our multi-cloud agreements, again, will help OCI gross margins. So that you know, gross margins even this quarter as a percentage increased, regardless of the fact that we have a lot more OCI. And so our business is really only now starting to get real scale. And we have built OCI in a way and Larry can really expand on it, where it is extremely automated. The management of it is very automated. And our whole rollout as it grows, we make more money. And as much as percentages are great, and again, our operating margin percentages continue to increase. And OCI includes not only base storage and compute and GPUs, but it also includes a lot of other capabilities, including the database, which have excellent margins, too. And of course, as you mentioned, our SaaS business, again, an excellent and at scale business, even that business benefits from our expansion in OCI. And once again, even its high margins continued to improve this past quarter. Larry, I don't know if you want to... |
6,032 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: I'd like to. So let's start with SaaS. As we go to autonomous database, we get tremendous efficiencies. We're moving Fusion and NetSuite to Autonomous database as we speak. We've decided everything needs to move to autonomous for two reasons really. First reason, when you have a completely autonomous database, there is no -- the DBA, the database administrator is a robot. There is no human labor associated with managing the Oracle Autonomous Database. Now okay, that's obviously a cost savings. But more importantly, with no human labor, there's no human error. It's a huge security advantage we have over our competitors. We don't -- there's no mistakes to be made. There's no human labor. It's all automated. And the potential -- when you have everything completely automated, and it's also truly elastic. I'm not going to go into exactly what that means. But it means that you've got a job running that certainly needs 500 microprocessors, you get those 500 for the 3 minutes you need it, and then you return them to the pool. So that's very different than how other databases work, which they may call -- the cloud itself may be elastic in places, but their databases are typically not elastic. Autonomous is. So we use a lot less hardware. It's a lot faster. It's a lot more efficient. It's fully automated, no human labor, much more secure. And the margins for the autonomous database business is much higher or much higher than the traditional Oracle business. And I think those margins are -- I mean, they're stunningly high. Around the same margins as SaaS which are also stunningly hard margin because SaaS runs primarily on that autonomous database. So we use hardware very efficiently. We use labor sparingly because labor is a security risk. When people are actually doing things manually, it's a security risk, and it slows down our ability to expand. Every Oracle data center from the largest to the smallest are identical in features and functions, they only vary by scale. That means we have one suite of |
6,033 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | the largest to the smallest are identical in features and functions, they only vary by scale. That means we have one suite of automation software that automates all of this. Nobody else does this. No one has that level of automation, that level of autonomy. It allows us to get much better margins in our database business, in our SaaS business and the rest of our cloud business. Our clouds are more automated, so we have very low labor costs. Our networks are much more efficient, the RDMA networks run so much faster. If you run twice as fast, our costs go down by half. And our networks are much faster than the other clouds. So we think our potential as we scale, our potential to deliver much better margins they're currently delivering are very real. |
6,034 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | John DiFucci: So is it safe for me to assume that then the upside you keep putting up and you hopefully will continue to do, will add profit and that profit will actually increase as a percentage of the margins will also increase over time?
Lawrence Ellison: I believe so. And I believe, for example -- I mean I think you'd find different points of view from different engineers as we move Fusion to Autonomous Database. I think the cost savings -- our cost -- our cloud cost savings will be around 50%. That's what I believe. Now it might be 40%, it might be 35%, but there will be huge cost savings from where we are now, and that's across the entire base of Fusion customers. So that's just one example of how we're using faster networks, faster databases, more automation to make our products more secure. And I keep emphasizing the security is really the primary goal. But as a second order effect, we also end up spending a lot less money to run those data centers.
John DiFucci: Great. Thank you, Larry. Thank you, Safra.
Operator: Your next question comes from the line of Mark Murphy with JPMorgan. Your line is open.
Mark Murphy: Thank you very much and congrats on the great performance. Larry, how do you envision the market transitioning from the AI training phase to the AI inferencing phase? There's some debate out there on whether we have an imbalance or a bubble on the front end of the curve because training is compute intensive and then perhaps it recalibrates differently somehow for the inferencing stage, which might be less intensive? Or do you see the potential for high growth kind of all the way through both of these phases? |
6,035 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Well, a lot of people think that, Mark, I send a kid to college and then I'm done. They're training ever. I got four years of training, and then I can put the kid to work and they'll be doing inferencing. And that's not true. This race goes on forever, to build a better and better neural network. And the cost of that training gets to be astronomical. When I talk about building gigawatt or multi-gigawatt data centers, I mean these AI models, these frontier models are going to -- the entry price for a real frontier model from someone who wants to compete in that area is about $100 billion. Let me repeat, around $100 billion. That's over the next four, five years for anyone who wants to play in that game. That's a lot of money. And it doesn't get easier. So there are not going to be a lot of those. I mean we -- this is not the place the list who can actually build one of these frontier models. But in addition to that, there are going to be a lot of very, very specialized models. I can tell you things that I'm personally involved in, which are using computers to look at biopsies of slides or CAT scans to discover cancer. Also, there are also blood tests for discovering cancer. Those tend to be very specialized models. Those tend not necessarily use the foundational the Groks and the ChatGPTs, the Llamas and the Geminis, they tend to be highly specialized models. Trained on image recognition on certain data, I mean, literally millions of biopsy slides, for example, and not much other training data is helpful. So that goes on, and we'll see more and more applications like that. So I wouldn't -- if your horizon is over the next five years, maybe even the next 10 years, I wouldn't worry about, hey, we've now trained all the models we need and all we need to do is inferencing. I think this is an ongoing battle for technical supremacy that will be fought by a handful of companies and maybe one nation state over the next five years at least, but probably more like 10. So this business is just growing |
6,036 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | and maybe one nation state over the next five years at least, but probably more like 10. So this business is just growing larger and larger and larger. There's no slowdown or shift coming. |
6,037 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Mark Murphy: Thank you very much.
Lawrence Ellison: Let me say something that's going to sound really bizarre. Well, I probably -- you'd probably say, well, he says bizarre things all the time. So why is he announcing this one? It must be really bizarre. So we're in the middle of designing a data center that's north of the gigawatt that has -- but we found the location and the power place. We look at it, they've already got building permits for three nuclear reactors. These are the small modular nuclear reactors to power the data center. This is how crazy it's getting. This is what's going on.
Operator: Your next question comes from the line of Raimo Lenschow with Barclays. Your line is open.
Raimo Lenschow: Just a question more on the database side on the agreements that you just announced today or that you have in place and now added with AWS. So now that we have all the hyperscaler agreements in place, how do you think about that migration movements from database workloads that are at the moment running on-premise or on cloud customer to the public cloud? I mean how should we think about that momentum? Thank you.
Safra Catz: We think it going to accelerate -- no, you go ahead, Larry. |
6,038 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: No, no, no. I think you're right. Well, there's two things. Public cloud is very interesting and it's very important. I mean Oracle became very successful in the database business a long time ago because one of our watch words was portability. We ran on IBM main frames. We ran on Microsoft PCs. We ran on Hewlett Packard machines. And if you remember them, digital equipment machines and all sorts of computers, we ran everywhere. And that was very important so our customers could run the Oracle database in any environment. And it's obviously -- and we had to find a way to actually make the best versions of our database, the Exadata, Exascale versions of our database available in other people's clouds. And what we're able to do is basically get OCI small enough that we could embed an OCI data center within Microsoft Azure or an OCI data center within Google or AWS or wherever we had to put it where it could be fully autonomous, where we could use Exadata and Exascale clusters. We actually were able to do that. It was not technically easy, but we did it. In doing that and miniaturizing our Oracle data centers, I mentioned earlier that all of our data centers are the same except in scale. The biggest one is 800 gigawatts right now, bordering -- getting close to 800 megawatts, excuse me, we're getting close to 1 gigawatt. The smallest are about 150 kilowatts, and we're going to get down to 50 kilowatts. What that means is, we'll have a lot of companies, medium large-sized companies that will decide to have an Oracle private cloud. I mean it's still -- there's no difference between our private cloud and the public cloud. They are identical. They're absolutely identical. And a bunch of people have Oracle -- have a private cloud, a bunch of industrial companies, Vodafone has six Oracle private clouds, for example, to run their workloads. But they're becoming so inexpensive that anyone can decide, okay, I want to move to the cloud. I want all the advantages of the cloud, but I want to make sure that I'm |
6,039 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | anyone can decide, okay, I want to move to the cloud. I want all the advantages of the cloud, but I want to make sure that I'm the only one in the cloud. I don't want any neighbors or I want only approved neighbors. I don't want someone with a credit card moving in. I'm just paranoid about security where I've got government regulations I have to adhere to. So we think that obviously, moving with Oracle database available in AWS, Microsoft and Google is incredibly important. And Safra said it right, I mean it will absolutely accelerate database growth in the public cloud. But we expect that private clouds will greatly outnumber public clouds as companies decide they want the Oracle Cloud behind their firewall in their data center with no neighbors. And we -- because we've gotten our data center -- our data centers are so automated and they're scalable, and they're all identical in terms of function, we're organized. So we can -- actually, we have 162 data centers now. I expect we will have 1,000 or 2,000 or more data centers -- Oracle data centers around the world, and a lot of them will be dedicated to individual banks or telecommunications companies or technology companies or what have you or nation states, sovereign clouds, all of this other stuff. So we think -- it's hard for me to predict whether the private clouds or the public cloud which is going to be bigger? I don't know. The good news is we win either way. |
6,040 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Raimo Lenschow: Okay. Interesting. Very interesting.
Lawrence Ellison: Next question, Shara.
Operator: Thank you. Your next question comes from the line of Mark Moerdler with Bernstein. Your line is open.
Mark Moerdler: Thank you so much and congratulations on the quarter. Very impressive both the quarter and the guide. We've seen a lot of focus on the model training side, but less on applications and inferencing in the rest. You guys have a lot of expertise in the market and in the industry. You already have traditional AI sprinkled throughout all the Oracle products and capabilities. But where do you see the monetizable value of GenAI on the app side? How long do you think it's going to take for GenAI to be a meaningful revenue, not just for Oracle, but software in general, on the app side, not on the training side? Thank you. |
6,041 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Well, let me -- I'm sorry, I'm monopolizing these answers. I apologize. But let me start with health care everything from us helping doctors diagnose different diseases. When someone goes in to get a sonogram, and I've seen the nurses and the technicians and the doctors actually measure the baby skull and measure the baby's spinal cord to see how -- it's utterly ridiculous. The computer should do all of that. And if there's an umbilical wrapped around the fetus the computers should discover all of that, and now it should all be recorded. The doctor could get assistance from a computer doing all of this stuff. Looking at the plaque and coronary arteries, all should be done that way. Already, we've delivered when a doctor visits a -- gets ready to visit a patient, we prepare a summary for the doctor. We use AI to look at the electronic health records, the latest labs that might've been just a few hours ago. And let the doctor know whether there's stability or disease progression or whatever the doctor needs to know prior to the consultation with the patient. That summary is created by AI, human readable summary. Then AI listens to the consultations between the doctor and the patient. This is already delivered. This is already out there. They'll deliver -- they'll listen to the consultation of doctors with the patient. If the doctor orders a prescription, the AI checks to make sure the prescription is accurate and enters the prescription. The AI updates the electronic health records. The AI transcribes and distributes the doctors' orders, all from listening to the conversation. The doctor then gets a draft at the end of the conversation that the doctor can quickly review and approve. And then the prescriptions are filled and the orders are executed and the electronic health records are updated. We're already doing all of that. But I can go on. In health care, we need so many things from reading of X-rays to just the user interface. Our user interface is so different than Epic's. I was at Stanford |
6,042 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | things from reading of X-rays to just the user interface. Our user interface is so different than Epic's. I was at Stanford with my son at one time and it took three people, three different positions to actually be able to find his X-rays. This is how you find the X-rays for Larry Ellison. You say, Oracle, please show me Larry Ellison's latest X-ray. It's a voice interface. You just ask for them. How do you log on? Well, you look at the computer and it recognizes your face. It recognizes your voice, that knows you're the doctor and you're authorized to look at that, all the authorization is done with AI. When are we going to start monetizing it? Well, all of Cerner is the monetization. The fact that we can dramatically expand our health business is because it's based on AI. It is -- AI is just -- I don't know how to describe it. I mean the best way to describe it. It's not something you sell separately. It's the diagnostic system. It's the electronic health record system. It is -- the pharmacy system, this prescription system, the user authentication, the log-in system, it's all AI. And I know people think it's a separate thing that, "Oh my God." And I hear a bunch of applications come say, "Oh, we've now got AI agents we'll charge for separately. I mean -- it's -- our applications are going to be primarily AI applications, everything. How do you charge separately for everything I really don't -- I find it bewildering when I listen to them talk. I don't understand what they're saying. We wonder -- and I'll stop there. |
6,043 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Mark Moerdler: Larry, I think you are the first person to explain it that way. Thank you. It makes a lot of sense.
Operator: Thank you. Your next question comes from the line of Derrick Wood with TD Cowen. Your line is open.
Derrick Wood: Great. Thanks. And I will echo my Congratulations. Safra, Larry, you guys have had this big inflection in RPO growth over the last few quarters. Could you update us on how you're feeling about supply availability and your ability to stand up data center infrastructure in a time-efficient manner in order to move from contract signing to consumption and convert backlog into revenue? And I guess, are you doing anything different today than, say, a year ago to try and help accelerate these time lines? |
6,044 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Safra Catz: Okay. I'm going to start and Larry can finish. So we have enormous demand that is absolutely true. And I will say that demand is still outstripping supply. But I can live with that because we are laying out a lot of supply. As you can see, in the revenues and you're going to -- and you can see that in the guidance and my commitment for this next year, and we'll be talking about beyond on Thursday, Financial Analyst Day. We have made a number of changes, including what Larry mentioned earlier, which is the automation of the setting up and laying down our data centers. However, there are -- because demand is so large, we do have to get in different places. As I told you I don't know, a couple of quarters to grow. We made the decision instead of picking up small pieces to actually wait in some cases, to pick up larger locations. And that is really playing out very, very well for us. But we are really moving and growing in so many places because it's not only public cloud rollouts, but it is also private clouds, which are in immense demand, national security regions, immense demand. And really, we are moving as fast as we can, and automation is the thing that has helped us lay this out. And the fact that it is -- we have an everything everywhere means, nothing is unique. Everything is the same, and that cannot be set by our competitors, and that helps us in our rollout. |
6,045 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: I just want to emphasize what Safra just said. Our private clouds are identical to our public clouds, except for the fact they might only have one tenant, and it might be in a building that you own. Besides that, they're identical. We own the hardware. We manage the hardware for you. It just happens to be in a building you own, and you're the only one that can get in. So that's a very different situation than all of our competitors, and it's fully automated. So we're prepared to manage thousands of data centers. By the way, I would compare that to Elon Musk, Starlink, where he's got, I think, close to 7,000 satellites in the sky now, 6,800. How do you manage -- these satellites constantly maneuver. They don't -- they're not geosynchronous satellites. Their low earth orbiting satellites. So they're constantly flying around and changing location. How do you manage 7,000 spacecraft flying around? Well, let me tell you, computers, it's got to be fully automated or it's not going to work. You can't have thousands even hundreds, I would say, data centers you can't have, but you certainly can have thousands of data centers unless they're fully automated. And the only way you could automate something is to make them all the same. You can't automate 25 different things. So that's one thing. The other thing I'll point out, and I think it's interesting about Oracle, that some of the most senior people in our management team are experts in building buildings, building electric power plants and electric transmission systems. Because building these data centers is just that. You can't just build a data center. You also have to account for the energy and the transmission of the energy from where it's generated to the data center. And of course, the most efficient way to do this is actually build the generation -- the power generation plant right next to the data center. So you transmit over the short -- over the shortest distance. And we actually have very senior people who are very -- actually come from the |
6,046 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | over the short -- over the shortest distance. And we actually have very senior people who are very -- actually come from the utilities industry, as strange as that sounds, that are expert in doing this and helping us build these gigantic projects. Again, I'll harken to Elon Musk. One of the hardest jobs he had in building Tesla was when he built the Austin plant, he had to build the largest building ever been built by human kind anywhere at any time. And you want to know the largest building ever built? It certainly is not the Pentagon. It's not the NASA building for the space shuttle. Largest building is the Tesla plant. And so you have to be the contractor of that plant. You have to be able to build those things and then fill it with robots that then build your cars. So you got to build the building, get the power, build all the automation systems, which is the hardest part about building the cloud or building automation system, build all the automation systems, so it works efficiently and reliably and cost effectively. That is -- and we have some really interesting people here with a very different experience base than we had even five years ago. |
6,047 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Q – Derrick Wood: Thank you very much.
Operator: Your final question comes from the line of Brad Zelnick of Deutsche Bank. Your line is open.
Brad Zelnick: Great. Thanks so much for fitting me in. And I'll just start by saying I can't remember a Q1 ever being this exciting. Larry, we've talked about a lot of the reasons why you win in cloud infrastructure, especially by addressing areas of the market where your competitors can't even reach. But in light of many high-profile cyber incidents lately, can you talk about how being more secure, not just in being so highly automated as you've already discussed, but how is being more secure helping to win some of these very large OCI deals especially in the U.S. and other governments around the world? Thank you. |
6,048 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Lawrence Ellison: Well, I couldn't thank you more for the question because I have two things I'm talking about a Cloud World on Tuesday. One is multi-cloud and the other is security. And let me announce right here, we're done with passwords. The idea is utterly ridiculous. They're easily hacked. The more difficult they are to remember, the more likely you are to write them down, the more likely they are to be stolen. Everything done to make passwords better has made them worse. It's a terrible idea. So we're getting rid of passwords entirely. This is the way log on is going to work. I'm going to type in larry.ellisonoracle.com, the computer is going to look at me and say, okay, hi, Larry, we're done. Why would I type in? Safra can recognize me. My kids can recognize me. You're telling me a computer can't recognize me and log me in. This is ridiculous. So we're not -- no more passwords. Those have got to go. There are other things we can do to secure network communications and we have this new technology actually goes live in our cloud this week called Zipper, it's called Zero Trust Packet Routing, that I'll be talking about. And it guarantees the -- while biometric authentication will guarantee that you are who you say you are when you log in. So we'll know, so users -- fraudulent users will find it very difficult to infiltrate our systems with biometric authentication. And by the way, there are keys on the keyboard that will look at your fingerprint. It depends on how -- if you want face recognition plus fingerprints, all voluntary. You don't have to do it if you don't want to. But I certainly -- a whole bunch of people prefer biometric authentication. That's why Google Pay is popular and Apple Pay is popular. So it's from my convenience. I don't want to remember passwords. Look at me and recognize me and log me in. Don't ask me to type in some stupid 17 letter password that someone can steal. There is that. The Zero Trust packet routing actually authenticates you from the user all the way to the data. And |
6,049 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | can steal. There is that. The Zero Trust packet routing actually authenticates you from the user all the way to the data. And we've greatly simplified network security by separating it from network configuration. That's another thing I'm going to talk about. But by the way, let me go back to automation. Automation is more of a security issue than it is an efficiency issue. Automated cars, self-driving cars will kill a lot fewer people every year than human drivers. They don't get drunk. They don't go 135 miles an hour. Automation is a safety issue and a security issue. All -- almost all cyberattacks begin the same way with human error. If there is no Oracle database administrator as there isn't with the autonomous database, the data -- the DBA cannot make a configuration mistake that exposes your data. You can't have a human being involved if you want to make your data secure. Autonomy is a huge portion of it. And the fourth piece of security that I'll talk about is code generation. When you generate a computer program rather than hand write it in Java, hey, we're the owners of Java or I don't know. Maybe this supreme court said, we're not the owners of Java. I'm not sure. I'm not sure what it even means. I'm not a lawyer. But if the computer generates the program rather than a human being writing it, the computer will not generate security vulnerabilities. They will not generate something called state which means your application can't fail over automatically in case your data center loses power or burns down or something like that. Code generation is a huge portion of next-generation security. Zero Trust packet routing is another important one, biometric authentication and automation are the four key attributes to winning the cyber war. It's going to be our defensive robots against their robots, and we have to have better technology on the defensive side than they currently have on the offensive side because they are winning. I mean every year, there are more -- there's more successful cyberattacks. And you |
6,050 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | the offensive side because they are winning. I mean every year, there are more -- there's more successful cyberattacks. And you know what the FBI says when you're attacked? Pay the ransom, there's something we can do about it. Well, that's not very encouraging. I have an idea. Let's keep the ransom money, but implement next-generation technology that makes it much harder for cyber criminals. And by the way -- and it's not so bad with cyber criminals now compared to what state actors have the ability to do. So we have to harden our computer systems. We have to make them more secure. The good news is there is a whole new generation of AI-based security systems like biometric authentication, like zero-trust packet routing that we can use to stop these attacks, but we have to actually deploy the technology. |
6,051 | ORCL | 1 | 2,025 | 2024-09-09 17:00:00 | Oracle Corporation | 22,247 | Brad Zelnick: Amazing, Larry. Look forward to learning more this week in Vegas.
Ken Bond: Thank you, Brad. Thank you, Larry. A telephonic replay of this conference call will be available for 24 hours on our Investor Relations website. Thank you for joining us today. And with that, I'll turn the call back to Sarah for closing.
Operator: Thank you. This concludes today's conference call. We thank you for joining. You may now disconnect your lines. |
6,052 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Good morning, and welcome to PepsiCo's Fourth Quarter and Full Year 2024 Earnings Question-and-Answer Session. Your lines have been placed on listen-only till it's your turn to ask a question. 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: Thank you, Kevin, and good morning, everyone. I hope everyone has had a 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, guidance and outlook. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, February 4, 2025, 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 2024 earnings release and 2024 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 Executive Vice President and CFO, Jamie Caulfield. 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.
Operator: Thank you. [Operator Instructions] Our first question comes from Lauren Lieberman with Barclays. Your line is open. |
6,053 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. [Operator Instructions] Our first question comes from Lauren Lieberman with Barclays. Your line is open.
Lauren Lieberman: Great. Thanks so much. Good morning, everyone. I wanted to talk with -- about Frito. Significant reinvestment in the business that really started over the summer, but we really saw it presumably step-up in the fourth quarter, funded by the one-time gain you had, but volumes decelerated sequentially. So, just curious if you can talk a little bit more about spending and reinvestment in the fourth quarter, in particular, how much you would describe as kind of tactical versus laying strategic groundwork for next year? Because, right now, just optically and super simplistically, the ROI on reinvestment doesn't feel great with volumes kind of taking a step in the wrong direction. Thanks.
Jamie Caulfield: Hey, good morning, Lauren. It's Jamie. Yeah, look, we're working hard to get the momentum back into the Frito business and just as importantly back into the salty and savory category. So, this is working for us, working for our customers. So, we're going to continue to invest and what enables us to invest is we're generating productivity. To your point, we did have some help from non-operating gains in the fourth quarter, and the investments are intended to improve the performance in the fourth quarter, but more importantly, to get us off to a good start going into 2025. |
6,054 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah, Lauren, hi, this is Ramon. A couple of context and how we feel about it. We're encouraged by the category, if you look at the MULO+, the Circana data, the category is starting to grow again in the last periods of the year, including P1. And that was the #1 objective that we had. Get the category back into growth both in volume and hopefully starting to take some -- see some pricing, price/mix -- positive price/mix. I think we are there. So, consumers are back into the category, I wouldn't say a large number, but delivering growth. So, that's very positive. From here, we can build on the learnings that we had during the year and what are the best ROI, as you were saying, ROI investments in value for the category, but most importantly, we understand the bigger trends where we can innovate, where we can bring to the category new spaces that will drive additional occasions into the category. Moreover, for our own business, the big opportunity we're also addressing is the away-from-home opportunity, which is a blue space, a blue ocean of opportunities for us. And as consumers are being less at home and more away from home, within that is another area of opportunity. So, I would say, category growth back to good levels. We're starting to see some pricing in the category. The consumer programs and the commercial programs for next year look very strong, addressing innovation spaces that have been unmet at this point, I would say. And then, obviously, for us, away-from-home is a big opportunity in our food business, we have more of our business in beverages away from home, but for foods is an underdeveloped opportunity. So, those -- that's how we're thinking about investments that we put back into the business. In Q4, as you said, we reinvested most of the one-time gains in building the infrastructure to capture those opportunities in '25.
Operator: Thank you. One moment for our next question. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open. |
6,055 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Bonnie Herzog: Thank you. Good morning, everyone. I actually had a question on your guidance for this year. Your EPS guidance assumes some leverage, but not nearly as much as you've reported in prior years. So, just kind of wanted to understand the drivers of this. I assume your productivity savings will remain robust. So, should we assume that the level of investments in your businesses are going to ramp a fair amount this year? And if so, could you maybe give us a little bit more of a sense of the types of investments? For instance, Ramon, are you considering more price investments at Frito? And then, also you guided an EPS range versus your typical percentage increases. Is the idea there that you would ultimately like to have more flexibility this year to maybe push more aggressively on investment levels if needed? Thank you. |
6,056 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah, I would say, and Jamie will add to this, the way we're thinking about the year is, continuing with the systematic productivity, multiyear programs that we talked to you about, so automation, digitalization, global capability centers, simplifying the company, deduplicating. So, there's a lot of -- and we feel very strong about that. We are reinvesting into price partitions that were not participating for Frito. If you think about there's sub-$1 sub-$2, there's multiple price partitions where we're not participating. We're rethinking or we're redoing our price pack architecture on single serve, on multi-packs and multi-serve to make sure that we attract consumers. Depending on their disposable income during the month, they will be able to access our product across the multiple parts of the portfolio. And then, to your point, we're being cautious. Like, the reality is that the world looks better from the unemployment point of view. There's very low unemployment around the world. There is, I think, better inflation in most of the markets. However, the world is very volatile, if you think from the geopolitical point of view or some of the potential decisions that governments might take going forward. So, we think it's prudent for us to give a guidance that reflects all that. And obviously, we can invest in the business and continue to invest for the long-term, as we always manage the business, but also give us flexibility to react to potential circumstances that might come our way in the coming months, especially, I would say, the first half of the year. I don't know, Jamie, also in terms of ForEx and... |
6,057 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Jamie Caulfield: Yeah, I'd add, we have about a 3 point ForEx. And, obviously, the dollar has strengthened recently. Peso is the biggest piece of that ForEx guide. And then, below-the-line, we're expecting higher net interest expense. Part of that is as we've rolled over debt, it's -- we've issued at slightly higher rates and then higher debt balances with the acquisitions of Siete and the 50% of Sabra that we did not previously own. On top of that, pension expense is going to be up a bit. So, where we typically have maybe a little bit of leverage from below-the-line items, it'll be a bit of a headwind. So, you should expect the sector operating profit to grow in excess of what we're guiding on EPS.
Operator: Thank you. One moment for our next question. Our next question comes from Kaumil Gajrawala with Jefferies. Your line is open.
Kaumil Gajrawala: Hey, everybody. Good morning. A couple of questions, I guess, on the restructuring and sort of realignments. I guess, the first thing is I don't know if it was 10 years ago, but there were a lot of conversations around splitting beverage and snack as two different businesses. And I just wonder if these restructurings are maybe a prelude to something bigger down the road or maybe what's your appetite for that. And then, I guess, in the midst of a restructuring like this, does that also mean that, any other M&A is off the table after these two recent deals? Thanks. |
6,058 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Okay, Kaumil. The reasons for the restructure are multiple, but I'll summarize. The international growth opportunity is very large for us, and we want to have focus between what is a franchise beverage opportunity and what is mainly a food operating unit opportunity. So, we're separating those two, make sure that we have category focus, but most importantly, we have a consumer-and-franchise-facing organization and a consumer-and-operating-facing organization internationally capturing what is a very large growth opportunity. Now, in the US, we have been investing in systems and we've been investing in data, we've been investing in infrastructure. Now, we're ready to capture the benefit of some of those investments in better short-term cost running the business and there's duplications in how we service the two organizations. So, that's an opportunity. We want to continue to have very focused category teams that understand the consumer, innovate, manage the category separately, but also we see an opportunity to build the future together in a different way. So, if you think about infrastructure, if you think about technology investment, if you think about a lot of the big decisions that we have to make for the future of the business, we have an opportunity to do that in a much more harmonized way in the US. So, those are the three big ideas that I think for the next chapter of the business and our accelerated growth ambitions and margin expansion is the best way to run the organization.
Operator: Thank you. One moment for our next question. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open.
Dara Mohsenian: Hey, good morning, guys.
Ramon Laguarta: Good morning, Dara. |
6,059 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Dara Mohsenian: Hey, good morning, guys.
Ramon Laguarta: Good morning, Dara.
Dara Mohsenian: So, just looking at Q4 results for you guys across the CPG industry, clearly a pretty muted top-line growth environment in North America. You touched on Frito-Lay North America already, but I just love to get a bit more granular on how you're specifically managing the business differently in 2025 relative to the back half of last year on both the Frito-Lay and beverage side of the business and areas you're emphasizing more such as innovation, et cetera, and just sort of the tweaks in strategy in light of that sustained environment? And also, just can you give us a quick update on performance in Mexico in Q4, somewhat tied into the same vein of a subdued consumer environment? So, any update there would be helpful. Thanks. |
6,060 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Thank you, Dara. So, let me start from -- the international business remains by far our largest growth opportunity, and we've been investing consistently over the last 10 years. We'll continue to invest to -- continue to nurture this big opportunity for us to develop our caps and continue to build, scale business with high margins. To give you a sense today, our international business already almost a $40 billion business accretive to PepsiCo. So, we build the scale, we build the leverage, and that business continues to grow at a very good pace. Now, in North America, we're encouraged by what we're seeing. We're encouraged by -- in the beverage business, a continuous improvement of our margin, and that was something that we put our -- as a key objective a few years ago. We see our line of sight to a mid-teens margin in our beverage business. That continues to be an aspiration. Now, I think we have an opportunity to do better on the top-line in beverages, and that is the focus for this year, continue to expand the margin, but drive acceleration on the top-line behind better price pack and much more focused innovation against zero, against functional hydration, against some of -- the more -- the categories where we are leaders like teas and coffees, and we continue to improve our operational excellence in beverages. So that's the beverage journey, beverage ambition. Again, productivity at the center, I think the teams have been doing a great job in improving operational efficiency across buying, across making, across moving and everything else. So, that's the journey on beverages. In snacks, after five years of very fast growth and gaining almost 200 bps of share, '24 has been a slowdown. Our #1 priority this year has been stabilizing the category, making sure that consumers come back to the category with good ROI investments. I think, we're -- we can say that we see that happening. We're seeing the category starting to grow again on volume in the last three months and a little bit of pricing in |
6,061 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | happening. We're seeing the category starting to grow again on volume in the last three months and a little bit of pricing in the category. Frito has a very strong program for '25, much better price point execution and partitions, as I said earlier in the call, much better innovation, which we're moving more of our A&M dollars towards, what we call, positive choices or permissible offerings for the consumer, a new line of no artificials under Simply, which will have all our brands, more effort on baked, more effort on lightly salted, more efforts on parts of the portfolio where we see consumers moving, a lot of effort on portion control, a lot of effort on single serve, on multi-packs and a lot of efforts on availability of our small portions. And then, as I said earlier, away-from-home continues to be an investment area for Frito, something that was in our strategy. Now, we're dialing up the opportunity to have our products available away-from-home, but not only in the form of a conventional bag of our snacks, but also more elevated experiences in form of ready-to-eat almost solutions or mini-meal solutions. That's why the acquisitions of Siete and Sabra feed our strategy as they give us not only better for you -- snacks, but also the option to participate in meals and mini meals in a much more intentional way. So, those are the kind of the broad strategies. We'll talk more at CAGNY on how we're thinking about all these for the coming years. |
6,062 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Bryan Spillane with Bank of America. Your line is open.
Bryan Spillane: Hey, thanks, operator. Good morning, everyone. Hey, Ramon, I'd like to pick up on the comments from the previous question related to Frito, and I guess, the focus on some of the more positive choices. And I guess, as we step back, right, and we've all been trying to understand both the Frito share and the category, how much of it is just simply price got ahead of the consumers' wallet, how much of this is now a change in preference, right, is healthier, a lot more important objective from here, and then, I guess, the last is just, where Frito kind of fits in mini-meals, because meals have become more expensive, and is there a migration to like, I don't know, a dollar menu relative to a bag of Lays and a Pepsi. So, against those three things, which one is the most important? And specifically, is there something that you're hearing from consumers that is causing a refocus on the more positive choices? |
6,063 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah. It's a great question. It's actually probably the most strategic question. I think when we talk to consumers, value is the number one decision maker and it's the reason why the category slowed down in the last 12 months. So, we think that addressing value, given the consumers' choices at different price points, different solutions throughout the month, the consumers will be making choices as they try and to maximize their disposable income. So, I think that continues to be the number one focus and I think we have a much stronger pricing, sizing and promotional activities that address that with high ROI and maximizing the value of the category. I think there is a more awareness from consumers to the food and the drinks that they consume. I think there is a -- this has been a multi-year evolution of the consumer in the US, globally, obviously, as well. And obviously, some parts of the world are more advanced, especially European consumers. But we think there has been a more conversations on social and more -- we've seen some behaviors as well. So that is maybe an acceleration in the US market that we are very well positioned to capture. You think about portion control, probably being the number one solution for consumers to stay in our categories is small portions of our favorites, ideally improved favorites with lower sodium and lower fat and artificial. So, portion control of our favorites is a big strategy. There's also consumers that are looking for more functionality and they're looking for protein in their snacks, they're looking for whole grain in their snacks, they're looking for other benefits, and we're also well positioned. If you think about SunChips and how SunChips is innovating with whole grain and now legumes, if you think about Stacy's with whole grain, if you think about Quaker with protein snacks, if you think about popping and baking and better frying, lower fat frying options that we're putting on in front of consumers, those are all tools in our portfolio enabled by very |
6,064 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | lower fat frying options that we're putting on in front of consumers, those are all tools in our portfolio enabled by very capable R&D that we will continue to expand. And the truth is that our partners have been great partners in expanding space for us in stores and giving us the tools to maximize consumer impact. So that will be big in '25 and we're pivoting a lot of our A&M into those spaces. The third pillar is mini-meals, and this is not only a value-driven decision, but it's been also a multi-year evolution of the category where more occasions more calories are being eaten in small meals versus large meals. And I think that is something that will continue as consumers lifestyle evolve that way. So, there, we're participating with all our brands. We're trying to create solutions for consumers in those moments of the day where they're looking for a 200-calorie, 300-calorie solution that takes them over for the next few hours into their next job or whatever they're trying to accomplish. So, those are multi strategies. Now, the same applies to beverages. Beverages, price points are critical. I think, obviously, offering partitions that drive that are critical. Better for you, so zero and more functional beverages and we have both in Gatorade and Propel and in the whole zero portfolio. And then also elevated experiences away-from-home. And we have Pepsi DRIPS, that is an elevated experience, and multiple other solutions that we have on our away-from-home business. So, it is a three-pronged strategy. It is across food and beverages, and we feel good about our ability to continue to give consumers what they need as their preferences evolve, obviously, during the coming years. |
6,065 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open.
Filippo Falorni: Hi, good morning, everyone. I wanted to ask about your low-single-digit organic sales guidance for 2025. Can you comment how much is the international contribution versus the North America expectations? And specifically, North America, you called out the performance to improve gradually as the year progresses. Can you give us some sense of when you expect North America to improve? And kind of what are the key drivers of that improvement in '25? Thank you.
Jamie Caulfield: Hi, Filippo, it's Jamie. So, as we mentioned in the prepared comments, we expect North America's performance to improve gradually as we work through the year. Our guidance of low-single-digits is in the same neighborhood as our exit rate. Clearly, at this point in the year with a lot of global uncertainty, I think we've set the top-line guidance to be prudent. And the cause of all the acceleration -- or the cause of the acceleration in North America is a lot of what Ramon has been sharing previously on the call. So, innovation, getting into new spaces, getting into -- leaning more heavily into away-from-home. And to be clear, international has been performing very well and we expect international to continue to be quite resilient and a major contributor to our results in 2025.
Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open. |
6,066 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.
Peter Grom: Thanks, operator. Good morning, everyone. Hope you're doing well. So, Ramon, you mentioned in response to Lauren's question that you're kind of encouraged by some of the trends that you're seeing in salty more recently. And I know throughout this call you kind of touched on a lot of the things that the company is doing to improve performance around affordability, innovation, et cetera. But just over the past year, category growth has been choppy and we've seen kind of these periods of growth kind of ultimately reverse. So, I just would be curious, as you look at it today, is there something that you're seeing that's different that gives you greater confidence that the category is on much better footing today as you move into the balance of '25. Thanks. |
6,067 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah. And I think, listen, I don't think we can read '24 in isolation of the previous three years. Otherwise, I think we're missing some of the major impacts on consumer, both lifestyle, [moving from] (ph) home into away-from-home and disposable income challenges with inflation. So, we look at '24 in the context of the last four years and we say, okay, Frito-Lay and the category has grown above our long-term expectations. Frito-Lay grew 8% in the last four years. That's a pretty good compound rate for a company of that scale and that development. So that's positive. And Frito-Lay has, I think, gained almost 200 bps of share of market. So that is the contextual reality to understand '24 as a normalization year, inflation going back to normal levels both on the cost of inputs and the consumer side, and the overall trends in the category. Now, yes, we're encouraged by the fact that we're seeing more occasions coming into the category in the last three years of the -- three months of the year. And that is encouraging because we see consumers coming back to consume our products, consume the products that are being offered by the category. Now, there is a higher level of consumption in the value segments of the category, but it's also more occasions coming in the premium segments of the category, which also helps us to understand the way to address that opportunity, both with good offerings on the value side, but also innovation and good consumer solutions that our consumers are willing to pay more on the premium side. And that's why what I said we're encouraged. I think our commercial plans address the opportunities both ends of the category and also trying to be very cautious and very -- always having ROI at the center of our decisions, not only for PepsiCo, but for the full category, which we think we are guardians of this category for the long-term. And that's why we're making some of the decisions we're making. |
6,068 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Steve Powers with Deutsche Bank. Your line is open.
Steve Powers: Thanks, and good morning. So, I don't want to beat a dead horse, but I just wanted to delve a little further into the topic of Frito investments, specifically the topic of pricing and value. Because I appreciate the comments you made so far, Ramon, but I just I guess I'm trying to put a little finer point on it, because it's the one area where I guess you could argue you haven't really yet made clear and considered investments, just evidenced by the fact that pricing in Frito is still positive this quarter despite tactical initiatives you discussed coming into the quarter. So, the comments you made today, Ramon, signal a change on that front such that pricing in Frito could potentially start to run negative as we start 2025. I certainly understand the risks and sensitivities of walking back pricing, but on the flip side, I guess the question would be, how do you think -- how would you think about the risks of not investing more in price to reenergize volume, just given that it's been, I guess, 18 months or so where we've seen category volumes and volumes in your portfolio extend their declines and fall short of expectations? So, just I think I'm hearing a little bit more certainness, but I'm just -- I just want to... |
6,069 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: No, I wouldn't assume that we're going to have negative pricing. I don't think that's our strategy. What I'm saying is we're going to have much more surgical offerings to consumers, especially around price partitions, which I think we can do price and sizing in a way that we give consumers optionality without diluting the pricing of our business or the category. For example, if you think about the multi-bag business, we will be offering lower counts, we'll be offering eight counts and we'll be offering 15 counts and 18 counts and 20 counts. We'll be offering the consumer multiple choices so that the consumer can beginning of the month, they might go for 18 count, and end of the month, they might take a six count, eight count depending on their budget availability. That's one strategy. The same with the single serve, we've always had the 2-for-$1 option for limited channels. Now, we're going to have a sub-$2 option that we didn't have. We'll have multiple partitions for different occasions. And obviously, this is the -- our DSD system allows us to have distribution of the different price packs for the occasions that matter for that particular customer or point of sale throughout the year. So, those are capabilities that we have in place. Now, we would have the offerings, we'll have the executions and we'll have the partnership with our customers to try to continue to drive value for the consumer and for our partners and for ourselves. I don't think we will have negative pricing. We'll have a much more surgical price pack strategy and execution strategy that we think will drive growth for the category, given where the consumer is in their disposable income evolution after the high inflation years that we just crossed.
Operator: Thank you. One moment for our next question. Our next question comes from Michael Lavery with Piper Sandler. Your line is open. |
6,070 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Michael Lavery: Thank you. Good morning. Just want to come back to Frito, really not as much the pricing piece, but some of the other spending. At the end of Lauren's question, you were saying you reinvested most of the one-time gains in infrastructure. And I just want to maybe understand a little bit better what that is. I mean, I think the optics she pointed out are a little funny, but if we understand that better, I think that's helpful. And just a little bit related, you said that the percentage of sales for advertising and marketing went up in 4Q. Can you maybe touch on what your expectations are for 2025 for that?
Jamie Caulfield: I'll start with the A&M. I'd expect our A&M to be pretty consistent as a percent of sales in 2025.
Ravi Pamnani: Investments and how we reinvested them? |
6,071 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ravi Pamnani: Investments and how we reinvested them?
Ramon Laguarta: Yeah. I think going back to the investments, I think we continue to think about long-term portfolio evolution. So, continue to invest more on the future platforms that we're trying to create, whether it's portion control platforms, whether it's permissible platforms, whether it's away-from-home platforms, all of those require investments upfront, especially away-from-home requires some investments to be able to capture new channels and new opportunities. The same with some of the new platforms that we have to invest to get it off the ground. That's why my comment on Q4 reinvesting on those platforms. But again, we're trying to run the business for the long-term, trying to establish good options for the consumer in all the different price partitions, move the portfolio to where we think are the new pockets of demand, again, lower-fat products, lower-sodium products, better ingredients on legumes and rice and some other ingredients, giving consumers higher protein, all the different functionalities that consumers are looking for as they enjoy tasting snacks. And then, again, the away-from-home opportunity being much bigger, both with mini-meals and some ready-to-eat solutions that our brands can participate, we're seeing high demand and that will require investments to be able to capture for the long term.
Operator: Thank you. One moment for our next question. Our next question comes from Drew Levine with JPMorgan. Your line is open.
Drew Levine: Hey, can you hear me?
Ramon Laguarta: Yes. Hi, Drew. |
6,072 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Drew Levine: Hey, can you hear me?
Ramon Laguarta: Yes. Hi, Drew.
Drew Levine: Hey, there. Thanks for taking the question. So, I think this is the first quarter in a while where energy wasn't specifically mentioned in the prepared remarks. So, wondering any change in view of the category or PepsiCo's platform in the category. And I know the company has previously said you feel good about the service levels and execution, but maybe any color on what the company has planned from a planning or execution perspective to drive growth in that part of the portfolio, or if there's anything that the partnership could be doing differently or better from your perspective? Thank you.
Ramon Laguarta: Yeah, thank you. No, we think we continue to see energy as a fundamental part of our beverage growth strategy in the US. There's a demand for energy throughout the day, and I think we have a portfolio that offers that both with our brands and some of the brands that we distribute. And we're servicing our consumers and our customers with, I think, full end-to-end solution. So, there's no mention because there's no -- nothing special to mention.
Operator: Thank you. One moment for our next question. Our next question comes from Robert Ottenstein with Evercore ISI. Your line is open.
Unidentified Analyst: Hey, guys. This is Greg on for Robert. I was just wondering if you could please talk a bit about the PBNA pricing strategy for 2025 and then a bit more about higher thinking of promo in that segment. And then, as a quick other follow-up, maybe just touch on the incrementality of Baja Blast and just how you guys are thinking about the Mountain Dew franchise? Thank you. |
6,073 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Great. So, listen, Baja Blast is a big part of our strategy to make Mountain Dew a bigger contributor to our growth in beverages. It's a large franchise. It's almost $1 billion already between our away-from-home and our retail business, or in the neighborhood of $1 billion. We see it is incremental in driving penetration for Mountain Dew with new -- especially with Gen Zs and especially in parts of the country where our core Mountain Dew is less developed. So, we see a very good incrementality for us and we will continue to invest in Baja Blast. It's one of our bets for the year. It's -- we're continuing the development of Baja Blast in the -- we will have it for Super Bowl and there's a whole program throughout the year to continue to develop this platform. I think it's sustainable, it's incremental, it brings new consumers into the franchise. So, that's regarding Baja Blast. Regarding the pricing strategy, I think there's very disciplined category pricing, both through price pack and through a channel mix. And we'll continue to work on that direction to create value for our partners and for our consumers, giving them the best choices in price packs and promotional offers that create category value and category profitability for our partners and ourselves.
Operator: Thank you. One moment for our next question. Our next question comes from Robert Moskow with TD Cowen. Your line is open. |
6,074 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Robert Moskow: Hi, thank you for the question. I was curious when you went through the list of factors impacting the slowdown in salty snacks, there's no mention of increased GLP usage. And there's a pretty detailed study by Numerator Cornell showing that salty snacks was a category that was probably most impacted by GLP usage. Would you agree with that assessment, or do you think it overstates the impact? And then secondly, protein drinks is probably the fastest-growing segment of the drinks market. Would you have any desire to go -- to become more aggressive in that category, given all the growth around it? Thanks. |
6,075 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah, great. Listen, on the protein beverages, for sure, we're trying to participate in that with a sense of urgency. We're trying to participate, in general, in the functionality evolution of the beverage category, both from the functional hydration point of view and there with Gatorade and Propel. And we see the opportunity to continue to create more value, both in terms of hydration by Hydration plus protein as well in that space. But yes, in terms of protein, both with through Muscle Milk and some other innovations, we're looking at participating in that category, which as you were saying, it is growing faster than total LRB. So, for sure, that is an opportunity that we're... Now, on salty, listen, I think we continue to study GLP, obviously, with a lot of detail. And at this point, we see that because of the lower levels of adoption and people coming in and out of the treatment, we see very little impact in our business and in our category at this point. However, as I said earlier, I think there is a higher level of awareness in general of American consumers towards health and wellness. And this is driven by potentially all the conversation around obesity drugs, but also other conversations that are happening around the space of health and wellness. So, I think, yes, there is a health and wellness higher level of awareness by consumers and that's driving some behaviors that I -- we're addressing through the strategies that I talked earlier. The most important being portion control. I think portion control is a highly-strategic strategy that we've been implementing for many years, but also long-term evolution of our portfolio with lower sodium, lower fat, lower sugar, positive ingredients, plant-based protein, whole grains, all those are kind of strategic adjustment and evolution of our portfolio that we've been making for many years. We're accelerating to be able to offer consumers all different options for the multiple occasions that they interact with our category. So, again, we haven't |
6,076 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | to offer consumers all different options for the multiple occasions that they interact with our category. So, again, we haven't seen a direct impact of GLP, but we're seeing more conversation in social media about health and wellness, in general, and obviously, that's impacting consumption of food and consumption of beverages. And we're very well positioned with our broad portfolio to cater to all these new realities. And this is not new, this is something that we've been working on for many, many years. This is a sequential evolution of the consumer that both through innovation and through M&A, we've been addressing. I think, we have a very broad portfolio. If you think about the acquisitions of Siete or of Sabra, they're in that context, and they gave us both the opportunity to innovate, but also to enter new spaces like meals where we needed more platforms to take advantage of them. |
6,077 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Jamie Caulfield: I'll just add, I think the protein opportunity is beyond protein beverages. So, if you look at the Quaker today, we've got a number of offerings that are high protein in the breakfast occasion and I think there's a lot more opportunity to expand that.
Operator: Thank you. One moment for our next question. Our next question comes from Chris Carey with Wells Fargo. Your line is open.
Chris Carey: Hi, thank you. So, number one, just on Europe, this has been a segment that has actually seen kind of successfully driven an improvement of volume just as even as pricing has normalized. What specific about what's going on in Europe that has allowed you to see that positive balance of delivery over the course of this year? And do you think this performance is sustainable going to next year? And then just connected, I think there was some view that international profit strength could fund some of the investments in North America. Would you continue to have that view given what we're seeing in the currency environment? So, just the concept of international still being able to give you that profit lift, so as to fund some of the things that you want to do in North America? So, thanks for those two. |
6,078 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yeah, great. So, international continues to be our largest value-creation opportunity, both in the top-line and margin expansion. If you look at the margin expansion of international in the last couple of years, it's very remarkable. And I wouldn't say that international will fund the US, but as we met as a company in its totality, obviously, international now is a great source of top-line, is a great source of profit and it gives us flexibility to be much more flexible, I guess, in how we allocate resources and grow the overall business. With regards to Europe, it's just a, I would say, consistent strategy by our teams. I think the teams have done a great job in being very balanced in simplifying the business, extracting unnecessary costs from the P&L and reinvesting those in growth in platforms that have been very good for us long-term, zero-sugar beverages, lower-sodium and lower-fat snacks and executing better in terms of availability, affordability and entering new spaces like away-from-home. So, they've been executing very well the strategy of the business, starting, I would say, from a very intentional reduction of cost to reinvest in top-line. And in a difficult context like the European markets with large retailers, they've done a great job. And yes, we think that this is sustainable, we think this will continue in this year and coming years. And, yes, the opportunities to grow per caps in Europe are still very large and we have very good teams in the markets and very good strategies to deploy our capabilities against the market.
Operator: Thank you. One moment for our next question. Our last question comes from Kevin Grundy with BNP Paribas. Your line is open. |
6,079 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Kevin Grundy: Great. Thanks. Good morning, everyone. Ramon, I wanted to take a step back here and give you the opportunity to perhaps level set on the company's longer-term organic sales guidance of 4% to 6%. So, not asking to be redundant in any way, but pulling together a lot of themes on the call, it seems like you see issues in the snacks business as more transitory or cyclical as opposed to secular. You sound confident on the strength of the business outside the US, but perhaps maybe cautiously optimistic you have the right plan in place to return Snacks to growth, time will tell. But as we sit here today, can you maybe comment on your level of confidence these are indeed transitory issues facing the business and that 4% to 6% is still the right growth rate for your current portfolio on an intermediate-term basis? Thank you. |
6,080 | PEP | 4 | 2,024 | 2025-02-04 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Thank you. Great question. And I think obviously, we see our long-term growth of the business in those levels 4% to 6%, and we're obviously going to try to go for the upper end of the long-term guidance. Again, very high growth in international. We're very confident that our North America business will accelerate this year. We're very confident in our plans and our long-term. And we see opportunities, especially away from home as billions of occasions in a daily basis that we need to go and capture with much more intentional products and consumer-facing go-to-market. So, those are big opportunities. We remain very committed, and we also remain very committed to translate that growth into a high single digit EPS. And if you look at our last five years, we've been delivering above our long-term guidance, both in top-line and bottom-line, and we don't see any reason why we should not continue to deliver at those high levels if you take the next five years in context. So, thank you very much. This has been a good conversation and really appreciate your questions. Thank you for staying invested in our business. We look forward to the meeting in CAGNY, and also hope that you guys enjoy our products during this weekend Super Bowl game. So, thank you.
Operator: Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day. |
6,081 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Good morning, and welcome to PepsiCo's 2024 Third Quarter Earnings Question-and-Answer Session. Your lines have been placed on listen-only until it is your turn to ask the question. 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 may begin.
Ravi Pamnani: Thank you, Kevin. And good morning, everyone. I hope everyone has had a 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 and updated 2024 guidance. Forward-looking statements inherently involve risks and uncertainties and only reflect our view as of today, October 8, 2024, 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 third quarter 2024 earnings release and third quarter 2024 form 10-Q 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 Executive Vice President and CFO, Jamie Caulfield. 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.
Operator: Thank you. [Operator Instructions] Our first question comes from Lauren Lieberman with Barclays. Your line is open. |
6,082 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. [Operator Instructions] Our first question comes from Lauren Lieberman with Barclays. Your line is open.
Lauren Lieberman: Thanks. Good morning, everyone. So in the release clear that Frito volumes trended in the right direction in the third quarter, category backdrop is still tough, and you offered a lot of detail in the prepared remarks and kind of the strategy from here. I wanted to maybe think about the building blocks to a return to volume growth for that business? And if we isolate it between, let's say, core Lays and some of the promotional work that you started this summer, the expansion efforts where you focus on kind of multicultural offerings and value offerings, and then the positive choice, more premium end of the spectrum. As we think about the path forward, what do you think about the growth rates for those three, if you will, segments or initiatives? Do we think that long-term Lays get back to, and that kind of core part of the business to be a positive volume contributor or is it more of a kind of hold the line and avoid losses there, but the other two are really what drives the turnaround as we move forward? Thanks. |
6,083 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Good morning, Lauren. Thank you. Let me step back for a minute. If we think about the long-term growth potential of the food business in the U.S., we are very positive about the long-term trends. We've seen Gen Z snacking patterns and food patterns being in a way that favors the growth of our category. They are snacking more. They are eating mini meals versus large meals. And that favors our brands and the number of occasions that they carrier will grow. So long term, we feel very good about it. After three years of outsized growth for Frito, if you think about the double digit growth, we knew this year was going to be a year of normalization and that's what's happening. The consumer is reassessing patterns and with mobility and some of the financial situation. Now going forward, we think that the category will continue to grow at the pace of the past because of the long-term trends that I referred to. Now the way we're thinking about our brands playing in that space, potato chips will continue to be a big driver of the growth. And we're looking at potato chips, to your question on Lays, as a multi-tier opportunity. And the same with theme for all the other segments. So we have Lays clearly as the main part of the category. And within Lays, We will have unsalted and we'll have flavors where we know we can create a lot of loyalty and higher value for consumers. We'll have subsegments like lightly salted or baked that provide even more permissible options for consumer sustained potatoes. And then we'll have, at the upper end of the category brands like Miss Vickie's that provide a more premium experience. So we're thinking about each one of those categories as multi-tier where we offer value to some consumers, more specific choices for other consumers that want to stay within our brands. But the overarching -- the way we're thinking about the category is to continue to create growth, continue to ensure that the long-term, the category creates occasions and brings consumers into the -- will bring |
6,084 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | growth, continue to ensure that the long-term, the category creates occasions and brings consumers into the -- will bring consumers into the category with our brand programs, our innovation, to keep the category growing very healthy in the future for us and for our customers. And that's how you should think about the long-term value that we can create with the Frito-Lay business. |
6,085 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Bryan Spillane with BofA. Your line is open.
Bryan Spillane: Thanks, operator. Good morning, everyone. So, my question is just how we're approaching planning for, I guess, 2025 and maybe just the medium term. And Ramon, I guess underneath my question is, given that this is sort of in some ways uncharted water in terms of what we're dealing with the consumer and finding ways to get them to respond, how is it affecting the way you're thinking about the balance, right, between investment, spending to stimulate demand, returns, and how it affects the bottom line? And I guess, really what I'm asking is, how do you gauge or guard against cutting too much cost in order to preserve the bottom line while trying to re-accelerate top-line growth? |
6,086 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yes, great question, Bryan. Listen, we've been thinking about productivity and cost transformation now for some time. We knew it was going to be a year of normalization after, as I said, three years of outsized growth. So we've been thinking about productivity in a very programmatic way and systemic way across the company. And there are some big platforms that we have started to deploy and will continue to deploy over the next few years. And these platforms are automation of our supply chain, both warehouses, manufacturing, distribution centers. We have invested a lot in data and organizing our data in a way that now we can deploy digitalization at scale throughout the value chain. So from the way we procure to the way we run our factories, to our transportation, to our go-to markets, we're really digitalizing the company. And that will generate growth and productivity as well. We invested -- we started to create our global business services, share services, now we call them Global Capability Centers, about a couple of years ago. Now we have them at a maturity level that we can use them much more in how we do labor across the company, how we service our organization. A&M optimization, or in general demand generation budgets optimization. We are much better at understanding otherwise. So there's multiple platforms of productivity that we'll keep deploying in the next few years in the U.S. and internationally. That will give us the optionality to invest in the business as we see best to continue to grow our categories in a responsible way, and continue to deliver the financial returns that our investors expect and that we are delivering. One good -- we feel good about this year in the sense that even with a very challenging consumer background, we're able to deliver at the high end of our EPS long-term target. That is very positive, and it makes us feel very confident that the productivity, the cost transformation programs that we started with the right levels of investment will deliver for us. |
6,087 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | the productivity, the cost transformation programs that we started with the right levels of investment will deliver for us. Again, we're always managing the company for the long term. Even in a year like this in which we're challenged, on the top line we keep investing in A&M, we keep investing in the long-term transformation of the company, we keep investing in sustainability, making sure that long-term we are using less resources. So we're not taking our eyes off the ball on the long-term, whilst we deliver on the short-term for our investors. Thanks to what I think is best-in-class productivity multi-prone program that we'll continue to deploy in the coming years. |
6,088 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Kaumil Gajrawala with Jefferies. Your line is open.
Kaumil Gajrawala: Hey, guys. Good morning. If I could just follow-up on that with -- other than the details, if organic revenue growth does indeed stay in this sort of low single digit or 1% range, can you still deliver 8% on EPS, kind of putting all of that together? Do you have the flexibility to do that for the forward year?
Ramon Laguarta: Kaumil, as I said earlier, I think we have a very large productivity set of tools that we will keep deploying systematically. At the same time, we don't think our category will grow at 1% long term. We think our category with investments that we are putting back into the business and the health of our brands and the innovation that we have in place for this year and next year will deliver much more than 1%. So we're not considering that scenario in our kind of planning. But I would say, what we want to do is control what we can control, which is clearly focus on productivity, focusing on the long-term health of our category, continue to keep our consumers in our brand, continue to keep our consumers in our categories, building winning plans with our partners that generate profitable growth for both of us. That's where we're putting the focus. Long-term, as I said earlier, we believe in the long-term growth of both our snacks category and our beverage category. Both of them are trillion-dollar type of categories with global relevance, growing very healthy in many markets around the world and with long-term trends that give us a lot of confidence that these will be sizable growth categories for the long term.
Operator: Thank you. One moment for our next question. Our next question comes from Dara Mohsenian with Morgan Stanley. Your line is open.
Dara Mohsenian: Hey, good morning.
Ramon Laguarta: Hey, Dara. Good morning. |
6,089 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Dara Mohsenian: Hey, good morning.
Ramon Laguarta: Hey, Dara. Good morning.
Dara Mohsenian: So, Ramon, you touched on earlier in the prepared remarks some of the actions you've taken so far in Frito-Lay. Just can you take a step back and give us your view in terms of the initial payback you're seeing? But the thrust of the question is really more about going forward is it sort of tweaking those actions in place already to drive greater payoff going forward? Are there additional actions you're going to lean heavier on? And just how do you think about sort of changing the magnitude of investment behind some of those? And maybe specifically you can dial down on providing value to consumers that you mentioned. What does that sort of mean? Is that more of a promotional focus? Is it taking less pricing? Give us a little more tangible detail on that front. Thanks. |
6,090 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Great, Dara. Thank you. Listen, I think it's a multi-pronged strategy and that we'll continue with that. So giving more value on the core is super relevant. We feel good about the investments that we put this summer, mostly behind the potato chips category and Lays. That drove growth in the potato chips business. Lays gained 3 points of household penetration, and we feel good about that return. Now we're going to apply that sequentially to other categories. We will use the fall, the winter season to put more investments behind Doritos and Tostitos. It’s the football season, there's a lot of gatherings, and those brands belong very well in those gatherings. And it will be a combination of value in the form of bonus packs and more product too. Obviously these are large -- normally large group gatherings, so bonus packs make a lot of sense. We're giving 20% more product in Tostitos and Ruffles, some of the brands that belong in those locations. We're also investing in brand events. So, you will see Tostitos and Doritos, big brand events around NFL. We'll see Lays playing some of the classic Do Us a Flavor event. So the brands will have a combination of value and big brand events. At the same time, we're working on the long-term evolution of the portfolio. That is something that we've been working for many, many years. We'll continue. I think the success of our business long-term is based on evolving the portfolio at the speed that the consumer wants to go. So we'll continue to invest on our permissible portfolio. This is growing very fast, and we continue to put more legs to that business. Now we have SunChip, Simply, PopCorners, we have SmartFood, we have multiple brands. You guys saw the announcement of [CSA] (ph), hopefully that will go through legal approval and we will have another leg to that portfolio of solutions to keep growing the permissible portfolio. The same with multicultural. We see that with the Hispanic population growing in the United States, we have brands like Sabritas, |
6,091 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | same with multicultural. We see that with the Hispanic population growing in the United States, we have brands like Sabritas, Santitas, Gamesa that can work very well to that group of consumers. We have those brands in Mexico, we're making them -- we're scaling them up in the U.S. And the other lever we're playing there is, we're entering new channels. We're trying to expand beyond retail, in a way from home, in other channels where we can create occasions for our brands that right now are under-penetrated. So that's the multi-prone approach. We're probably going to lean a bit more on value in the first quarters without taking the ball off the long-term investments that we're making consistently in building the portfolio for the future. So, you will see us making those options. But again, I refer back to what I was saying earlier, the optionality that we can create for ourselves with our productivity programs gives us a lot of flexibility. And we will be making those adjustments as we see the returns of the different actions and the tactics taking place over the next few months. |
6,092 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Filippo Falorni with Citi. Your line is open.
Filippo Falorni: Hey, good morning, everyone. I wanted to ask about the international business. So Ramon, you mentioned in the prepared remarks geopolitical tensions and some weaker consumer across certain markets. So maybe you can talk about those markets that had a negative impact and quantify any impact in the quarter. And then kind of like looking at the two pieces of the international business, it seems like the deceleration has been more in the convenience food side versus the beverage business continues to do well. So what are the drivers in international slowdown in snacks and convenient foods? Is it similar to the US or are there other drivers? Thank you. |
6,093 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Yes. Thank you, Filippo. I'll give you a bit of a sense of -- there are pockets of strength in international. There are markets like in Southeast Asia, India. Those are markets that are growing nicely. We see parts of Eastern Europe growing nicely. We see Brazil growing at a good pace. So there is pockets of growth. There are other markets where we're seeing a bit of a deceleration. So China is a market where consumers are feeling a bit more constrained, and we're seeing that in our food business, although we're getting share, we're seeing a deceleration from double digit to single digit growth. We're seeing a bit of a deceleration in Mexico. We think this has to be related with elections and some of the noise around the flows of social money into the economy. Hopefully that will now stabilize. And we're seeing parts of Western Europe also challenge weather and other dynamics there. Now the Middle East is a different reality. The fact that we have a big business in the Middle East and yet it's being impacted by geopolitical situation and I don't think that's going to change in the coming months. But our teams locally are doing a great job navigating the situation and trying to continue to stay relevant for consumers and drive that business forward. So yes, your comment on foods versus beverages, yes, the beverage business is growing a little bit faster than the food business globally.
Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open. |
6,094 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Peter Grom with UBS. Your line is open.
Peter Grom: Thanks, operator. Good morning, everyone. Maybe just a bit more of a housekeeping question, but the full year organic revenue guidance still implies a relatively wide range for the fourth quarter. So just any thoughts on where you would expect to fall within that range? And then, within that, any comments on the underlying assumptions embedded, clearly things have been more challenged from an external perspective. So just would be curious if you were assuming kind of the current environment holds, or would you anticipate category trying to show some improvement here as we exit 2024? Thanks.
Jamie Caulfield: Hey, it's Jamie. I'd say that we really don't expect a huge inflection up or down from the conditions that existed in Q3.
Operator: Thank you. One moment for our next question. Our next question comes from Robert Moskow with TD Cowen. Your line is open.
Robert Moskow: Hi. Thank you. Ramon, you have a very thoughtful strategic approach to investing in Frito-Lay. In some areas you're investing in some -- in different ways in different areas. Two questions. I thought that the plan was to also invest behind Tostitos and promote more. I thought it was like similar to the process for Lays. Did you put that into market or not? Because we didn't see much yet for Tostitos. And then secondly, regarding the positive choice brands, I would have thought that they would be less exposed to value-seeking consumer behavior, because I think they tend to skew more towards higher income, but they've been weak. Can you give us a little bit of what progress you've made to improve their distribution and where you are in terms of turning them around? Thanks. |
6,095 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: That's great. Great two questions. On Tostitos, we've made some investments in the summer, but the Tostitos brand has a lot of relevance in this fall season with all the gatherings around TV watching and tailgating and everything else that happens in the US. So, as we will be putting incremental investment behind Tostitos and as I mentioned, it's going to be around brand investment, so programs on consumer investment, brand investment, and also value in the sense of 20% more bonus packs and some other additional value for consumers that will sure will create additional penetration for the brand and hopefully growth. And we're doing the same with Doritos. Doritos, we’re investing a bit more sequentially. We started with Lays, now we're moving to Doritos. Doritos being a brand that responds very well to any sort of activity and we're seeing already in the month of September, October, how the brand is responding. And will sequentially improve. The other part of the business that --with the pandemic mobility and returning to different patterns by consumers that is being impacted is multi-packs. And variety packs was a huge driver of business. We're seeing that part of the business kind of slowing down a little bit, part is affordability. So some of the larger packs have been impacted. Now we offer 10-count multi-packs to -- before it was more 18 and 24. Now 10-count, that's growing very fast. Parts of the month, the consumers are gravitating toward lower purchase. That's growing very well. We're also giving bonus packs to our multi-packs, plus two units, plus three units. So this will be all additional value that I think will have a positive impact in the business in the coming months. Now when it comes to permissible, we've been working on permissible now for many, many years, both on making our core products more permissible. You see our levels of sodium, our levels of fat are being reduced, and that's creating a positive halo for all our brands, but also creating a portfolio of brands that are, as |
6,096 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | are being reduced, and that's creating a positive halo for all our brands, but also creating a portfolio of brands that are, as you say, not necessarily premium. I think the penetration is still limited around between 10% and 20% in some of those platforms, but already beyond what is the premium consumer. It's really democratizing positive choices to consumers. It's SunChips, it's the Simply range, which covers most of our large brands. It is SmartFoods, it is PopCorners, and as I said, some new addition to the family hopefully with Siete. So we keep investing in those. We're seeing penetration increasing. We're seeing positive development of those brands. And everything is impacted by affordability even for medium-income consumers or medium-high income consumers. We don't see this as a long-term derailer. We see something that will continue to provide the right portfolio, add distribution, make sure visibility is at the levels that it needs to be to generate trial. Be very intentional with where we invest money behind these brands to generate additional trial. And the fact of the matter is that, today with digital advertising and all the information and insights that we have, we can be much more precise and thoughtful and have much higher returns on how we build these platforms, which as I said earlier, they are meaningful. They are already $2 billion and this is a large business that is growing and will continue to grow for us in the long term. |
6,097 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Operator: Thank you. One moment for our next question. Our next question comes from Steve Powers of Deutsche Bank. Your line is open.
Steve Powers: Good morning, everybody. Thank you. So, I just -- maybe to clarify, Ramon, if you could talk a little bit more about what drove the step down between 4% organic sales growth for the year and now low single digits, the balance between how much was driven by some of the changes in international markets that you talked about versus less improvement than expected in some of the domestic businesses. I'm not 100% clear where the incrementality was. And then within that, within Frito-Lay specifically, you talked a lot about investments both in incremental brand building and in sort of sharpening price points and the value equation. I guess, I'm gleaning from that, that we should potentially expect segment pricing to flip negative as we go forward as you realize those investments. I just wanted to play that back and see if that was an appropriate assumption.
Jamie Caulfield: Hey, Steve. It's Jamie. On the revision from the 4% to low single digits, the combination of recovery of the consumer in the U.S., frankly, has been slower than we had anticipated. And then to a lesser degree, the geopolitics have impacted international. That's probably a half point drag on total PepsiCo revenue growth in the quarter. As far as pricing goes, it's a bit complex. We're investing in affordability where it makes sense, but we're investing in a number of levers to stimulate demand, and I think too soon to call on what the pricing outlook is going forward.
Operator: Thank you. One moment for our next question. Our next question comes from Andrea Teixeira with JPMorgan. Your line is open. |
6,098 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Andrea Teixeira: Thank you. Good morning. I wanted to start back and think about international convenience food [indiscernible] also needs to see an increased level of reinvestment in marketing to reflect volume in key regions like in LatAm, while also keeping momentum in Europe. That has been a very nice place where I know Ramon, you have a lot of experience in there in negotiating with retailers. And should we see -- I mean my question is rooted on the affordability that we saw also in the US. Is that something that we should be basing for in places like LatAm, specifically Mexico? I understand the tough comps, but going forward, looking at ways to kind of dialing in [indiscernible] in LATAM. And on the Frito-Lay North America, just a bit of a check-in and a follow-up. In the reinvestment you mentioned, should we prepare for margins to remain pressured, it seems, until we lack summer next year? And therefore, I mean, we saw a sizable 200 basis points decline in operating margin for Frito-Lay. I would appreciate that. Thank you. |
6,099 | PEP | 3 | 2,024 | 2024-10-08 08:15:00 | PepsiCo, Inc. | 32,854 | Ramon Laguarta: Thank you, Andrea. Listen, I think your question on international is very valid. I think we've always been very good at the affordability and the revenue management in LatAm for our food business. And I think we manage well the price ladder and the entry points and the price packs and how we execute that in the point of sale in our racks and in our front facing to the consumer. So we'll continue to dial that up. The truth is that in LatAm as well, we have great brands and we continue to invest in those brands, make sure that we carry to the consumer and to our brands versus strong competitors that we have in the area. So you'll see a balance between both, but it's not a new capability. It's something that we've been executing for a long time. We're perfecting that as we use leverage, the data and the information that we have. And we have more precise executional tools versus more broad based execution that we might have had in the past. So I think it's a capability that we keep optimizing, but it will be critical in us driving the business performance in the coming years. Now when it comes to the margin, maybe Jamie, you want to cover that one? We put Frito margin in the context of overall PepsiCo, so maybe Jamie, you want to talk about how we approach margin.
Jamie Caulfield: Yes. So Andrea, we're managing the margin at a total portfolio level at this point. And with Frito, our focus right now is on stimulating consumer demand, doing it in a responsible, disciplined way. And -- but overall, we're focused on the total PepsiCo margin. Over time, I think when the consumer gets a little more healthy and the business accelerates, we can put a little more emphasis on managing the margin. But for right now, we're really focused on the consumer and stimulating demand. |
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