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We want to get into a deeper dive into PepsiCo's latest results and we're joined now by Brian Spillane. He's Bank of America Securities, senior consumer goods analyst. Brian, it's great to have you. We just heard from Saucy rattling through the top numbers here from Pepsi and he pointed it out right off the bat, just in terms of the stock's reaction here today. We are seeing this move higher despite some of those worrisome headlines. I'm curious from your perspective because I know you kept that buy rating on the stock. Why aren't you worried about some of that downward trends that we are seeing in terms of demand?

Yeah, good morning. Um, I think that in in I think in the prior prior segment, Brian hit it right on the head, right? The stock has already underperformed the market. Um, actually this, and I think part of the reason why the stock reversed is has reversed this morning is largely what happened. Uh, you know, Pepsi's results was poor, more more or less priced into the stock. Um, you know, we could see the data all summer, Frito started mid-June to mid July, um, with a recovery and then it it tailed off over the course of the rest of the summer. Um, and same with with the data that you could see in in Quaker and and in the beverage business. So, um, on one hand, you know, it's things are still soft. On the other hand, it's it's somewhat priced in. That's part of the valuation gap to Coke. Um, and so I think, um, you know, hedge funds that might have been short this stock going into today's earnings, the event has happened and and and I think some folks are probably moving on.

Right, when it comes to shrinkflation, and this has been a focus here over the last couple quarters and I bring that up on the heels of uh the renewed pressure that we're seeing from some lawmakers including Senator Warren. How big of an overhang, how big of an issue do you view shrinkflation for Pepsi?

Um, it's broad, right? And and you know, maybe for some context, this selling less for more, right, is is a strategy that is, or a tactic that has worked very well for consumer packaged goods companies across emerging markets. Um, it's a great way to manage inflation and it has been in play in across, you know, food and beverages really for for most of the last 10 years. It's intensified more recently because of the the the really uh increase in cost inflation. And I think when you when you get to Pepsi, they've probably pushed it too far, especially in salty snacks, um, where, you know, even when you go into a convenience store, um, you know, the price point is is moved pretty high. There's going to be an adjustment period for sure, and that's it's happening now, but I would push back on the notion that it's going to reverse meaningfully at least in the near term.

Brian, is there anything more broadly speaking that we can gather from these results, just in terms of the fact that maybe the consumer isn't as strong as we initially thought they were at this point. Maybe consumer staple stocks aren't going to regain some of that lost momentum, maybe puts them at a disadvantage versus some of their discretionary peers this earning season. I know it's just one report, but is there anything that you're taking from this report that you think can be a common thread this earning season?

Yeah, and I I was following on to your discussion with Brian earlier. Expectations for a re a rebound in volume growth in the third quarter, I think pretty much evaporated as we got to this point. So Pepsi's probably more confirms that bias as opposed to telling us something that maybe we didn't know. And I I I think it's, you know, it's the consumer has um, you know, is managing their their whole budget um differently um in response to not just the cost of food prices going up, but it's everything from rents to homeowners insurance. Um, what we're really, one of the things we've been really focused on in our research over the last few weeks is impulsivity. And, you know, we see a meaningful difference in the the volume declines in the convenience and gas store stations, which is, you know, much more impulse purchase. But even when we're in the large format sort of food stores, deep price promotions are working, but a sort of normal discount with the product on display or promotion really isn't driving a lift. And again, that's typically an impulse purchase, you know, kind of shopping off the shopping list. So it's not that consumers aren't buying food and beverages anymore, but they're really scrutinizing whether they need or are buying things that are maybe off the the list when they walked into the store.

Value conscious consumer may be a theme that we're going to hear about this earning season once again. Brian Spillane, always great to have you. Thanks so much for taking the time to join us here. BFA Securities, senior consumer goods analyst. Thanks so much. Okay.

Okay.