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Executives

Jane Nielsen - VP of IR

Indra Nooyi - Chairman & CEO

John Compton - CEO of PepsiCo Americas Foods

Massimo D'Amore - CEO of PepsiCo Americas Beverages

Mike White - Vice Chairman and CEO of PepsiCo International

Richard Goodman - CFO

Analysts

Marc Greenberg - Deutsche Bank

Bill Pecoriello - Morgan Stanley

John Faucher - JP Morgan

Judy Hong - Goldman Sachs

Christine Farkas - Merrill Lynch

Lauren Torres - HSBC

Carlos Laboy - Credit Suisse

Kaumil Gajrawala - UBS

Brian Spillane - Banc of America Securities

Ann Gurkin - Davenport

PepsiCo Inc. (PEP) Q1 2008 Earnings Call April 24, 2008 11:00 AM ET

Operator

Good morning and welcome to PepsiCo's, First Quarter 2008 Earnings Call. (Operator Instructions). Today's call is being recorded and will be archived for 14 days.

It is now my pleasure to introduce Ms. Jane Nielsen, Vice President of Investor Relations. Ms. Nielsen, you may begin.

Jane Nielsen

Thank you, operator, and good morning everyone. Thanks to all of you for joining us. Today's webcast includes a slide presentation that can be accessed at our pepsico.com website.

Before we begin, please take note of our cautionary statement. This conference call includes forward-looking statements based on our current expectations and projections about future events. Our actual results could differ materially from those anticipated in such forward-looking statements. But we undertake no obligation to update any such statements. Please see our filings with the Securities and Exchange Commission including our Annual Report on Form 10-K for a discussion of specific risks that may affect our performance

You should refer to the investors section of PepsiCo's website at www.pepsico.com under the heading PepsiCo Financial Press Releases to find disclosures and reconciliations of non-GAAP financial measures that may be used by management when discussing PepsiCo's financial results with investors and analysts.

This morning's prepared remarks will be made by Indra Nooyi, PepsiCo's Chairman and Chief Executive Officer; John Compton, CEO of PepsiCo America's Food; Massimo d’Amore, CEO of PepsiCo America's Beverages; Mike White, PepsiCo's Vice Chairman and CEO of PepsiCo International; and Richard Goodman, PepsiCo's CFO.

Today we will review our Q1 2008 results in the context of our new organization structure. Our prior year’s financial results and MD&A recap under the new structure we released earlier in the quarter in our 8-K filing. Please refer to the investor sector of our PepsiCo website for this filing. After our prepared remarks this morning we will leave time for questions and answers.

With that I will turn the call over to Indra.

Indra Nooyi

Thank you, Jane and good morning everyone. And thank you very much for joining us this morning. I appreciate the opportunity to discuss PepsiCo's first quarter performance and our outlook for 2008. But before we begin, let me just refer back to this morning’s release where we are reiterating our full year guidance of 3% to 5% volume growth, high single-digit revenue growth and earnings per share of at least $3.70 for the year.

In the quarter the strength of our portfolio, together with the breadth of our global footprint, enabled us to manage the challenges for slowing US economy and rising commodity inflation, yet deliver solid overall business results. Worldwide snacks volume grew 4%, worldwide beverages grew 4%, net revenue was up 13%, division operating profit grew 10% and EPS grew 7%.

Before Mike, Massimo, and John talk in more detail about their businesses, let me share my thoughts on the environment in which we are operating and how we are managing our businesses to deliver result.

The first factor is the rapidly changing macroeconomic picture across the globe. Let me start with the US, where the economy has significantly slowed and consumer confidence is low, and this is not news to any of you. The good news however is that in past US slowdowns, our categories have done quite well. In part due to the relative affordability of our products and in part due to consumers economizing during hard times and shifting towards at home eating occasions.

Indeed, we have seen that shift taking place over the past few months, where traffic has declined in two channels, food service and to a certain extent C&G, causing volumes in the highly penetrated beverage business to slow in these two channels. Interestingly, our snack volumes in these channels have held up very nicely. On the other hand, volume across large format channels is pretty good, as consumer shift to food and beverages consumed at home.

In markets outside the United States, the global macros are still very good, particularly in the developing economies where robust economic growth, coupled with low per capita consumption levels of our product creates vibrant growth opportunities. The geographically diverse portfolio that we have built over the past decade allows us to take full advantage of this international growth. You see this in our strong Q1 result where our businesses outside the United States, both in beverages and snacks posted very healthy results. In addition, the currency diversification from our international businesses has provided some kind of balance to the falling dollar’s impact on commodity prices, which brings me to the second factor, commodity inflation. We see commodity prices going up in almost every country in the world particularly in grain, cooking oil and energy and this trend accelerated through Q1 of this year.

In the US we have this somewhat unusual circumstance of both an economic slowdown and significant commodity inflation, and to be honest we are dusting off long forgotten lessons on operating in this tax inflation environment. Our commodity inflation estimate for the year is 9% to 10% worldwide versus the 6% we had indicated on the Q4 call. The good news is that at this point we are largely covered for the full year on key commodities. But to adjust this cost hike, we are taking additional pricing and tightening our belts. We have been pacing our pricing execution in the market place, including both rate hours and visual pricing to minimize the impact on consumers.

Importantly, our earlier raise and the pricing we have taken in a number of markets suggests that elasticities are better than anticipated and show our brands pricing power in the marketplace. Now as consumer outlook on food is going up, we are watching very carefully to see how that expenditure is going to be allotted across categories so that we can take the appropriate actions to drive growth of our category.

For the year as a whole, our focus remains on managing our portfolio to achieve our full year performance objectives. John, Mike, and Richard will cover the specific action, plans, and play to address this high level of input inflation.

But before I hand it off to them, I want to reinforce PepsiCo’s considerable capability advantages. First, our culture of innovation. We have a robust innovation pipeline that enables us to sustain consumer momentum while also achieving the price realization required to help offset significant input cost inflation. We intend to fully leverage this pipeline for growth throughout the year and to continue to transform our portfolio with health and wellness option.

Second, we have a productivity culture and a passion for execution; both critical to ensure that we derive all the benefits possible across our businesses. Our teams are focused on both cost initiatives and targeted price pack management so that we can provide strong relative value across all our brands.

Third, our tuck-in acquisition strategy continue to advance and probably this quarter we announced the deal to acquire the largest juice company in Russia, Lebedyansky which builds our portfolio in infrastructure across the growing Russian market and complements a strong position we already have in juices in Europe including Tropicana in the UK, France, and Benelux and the recently acquired Sandora in the Ukraine. We also announced the chill dips joint venture with Sabra adding yet another new platform for growth. And we will continue to take advantage of tuck-in acquisitions to expand our reach and enhance our portfolio.

Fourth, we will continue our important investments in our business transformation initiatives and stepping up our research and development capability. Both so critical to help us maintain and enhance our long-term performance.

Lastly and most importantly we have a terrific management team with local savvy and tremendous commitment giving us the skills and experience to navigate the changing dynamics of the marketplace.

Our goal is to manage the portfolio of businesses that constitutes PepsiCo prudently and to deliver our full year guidance, 3% to 5% volume growth, high single-digit revenue growth and earnings per share of at least $3.72 in 2008.

With that, let me turn the call over to John Compton. John?

John Compton

Well, thanks Indra and good morning to everyone. This morning I would like to review the Q1 results of PepsiCo Americas Foods, which encompasses our food businesses across North America and Latin America. As you saw in the press release on a reported basis, we generated 3% volume growth, 13% revenue growth and 8% operating profit growth, solid results in the face of considerable commodity headwinds. So let me take you through each of our divisions and I’ll start first with Frito-Lay North America, which generated 2% volume growth, 7% revenue growth and 4% operating profit growth. Let me first focus on the strong top-line performance and then I’ll address profitability.

On the volume side, I am very encouraged by our 2% growth, especially in light of the impact on pounds of the weight-outs we took this quarter. Weight-outs impacted volume growth by a couple of points. Across the portfolio, we saw strength across our core products with mid single-digit volume growth in our Lays and Ruffles trademarks and high single-digit growth in Cheetos and dips.

Now, at the same time we did see declines in our Quaker rice cakes business and a modest decline in trademark Doritos. But remember Doritos was lapping double-digit growth in the prior year. Overall, Frito-Lay continued to drive both volume and value share gains in measured channels. So I look at the 2% volume growth and 7% revenue growth coupled with our strong share gains and it reflects to me the ongoing strength of our brands.

Now on the profit side our 4% growth was about 3 points below our historical average and there was one primary factor. At Frito-Lay, we planned pricing four to five months ahead of in market timing. In the first quarter based on the commodity forecast we had in September of ’07, we executed the first phase of pricing. Primarily as you know through weight-outs but we did take some visual pricing. The net effect was to realize about 4 points of positive price per pound. However, with the run-up of commodity costs we saw at the end of Q4 in the beginning of Q1 we experienced the gap between our Phase I pricing actions and our actual commodity cost which did impact profit growth in the quarter. The second phase of our planned pricing will address this issue for the balance of the year and effective April 20 we have taken visual pricing increases, primarily on a larger take home sizes.

Now, we will maintain our promotional frequency in depth, but at higher price points. Once fully implemented in Q3 total pricing actions, the combination of the weight-outs and visual pricing will be in the high single-digit range for Frito-Lay North America and as you might have imagined these pricing actions will likely lead to volume growth below our historical levels. But based on our full year coverage of key ingredients, materials and energy, we believe we now have the appropriate level of pricing in the marketplace to cover our cost.

Importantly, we feel that our innovation calendar is strong over the balance of the year to keep our revenue growth strong. As an example, during March we introduced True North nut brand to key customers and held sampling events in over 1300 target in Sam’s Club. We will complete our full roll out during the second quarter and True North is off to a very good start.

We launched two new baked snacks, Lay’s Cracker Crisp and Cheetos Cracker Trax, both Smart Spot qualified and targeting incremental Cracker occasion. Responding to our number one consumer request for lower sodium versions of our core brands is our new Pinch of Salt line, it has 30% to 50% less sodium in the original products with all the great taste that you have known to love behind Lays Ruffles and Tostitos in Frito-Lays brands.

During the quarter, we completed the formation of the joint venture we announced earlier with the Strauss Group, makers of the fast growing Sabra hummus and dips. Under the new JV, Frito-Lay and Strauss will each own 50% of the Sabra dip business. Sabra expands Frito-Lay’s role in providing healthier snack options and aligns with this fresh trend that is taking place in the market place. We are delighted to add Sabra’s Mediterranean dips through our portfolio.

Now the final element of our operating profit story is always our continued progress on productivity of Frito-Lay. Frito expects to cover about a quarter of its commodity cost inflation with productivity. One example is our pre packed weekender merchandising initiative in small format. It’s a standalone pre stocked merchandizing unit that reduces merchandizing cost and drives display execution. The success of this initiative is in combination with our broader up and down the street growth plan, helped to drive our CNG sales up over 3% in the quarter that despite traffic declines in this channel.

So in total our productivity plans are on track across the supply chain, both to mitigate cost and more importantly to help drive sales. So to sum up Frito-Lay North America while the challenges and the commodity cost requires incremental pricing and productivity, the entire Frito-Lay team is working to continue our share gains to maintain our relative value, to minimize the pricing impact upon our growth and the return of the profitability to more typical levels for Frito-Lay.

Now, let me turn to Quaker Foods North America. Our Quaker Foods division reported about flat volume for the first quarter but strong top line growth of 7%. Quaker’s top line was driven by volume growth in Quaker Oats and ready-to-eat cereals. Net price realization and positive mix resulted in 7% revenue growth and helped offset commodity inflation. All in all, Quaker Foods North America delivered a strong 7% operating profit growth and like Frito-Lay, Quaker Foods will be executing additional pricing through Q2 to keep pace with inflation pressures.

Now turning to Latin America, our Latin American food businesses had an excellent first quarter. Each of its segments, Sabritas, Gamesa and South American Foods contributed to strong and balanced results. Latin American Foods reported growth was 8% volume, 37% revenue, and 27% profit growth. Now excluding the impact of M&A with the consolidation of a JV and a 4X tailwind, Latin America’s foods growth was 5% volume, 11% revenue, and 15% profit growth. Sabritas delivered strong performance during the quarter, driven by an effective wait out and pricing actions coupled with successful promotions that delivered unit volume and revenue growth. Gamesa also posed a strong performance with high single digit volume growth and continued top line momentum especially in its high-end cookies and its expanding line of healthy Quaker cookies, bars, and snacks.

In turning to South America, South America contributed significantly to growth in the quarter, especially in the light of the capacity constraints in Brazil as a result of a fire in one of our major production facilities at the very end of last year. Brazil has been executing very successfully on its contingency plan which included SKU rationalization and leveraging the newly acquired Lucky production capability to its maximum level. The Brazil’s snack business will continue to benefit from the integration of the Lucky snack business and the launch of its new Twistos platform, which is a healthy bread snack.

So in summary for PepsiCo Americas Foods they will continue to be lots of moving parts in the business equation over the next couple of quarters. However, I am pleased with the PepsiCo Americas Foods overall performance in Q1, as well as with the initiatives we have in place to manage commodity inflation while maintaining strong consumer momentum and delivering appropriate profit growth for the year.

With that, let me now turn the call over to my friend Massimo.

Massimo D'Amore

Thank you, John, and good morning. I’ll provide another view of PepsiCo Americas Beverages Q1 performance, including the secret previews of both, of North American and Latin American markets.

In Q1, total PAB volume growth decreased slightly versus prior year. However, every market contributed to the 6% revenue growth and total operating profit increased 7%. Although, I am pleased about the profit performance of these seasonally small quarters in our beverage business, volume growth in North America was below our long-term objectives driven by category result. So let me try to put our North American performance in context.

Clearly, the economic slowdown of cash would be at LRB category. In quarter one, LRB declined almost 2 points in measured channels and we see continued cash from the category with all channel growth for the full year probably only flat to up slightly. This impact reflects a significant slowdown in the unflavored water category which has helped to fuel overall category growth over the past several years and a softness in the food service in B&G channel.

Turning to our own performance for quarter one we were at least to hold total a share in the (inaudible) channel, but profitable top line growth for us and our bottlers continues to be a priority as we move forward.

For Q1 in CSD, we held overall volume shares. In the phase of a challenging consumer and competitive environment and part reflecting our strong performance over the Easter holiday.

Our Mountain Dew trademark continues to deliver growth. And heading into the summer we are further strengthening the trademark with our distinctive Mountain Dew promotion as it engages Mountain Dews loyal user base to create and choose their next flavor inauguration.

Although we experience new single-digits decline on brands Pepsi, we did begin to see the huge connection and engagement in consumers, via our Pepsi Stuff loyalty program and the continued growth of Diet Pepsi Max. This year’s iteration of Pepsi Stuff is on track to be our biggest consumer promotion ever. We already had more than 1 million registrants, spending about 10 million each on the Pepsistuff.com website, consumers have redeemed over 400,000 prizes today.

Diet Pepsi Max’s growth has accelerated on the heels of the using successful communication campaign which peaked off during the Super Bowl. Max repeat rates are very, so we will continue to invest in driving a trial, building it’s user base and expanding its footprint. Accordingly, we expect Max to continue to win market share.

We are also pleased with our total Gatorade performance which grew almost 6% in quarter one. Our line expansion, G2 and Tiger are performing very well in the market. G2 style progression is the cheapest we have ever achieved for a Gatorade innovation. Even more encouraging is G2’s label of repeat purchase, which is a good indicator of the sustainability of our innovation. After 16 weeks in market it continues to grow from a very solid base.

Now it is also important to know that for both G2 and Tiger we quickly gained distribution, achieving our 90% target in just eight weeks. However, we know that the speed did not allow us to get all the incremental space we will ultimately obtain and this combined with aggressive G2 pre-launch inventory bills in quarter four restricted Gatorade’s overall volume growth for this quarter. We’ve planned aggressive shelf reset to capture incremental shelf and cold vault space gain for the entire Gatorade trademark and we are working with key customers to complete these ahead of the time of consumption peak. Therefore, I remain confident that volume growth will continue to improve as we approach the warmer peak season and that Gatorade will generate high single digit growth for full year 2008.

In the water category, unflavored based Aquafina declined neat single digit. We continued rational approach to managing this lower margin segment which showed some aggressive pricing in the major channel. However, we remain highly focused on the enhanced water segment. SoBe Life Water is generating strong consumer interest and enthusiasm, which has translated into triple digit growth and share gains in Q1. We are exceeding on this momentum continuing to drive trial and distribution for the brand and launching take home four packs in large format in Q2. Looking through the second half of the year I can assure you that our SoBe leader will be dancing with more delicious uses for Life Water.

Our Lipton tea business continued to drive our non-carbs growth and build our leading share position in the ready-to-drink tea categories. The better capture new consumption occasions, we are continuing to add the new packaging to appeal to a broader range of consumers. For example, we are rolling out our Jack package in selected geographies targeted as heavy tea drinkers.

On the energy front we are focusing on the AMP brand, which grew more than 60% in the quarter and drove overall volume growth of 14% in our energy portfolio. The AMP brand gives us better in-store shelf present and a more targeted execution focus. We recently introduced three new AMP flavors; each with specifically targeted energy benefit to meet the unique needs of energy consumers as being segment will use such occasions.

Our Tropicana juice volume declined consistent with our expectation in the quarter. Our innovation pipeline began to hit the market in March. First, we started national distribution of our premium Pure Valencia juice line and expect full distribution before Memorial Day. Second, our easy 4 Tropicana Pure Premium picture we’ll also rollout nationally during Q2 adding functional convenience to our core brand. We’ll continue to realize supply chain for this DVD and invest to drive faster awareness of our news.

I also would like to note that Naked Juice, posted 10% volume growth and had an important food service week. You can now enjoy a Naked Juice at Starbucks across the country, a new prestige outlet for the brand that will increase trial and drive growth.

Clearly the dynamics are changing in the North American liquid refreshment beverage category. However, we have some clear advantages that give us confidence going forward. We are the leading non-carbs portfolio in North America. Our Mountain Dew brand continues its growth, our innovation like G2 and Max are all doing well in the marketplace.

Our exposure to the food service channel is limited. We have a strong calendar of programs with our customers and very importantly we have a constructive relationship with our bottling partners.

Now turning to south of the border, I continue to be encouraged by the post even sales of our beverage business in Latin America. Volume in the region grew mid single digit during quarter one. Trademark Pepsi grew well and we enjoyed the CSD market share gains across many of our key markets. H2O our win-win product line intersection of CSDs and flavored water continues to grow and is broadening its appeal with new flavors like apple and citrus.

Non-carbs set the pace in Latin America with strength across virtually all our brands, particularly Lipton, Delit flavored water, and Tropicana. Gatorade grew mid single-digit and continues to lead the sport drink category in Latin America by far.

So in summary, I expect 2008 to be a year of growth and rebuilding for PAB beverages. I am convinced we are making the right bet and we will continue to show profits, especially in our hydration, tea, energy, and Latin America chambers. Now, let me turn it over to Mike.

Mike White

Thanks, Massimo. Good morning everyone. Let me start by saying that I am particularly pleased with PI’s first quarter results from three perspectives. We had strong double-digit volume growth and strong profit growth as well. The growth was very broad based across all of our markets, both developed and emerging and both of our categories, snacks and beverages and we made some strategic progress with our major acquisition of Lebedyansky and several important products launches under the Tropicana brand globally.

Now, as a reminder, PI includes all of our snacks and beverage businesses outside of the Americas. The strong momentum from 2007 has continued into 2008 with our businesses delivering double-digit volume growth in both snacks and beverages as I mentioned, 27% revenue growth and 26% operating profit growth. Now on an organic basis, excluding the benefits of the positive foreign currency translation and acquisitions which we completed, PI still delivered very robust and balanced Q1 growth; 10% snack and beverage volume growth, 12% revenue growth, and 14% operating profit. The comparable operating margin excluding 4X acquisitions and consolidations was 13.9%, up almost 30 basis points versus prior year.

Now, before I give you an overview of our two key regions, let me make a couple of broader comments about PI in total. First PI showed great top line strength in the quarter. Volume growth in both beverages and snacks was broad based but was especially robust in our emerging markets. And as I mentioned, even without the tailwind of acquisitions, snacks and beverages each grew 10%.

Second innovation as Indra mentioned continues to be a significant driver of our growth, in both volume and in revenue. And our focus on innovation has been in PI in three broad areas. First, adding local relevance in food authenticity or core brands. For instance, our new Barbecue Doritos’ flavor in Saudi Arabia is growing and Doritos is becoming a significant new platform for growth, all across the Middle East.

Our Chinese New Year campaign, which featured our new Lay’s winter flavors like litchi and mango also had sensational results. On the beverage side Pepsi Raw in the UK is seeing success in our food service accounts, is a more natural, all natural premium Pepsi option.

Our secondary focus is the regional expansion of successful new products across several markets. We expanded the geographic footprint of Pepsi Max in China and we’ll be launching Max in India, Vietnam and Pakistan in Q2. Also in Q2 we will be launching H2O in China, Lebanon, Finland and Switzerland.

And third and perhaps more strategic we’re extending our better-for-you platforms in both snacks and beverages. Our bread snacks in Turkey and our Baked Lay’s product in Belgium and in the Netherlands are off to a strong start. Importantly, we have jump shifted our juice and juice drink business on the beverage side, both organically, as well as through acquisition.

Our Tropicana juice platform expanded meaningfully in the quarter. We launched Tropicana Twister in India supported by extensive sampling and national media to build awareness and trial and we’ll be expanding our current PET package offering by adding returnable glass in Q2.

And in China, Tropicana juice drinks with their unique food and flavor blends have proved to be a big hit with consumers. Our Tropicana Smoothies innovation in the UK is off to a terrific start on top of solid growth in the base Tropicana business as well. We finally as Indra mentioned, the pending acquisition of the Lebedyansky juice business in Russia, which we bought in partnership with PBG compliments our beverage portfolio, providing greater scale, additional distribution muscle, a strong and entrepreneurial group of managers in Russia as well as a juice portfolio of leading brands in the health and wellness space in that critically important emerging market. So we are very excited about our progress particularly in juice, and adding this exciting business Lebedyansky to PI.

Finally, although it is early days in our pricing journey I would say in many markets, our Q1 volume trends were very good as we match commodity dollar cost increases with price realization. However, we are as always vigilant and maybe keep in mind that cost have continued to rise past our estimates earlier in the year, particularly in our expectations for the second half of the year with a new crop. And we have more pricing plans for the end of Q2 and Q3. We are encouraged by the success of our pricing so far and we are doing better than our elasticity models would have suggested, but we will of course remain alert to the consumer affordability issues that may arise as well as the relative value in the market place that we have in the consumer’s food basket as we mover forward with our pricing actions.

So with that let me review each of the two major geographic areas in our reported segments. In Q1 our UK, Europe segment delivered strong top and bottom line results, excluding the impact of foreign exchange in acquisitions, our UK, Europe businesses grew snack volume by 7%, beverage volume by 8%, net revenue by 8%, and operating profit by 11%. In snacks the most notable drivers of our volume growth were Russia with over 30% growth and even a developed country Spain had growth in the high single digits.

In the UK, our Walkers business had a slight volume decline but very solid revenue growth, right in line with our plan and expectations, reflecting the success our of great British potato campaign as well as the growth of our baked Walkers line and our Sun Bites wholegrain product which is similar to the US Sun Chips product.

In the UK and Europe, beverage volumes were fuelled by double digit growth in Russia and other Eastern European markets. We also of course benefited from last year’s acquisition of Sandora in the Ukraine with our beverage partner PAS as well as the Phase II of the PepsiCo-Lipton joint venture which we announced last fall.

In the UK, Tropicana delivered terrific volume growth driven by both Core, not-from-concentrate, as well as from the newly introduced Tropicana Smoothies product. Our bottom line in the UK and Europe grew 18% in spite of commodity cost headwinds. And excluding 4X and acquisitions, operating profit margins grew by about 30 basis points. In total, I think we made very good progress in our UK and Europe sector.

Moving across the globe toward developing Middle East, Africa, Asia segment, I am very pleased to report that we had another terrific quarter. On a reported basis, our snacks volume grew 15% and beverage grew 11%. Net revenue was up 30 and operating profit expanded 32%. Our volume growth was not impacted significantly by acquisitions or consolidations. Revenue increased 16% and operating profit 17% net of the combination of Forex benefits and some M&A.

In China, we had an outstanding performance during the Chinese New Year celebration. The result was strong double-digit growth in both of our snacks and beverage businesses during January and February.

We continue to make aggressive investments in China, as we expand our footprint, as we nationally launched our Tropicana juice drink. Consumer engagement continues to be high on our list of marketing priorities in China through our Go China campaign and our distinctive Pepsi icon of two thumbs up.

In the Middle East, Saudi Arabia also turned in a double-digit volume growth performance in both snacks and beverages. On the snack side volume was boosted by the strength of Doritos and beverage top-line momentum benefited from the expansion of H2O and was further accelerated by a positive mix shift towards juices.

And in India, I am very encouraged by our ongoing double-digits snacks volume growth, driven by growth in the Northern regions and some successful promotional activities. And in beverages as well our Tropicana Twister launch in India provided incremental growth as a whole new non-carb platform.

In summary, Q1 was a solid start to the year for PI with strong top-line volume momentum continuing as we had in 2007. Volume momentum is broad-based across the portfolio and I am encouraged by the continued vibrancy of all of our markets.

As I look through the balance of the year, commodity costs inflation will certainly continue to be a significant factor to manage. However, we in the PI team are confident in our revenue management and productivity measures to help offset those headwinds and allow us to continue to deliver the profit growth rates I have spoken about in the past of mid-teen profit growth.

So with that let me turn it to Richard.

Richard Goodman

Thanks Mike and good morning everyone. We had strong operating results in Q1 with revenues up 13% and division operating profit up 10% however, as we discussed in our fourth quarter call, we experienced a few points of deleverage below the line primarily as a result of mark-to-market accounting and a higher Q1 tax rate. In Q1 the overlaps on certain mark-to-markets commodities for which we don’t get hedge accounting produced a significant year-over-year delta. We had a gain last year of $17 million and a loss this year of $4 million. Keep in mind that over the duration of the contract, the mark-to-market impact and corporate cost is zero with the hedge itself ultimately being reflected in division operating profit.

In addition our tax rate for the quarter was 26.7% which was up a 110 basis points versus last year, yet this quarter’s rate was still below our full year guidance of 27.5%, but the benefit didn’t impact our EPS of 70%. Finally our weighted average diluted share count declined by 2.5%, which reflected the impact of our share repurchase program.

Moving on to cash flow, we are on pace to achieve our full year cash flow and CapEx targets, we expect $7.6 billion in cash from operating activities and $2.7 billion in capital spending. And in the quarter we returned $2.1 billion to shareholders, $610 million in dividends and $1.5 billion in share repurchases.

Let me turn now to our balance of the year outlook. As Indra mentioned our full year outlook for commodity cost inflation is 9% to 10% for total Pepsico in 2008. The GAAP versus the 6% guidance we had provided on the Q4 call largely reflects the continued run up in prices for cooking oil, grain and energy over the course of Q1. Importantly, we now have forward purchases or hedges in place for very high percentage of our requirements through the balance of the year with open positions largely reflecting the limited number of areas where coverage is not feasible. As Mike and John have indicated we have taken additional pricing and tightened expenses in order to offset these higher commodity costs and those costs are impacting our competitor as well. And I want to note that part of the increase in commodity prices is obviously reflection of the continued weakness in the US dollar but we are seeing the benefit of that in Forex translation upsides from our international businesses.

Looking ahead to Q2 and the balance of the year, we are expecting that the additional pricing both in the form of visual pricing and wait outs will result in slightly lower volume growth in our snacks businesses than we have seen in the past several quarters. In Q2 there will be some put and takes below the division operating profit line, primarily lapping of mark-to-market gains we had the prior year offset by the lower share count. Tax rates for the quarter are expected to be relatively consistent with last year’s. With solid overall result in the first quarter, we are reiterating our guidance for the full year, volume of 3-5%, high single digit revenue growth, and EPS growth of at least $3.72 of share which represents 10% growth of our quarter 2007 EPS of $2.38. Let me turn it back now to Indra.

Indra Nooyi

Thanks Richard and to sum up again, as all of us said, we have had a solid start to the year. The portfolio is working and importantly we feel pretty good about the prospects of events of the year. So, with that operator we will now be glad to open the line for question.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is from Marc Greenberg with Deutsche Bank. Please go ahead.

Marc Greenberg - Deutsche Bank

Thanks. Good morning, Indra.

Indra Nooyi

Good morning, Marc.

Marc Greenberg - Deutsche Bank

I understand the commodity pressure you are seeing. I guess my question relates to the fact that in year’s past you have had a great ability with procurement and supply chain to mitigate some of these pressures. I wonder if you and Richard could talk about what is different now if it’s harder to hedge or lock up on key inputs as you become more global and what kind of factors we should consider as we look at ongoing inflation risks.

Richard Goodman

Well, I think what you are really seeing is, we have come out with the 6% forecast for commodities and now we are at 9% to 10% and really the issue is around not fundamental procurement but around what’s happening in the commodity markets and it is really related to what is happening in grains and in cooking oil and energy.

We were largely covered in the first half of the year on those commodities as we normally would be, but were largely open in the second half of the year particularly on grains and to some degree on energy and that wasn’t keeping with where we would normally be based on crop cycles.

It also reflected our view and then you saw at the end of 2004 that there were huge spikes in grains and at the beginning of 2008 and we were assuming that that some of that would reverse as we went into 2008. Not to prior historical levels but to certainly to levels below the peaks that we have been seeing and clearly that did not happen. Oil prices rose dramatically, as did vegetable oil and corn by a substantial amount.

So right now we’ve taken as we have said in the prepared remarks, we have taken significant coverage where we have forward purchases or hedges are available and that encompasses a large percentage of our requirement. On an ongoing basis I think what you’ll see is us beginning to work a little bit harder and a little bit more diligently, we are trying to take more forward cover to the extent that we can.

Indra Nooyi

Marc, let me just add to what Richard just said, the fact of the matter is for many years now we’ve been operating in a deflationary environment. So in the last 12 months or so inflation is coming back to commodities, in the last quarter it has accelerated. The unfortunate part is that all the pundits in the markets who follow commodities and on whose opinions followed curves are set have all said that commodity price is actually going to come down and that’s why you are seeing forward curves actually lower than current spot prices. What we are doing now is rebuilding our commodity assessment capability in an inflationary environment, which almost bucks the trend which the forward curves indicates. So it has taken us a quarter or two to catch up and I think we have rebuilt that capability inside and that is why we have gone out and largely hedged for the balance of the year.

So, it was just a question of catch-up and going forward we are watching the commodity markets very, very carefully and we will start locking our positions as and when we feel comfortable that we should protect the P&L.

Marc Greenberg - Deutsche Bank

Thanks Indra, I think by now you should know better than to listen to analysts.

Indra Nooyi

I said pundits, not analysts.

Operator

Thank you. Your next question is from Bill Pecoriello with Morgan Stanley. Please go ahead.

Bill Pecoriello - Morgan Stanley

Good morning everybody.

Indra Nooyi

Good morning Bill.

Bill Pecoriello - Morgan Stanley

Question on Frito-Lay North America and again on the commodity outlook. You mentioned the four point rate lift in the first quarter moving toward high single digit balance of the year and what kind of volume moderation are you building in? Do you expect to deliver what John had termed as appropriate operating profit growth, as this is a significant change from the consumer perspective who observes this as more of a visual price increase?

Indra Nooyi

Yeah, it’s a great question, where’s John?

John Compton

Good morning, this is John. You know our approach has been a combination of both, wait-out which as you know has zero elasticity because we don’t see any unit fall off with the wait-out although you do see volume off, and visual pricing. And as Indra said, we have taken some visual pricing in the first quarter and we are encouraged by the elasticity that we’ve seen so far on that.

The actions we took on April 20th were on our -- primarily our XXL sizes but we did take some on our smaller sizes, the XL size. Those products are sold at full revenue in some cases and they are dealt on promotion and others. You know, we look at the relative value that we have relative to other salty snacks and to other macro snacks and right now everyone is pricing up.

So, we are very mindful of our gap to competition and we are encouraged what we are seeing so far on the elasticity of the visual prices that we have taken and we would be -- you know, we’d be honest to say that we do expect some volume fall off. We won’t know until we get further into the quarter but we do see volume mitigating somewhat. We reported 2% in Q1. I think it will fall below that as we go forward but it will cover the cost and therefore return us back to the profitability levels that we expect to achieve and we watch market shares, you know, every week by channel, by customer, so we are mindful of our share position in the market place at the same time.

Indra Nooyi

Also to let you know, we also talked about price pack architecture and the fact that we are looking at it very carefully. We will start looking at what should be the right price pack architecture going forward and our expectation is that unit growth will still continue even though pound growth will moderate quite a bit.

Bill Pecoriello - Morgan Stanley

And just to follow-up on the commodities. I know ’09 is a bit off but given that you had that coverage in place in the first half if the spot prices don’t back off, we would assume some significant increases at least in the first half of ’09, that would be moving to the P&L as well.

Indra Nooyi

Well, that’s what we are working through right now and again if you listen to the pundits, not the analysts -- if you listen to the pundits, the forward curves are still looking like they are going to be lower than current spot prices but trust me, everybody is focused on not just locking up 2008, which we had done, but is really focused on 2009 at this point.

Bill Pecoriello - Morgan Stanley

Thank you.

Operator

Thank you. Your next question is from John Faucher with JP Morgan. Please go ahead.

John Faucher - JP Morgan

Yes. Thank you very much. A question for Mike: we are seeing news about food riots related to rice. So can you talk a little bit about the overall food inflation environment in your markets, particularly more of the emerging markets? What you are seeing on the staples side and how that impacts, how you are going to be able to price to consumers over the next 12 months or so? Thanks.

Mike White

Yes, John. First of all, I have not seen a falloff in any of our emerging market growth rates. Keep in mind we have got a very diversified emerging market portfolio so it is pretty broad based. I am not really worried about one country or another and a lot of I think what you are referring to, John has been literally in the last two weeks, so prior to that I would say we were pricing mid-single digits in developed countries and high single-digits in emerging markets. Also keep in mind the overall inflation rate in these emerging markets has been recently been in high single digits or low double digits. So frankly it is not that unusual or that different.

Now in the last couple of weeks you are seeing some increases on staples as you mentioned, but I would say more than anything that’s impacting probably the bottom end of the consumer that is those that are kind of on the margin from an affordability standpoint for our products to begin with. So, at least so far our volumes continue to be very solid. I keep a very close eye on it. We’ve got some additional commodity costs issues to deal with and therefore some incremental pricing in Q2 and Q3, but again, at least so far the economic activity in all these markets continues very strong and they are also even if you are going to keep in mind if you would take a look at the price of a barrel of oil in euros instead of in dollars you will see a quite different curve. I mean the weakness in the dollar has exacerbated this for the United States. In a lot of these emerging markets like Russia in India and China the currencies have been very strong and therefore the commodity cost impact has not been quite as severe.

We have had no supply issues in terms of our contracts and our expectations for the balance of the year and our innovation pipeline continues to be very strong. So, I can only say so far, so good. I am on my way tonight to China, another emerging markets over the week and in next week but the markets I have been to and all of the words I hear so far are solid, but you are seeing significant commodity cost inflation in the food basket, there is no doubt about it.

Indra Nooyi

John, what do you think in Brazil?

John Compton

Yes, in Brazil, Argentina, Chile, Colombia, Venezuela even Mexico we have had to take pricing in those markets as well to cover inflation, and today we really have not seen much of a fall off. Our businesses as we reported are very strong, I just had a call on how we were doing so far in April and it’s continuing to do well.

John Faucher - JP Morgan

Thanks.

Operator

Thank you. Your next question is from Judy Hong with Goldman Sachs. Please go ahead.

Judy Hong - Goldman Sachs

Hi, good morning everyone.

Indra Nooyi

Good morning Judy.

Judy Hong - Goldman Sachs

Just historically Pepsico has been really effective in managing through a cost inflation through combination of pricing, mix management and productivity and I am sensing that maybe you are being a bit more relying on pricing at this point and I am just wondering first of all whether my assessment is indeed correct and secondly whether there are enough productivity buckets out there that you could continue to get beating to offset cost inflation and that being also part of, you know, the driver of offsetting the cost inflation in addition to pricing?

Indra Nooyi

We are talking about pricing for the first time. It is been a while since we talked about pricing. We have always talked to you about productivity and that is why you never heard about pricing Judy because we have been in a deflationary environment. Productivity is still going to be 25-30% of how we cover the commodity cost inflation but I do not believe anybody who is seeing 9-10% commodity cost inflation can cover everything with productivity, especially in such a short time. As you know, major productivity programs take a while to implement and get the benefits from the system. Yes, we have productivity programs as we had discussed. John spoke about it in Frito-Lay. All of that is going to the system. It is giving us very robust savings and we are adding additional productivity programs as we go along but when you have run-away commodity inflation, we have to cover some of that with pricing and that is what we are doing and the good news is the elasticity is looking pretty good at this point.

Judy Hong - Goldman Sachs

Okay and then just a follow-up question to John. In terms of Frito-Lay America margin progression going forward, it sounds like you’re going to get all of the pricing in place in the third quarter, so should we think about second quarter margin being down again and then that going up in the second part of year?

John Compton

Yeah, I think Judy you will see as I said a sequential improvement in Q2 and the full impact of the pricing will be in the beginning of Q3.

Judy Hong - Goldman Sachs

Okay. Thank you.

John Compton

We are midway through the quarter right now.

Judy Hong - Goldman Sachs

Yeah, thanks.

John Compton

Okay.

Indra Nooyi

Thank you.

Operator

Your next question is from Christine Farkas with Merrill Lynch. Please go ahead.

Christine Farkas - Merrill Lynch

Thank you very much and good morning.

Indra Nooyi

Good morning Christine.

Christine Farkas - Merrill Lynch

I have a question for Massimo and then a broader question on elasticity. Just looking at your Tropicana business, we are seeing certainly major channels and improvement in the juice business or refrigerated juice business and it sounds like Tropicana still posted some modest declines. Can you talk about your positioning there or what you are seeing in the category?

Indra Nooyi

Massimo?

Massimo D'Amore

Yes. Your observation is right and what we have been saying is that the positioning of our core business is really the chilled Tropicana Pure Premium together with the recent innovation we just launched which is Pure and we see growth potential for the two combined which really represent the opportunity we have going forward both from consumer appeal standpoint as well as from a competitive advantage. And the other innovation that we are bringing to the market is going to help us significantly because new Jack will have a much better functionality, especially with our heavy consumers.

Christine Farkas - Merrill Lynch

And on a competitive basis some of your peers or the category seems to be moving up, finally recovering in the category. Is there anything specific why Tropicana might be lagging that trend?

Indra Nooyi

Christine, the Tropicana trademark is still awesome. It’s the strongest brand equity in the orange juice business. Our brand equity study shows it’s still the strongest. It still has the leading share. So, if you took Tropicana, Naked and if you look at that whole business and the new Tropicana Pure that’s going in, the innovation is all kicking in Q2. Yes, last year, early part of last year we had a tremendous shortage of NFC orange juice, so we couldn’t really execute too much innovation, but going into this year Q2 and beyond you will start seeing the trends improving.

Christine Farkas - Merrill Lynch

Okay. That’s sounds like innovation timing. And then with respect to my broader question, Indra on elasticity, given Frito-Lay and trends in beverages, could you maybe explain the greater resiliency in snacks versus beverages? For example, in C-Stores, when the economy is softer, is there a way to kind of look at that?

Indra Nooyi

Yeah, the point we made and, John and Massimo want to chip in too. Beverages are highly penetrated in C-Stores and there is a proliferation of beverages and a tremendous variety of them so you ca not get incremental space and increment growth for beverages. So lot of new products came in, but it cannibalized over the existing products. Snacks on the other hand, our DSD systems takes snacks into the C-Stores and snacks are more food like and so people actually when they switch from food away from home to food at home actually buy snacks because they are food like and there is a lot of opportunity to increase penetration of snacks to C-Stores. So that’s why we are continuing to see snacks growth in C-Stores and I think C-Stores and food service are the only two areas where you are seeing channel softness which has actually contributed to overall category softness and liquid refreshment beverages. John, do you want to add something?

John Compton

First thing I would just add that, that’s the one channel in C-Stores where even the primary bulk of our business is the $0.99 line and we haven’t taken any visual price there, we took wait out. So it’s still a great value and you walk in the door, you couple that with good innovation like Doritos Collisions that we launched, plus the pre packed weekender that we put in the market place that helped us offset the decline in traffic by having more inventory in the store and that’s why our growth was up around 3.5% I think as I reported.

Christine Farkas - Merrill Lynch

Great. Thanks a lot, that’s helpful.

Operator

Thank you. Your next question is from Lauren Torres with HSBC. Please go ahead.

Lauren Torres - HSBC

Good morning.

Indra Nooyi

Hi, Lauren.

Richard Goodman

Hi, Lauren.

Lauren Torres - HSBC

In the quarter you mentioned that you made a substantial increase I think it’s in your advertising and marketing investment of Pepsi International. I was just hoping you could talk a bit about how you are thinking about the investment spend or your investment spend for the remainder of the year. And just give us a sense of both your plans in the US and out of the US.

Indra Nooyi

Hey Mike.

Mike White

It was up and so is our revenue, so I mean and keep in mind our revenue was up over 20% I think and so our marketing kind of really goes proportionately with revenue. I would say certainly from our standpoint we are making some important investments. We launched Tropicana Smoothies in the UK. We launched Tropicana juice drinks nationally in China. We had Chinese New Year, very aggressive marketing campaign there but you know I would say our marketing approach overall is pretty consistent with prior years as we advertise around and innovation particularly in the first part of the year and I do not know if there is anything else that would be unusual or extraordinary that I comment on. I think it was driven by our new product launches. I mean it is pretty well growing in line with revenues.

Lauren Torres - HSBC

So, I guess as we think about your rising cost and expenses, we should not think that A&M is an area where you may consider pulling back, that is something that you are going to continue to on a proportional basis go forward?

Mike White

Our first and most important priority is always to stay relevant to the consumer and competitive in the market place and we will also continue to do that.

Indra Nooyi

And support innovations.

Mike White

Yeah.

Lauren Torres - HSBC

Okay. Thank you.

Operator

Thank you. Your next question is from Carlos Laboy with Credit Suisse. Please go ahead.

Carlos Laboy - Credit Suisse

Good morning.

Indra Nooyi

Good morning Carlos.

Carlos Laboy - Credit Suisse

Good morning Mike. What are your top priorities with Lebedyansky. I was hoping you could expand on the upside that you see for this business over the next couple of years and is this a business that you would expect to integrate further with PBG over time?

Mike White

Well first of all, thank you Carlos. I think that Lebedyansky is a strategic home run for PepsiCo and for PBG as well. It is the sixth largest juice company in the world and the largest juice company in Russia. It is a group that has I think both powerful brands. It has a tremendous infrastructure and capability in Russia as well as a terrific management team, its very entrepreneurial and very talented. In terms of the upside opportunities we certainly have in our business plans some plans for aggressive procurement synergies. We certainly think between Sandora and Lebedyansky and our other juice businesses there are some significant opportunities on both packaging and on concentrate for some synergies.

Now we also second of all believe on the cost front that there are synergy opportunities as the Siberia plant that their building comes online at the end of the year and that will reduce transportation cost. Third, we certainly believe there are opportunities for top-line growth in the area of juice drink, which is really quite nascent in Russia as a whole. They have a new product called Frustyle. It’s off to a terrific start and I think juice drinks is a whole arena.

Smoothies. There aren’t smoothies in Russia. If I look at kind of our whole global kind of juice portfolio of products I’ve got enough new products to launch for the next 10 years in Russia from a top-line standpoint. And lastly in terms of integration, we certainly think that there will be selective opportunities, particularly, probably, first in the more rural areas. Let’s say in Siberia, areas where drop sizes are lower will go faster in working with PBG on either integrating distributors, warehouses or the go-to-market side, but frankly it is a large scale, very complex business in its own right. So our intent is at this point is to look selectively for those integration opportunities.

I have no doubt that we will both benefit from best practice sharing and then I am sure we’ll find some opportunities as we go. But really our business case is really been made more on the juice business in its own right and the juice drink business and I have no doubt both PBG will bring great expertise from their local talent on the ground and together this is going to be a great acquisition for us.

Carlos Laboy - Credit Suisse

Thank you.

Operator

Thank you. Your next question is from Kaumil Gajrawala with UBS. Please go ahead.

Kaumil Gajrawala - UBS

Thank you, good morning everybody.

Indra Nooyi

Hey Kaumil.

Kaumil Gajrawala - UBS

First one a quick one for Richard, in the past there was no input, that was more than 10% of your COGS, I just wanted to see if that was still true?

Richard Goodman

That is still true.

Kaumil Gajrawala - UBS

Okay, great. And then the other thing Massimo to follow up you talked about AMP and that was up about 60% or so. Can you talk about your plan to rather portfolio management between Soviet General and Russian AMP or is the plan to slowly phase out SoBe? And then just to expand on that, where do you see the incremental shelf space coming from brand?

Indra Nooyi

Go ahead Massimo.

Massimo D'Amore

So as far as AMP is concerned it is our number one player. It is as I said, but we have absolutely no plans to phase out to the SoBe Energy line extensions because they have a very specific benefit to consumers and they have a loyal user base. So what you have seen is that we have launched first AMP and then we just recently added three more flavors and we are having the incremental shelf space, because that’s where the old category continues to grow and we have been growing shelf space. Research takes place especially in the cold vault we will have to increase our shelf space, but we are managing the portfolio across the three key offerings and their multiple flavors and we will continue to do so going forward.

Kaumil Gajrawala - UBS

Thank you.

Operator

Thank you. Your next question is from Brian Spillane with Banc of America Securities. Please go ahead.

Brian Spillane - Banc of America Securities

Good morning.

Indra Nooyi

Hey Brian, how are you?

Brian Spillane - Banc of America Securities

Good, thanks. Hey, just -- Indra, can you talk a little bit about how the company is adjusting its approach to planning, I guess thinking about ’09 in the medium term on -- you know, obviously that the environment has been very volatile and very difficult to predict, your long-term growth rates were set at a time when cost inflation wasn’t really much of an issue. So, you know, is there something you are doing differently now in your planning cycle to try to get a better handle on it first? And then second, does it make sense to chase long-term growth goals that have leaked in the medium term that were set when inflation were so much lower?

Indra Nooyi

Brian I tell you, we are in the middle of start planning cycle right now and if we believed that the long-term goals that we have do not make sense, we will be the first to come and tell you. At this point, based on everything we are seeing, including our outlook for what’s likely to happen in 2009 and 2010, we don’t see any reason to back off our long-term goals. Why am I saying that? We are pretty good at productivity initiatives and we have got lots of work going on about how we can take additional productivity. We are very good at innovation and premium innovation definitely helps drive the top line and the bottom line. Third, it’s been a while since we have done a lot of price pack work especially in North America because that is another area where you can drive top line and bottom line growth and lastly, you know, one of the things we all have to watch out for is not to write-off the commodity markets and say everything is going to keep going up for the next five or ten years, let’s watch and see how it comes -- how it shapes up because with grains in particular these are not five-year realization markets. In six months you can have the market turn in fairly interesting ways and if laws of supply and demand work, with this sort of price inflation you should see more supply coming to the market and we are already beginning to hear to hear of additional plantings around the world. And, all that it takes is one action by the government on bio-fuels for 25% more crop to come into the marketplace.

So trust this management team to look at each of these issues carefully. We will look at innovation, visual pricing, price back architecture, and productivity, very carefully and at this point we do not see any reason to back off the long-term guidance we have given you.

Mike White

Brian, just this is Mike. One other comment I would make though is that and Indra mentioned it her early comments, may be it wasn’t quite as clear, but clearly in - for the procurement function we are clean sheeting all of our practices. All of the advisors that we look to and there is not doubt that we are fine tuning our approach to what I call risk management kind of in the way we look at it in this kind of an environment. So there is certainly some changes that we are driving I would say more on a tactical basis in terms of how we are doing our planning in that. But to be honest with you nobody’s crystal ball is perfect and as Indra said, there are a lot of factors at play here right now. But I wouldn’t launch a thing that we are also not kind of relooking at how we are looking at the commodity markets as Indra mentioned at the beginning. Actually, we’ve had fairly extensive piece of work over the last 60 days going on in that regard.

Indra Nooyi

Brian, one other thing I would add is what we talked about in our international markets. Our categories are so under-penetrated in almost all markets outside the United States, excluding perhaps Mexico and the United Kingdom that our opportunities are tremendous. And remember we are not going after the C, D and E consumer. We are really talking about penetration with the A and B consumer who has the income to buy treats to help the entire portfolio of products. So we have a lot more growth in those international markets we are just getting started. So, if you put it all together, our growth still looks pretty good.

Brian Spillane - Banc of America Securities

Thank you.

Operator

Thank you. Your next question is from Ann Gurkin with Davenport. Please go ahead.

Ann Gurkin - Davenport

Hello.

Indra Nooyi

Hi, Ann. How are you?

Ann Gurkin - Davenport

I just wanted to get an update on where you are with implementing SAP? I think you are going live maybe in Quaker or Tropicana.

Indra Nooyi

Mike?

Mike White

Yeah. Hello, Ann. This is Mike White. All of our go-lives in both the US and international have been absolutely flawless. We have teams doing tremendous work and particularly in the first quarter we had a number of go-lives at several of our Gatorade and Quaker plants. They have all gone flawlessly, you know. Some normal bumps in the road that you would get in the first week or two, but I must say the teams worked tirelessly on that. We have had successful go-lives by the way in two snack plants. The first two snack plants in the world in Mexico with our project evolved down with Sabritas and that actually went very very well. I think I had a review on that earlier this week. We have had go-lives in China and also in the Middle East with our non-carb business and they have all gone flawlessly. So far in terms of the implementation any kind of operating disruption or whatever it is, there really has been very little to report. There were a few challenges in a couple of areas that we worked our way through as you might expect, particularly in our food service business but to be honest, it was very short lived and really the teams have worked tirelessly and have done a terrific job.

Ann Gurkin - Davenport

Thanks. That’s all I had left. Thanks.

Operator

Thanks.

Indra Nooyi

Thank you for all your questions and thank you for your time and attention today. We appreciate your interest in PepsiCo and look forward to speaking with you again soon. Thank you.

Operator

Thank you. This does conclude today’s PepsiCo conference call. You may now disconnect.

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Source: PepsiCo Inc. Q1 2008 Earnings Call Transcript
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