Good morning and welcome to PepsiCo's Second Quarter 2013 Earnings Conference Call. Your lines have been placed on listen-only until the question-and-answer session. (Operator Instructions). Today's call is being recorded and will be archived at www.pepsico.com. It is now my pleasure to introduce Mr. Jamie Caulfield, Senior Vice President of Investor Relations. Mr. Caulfield you may begin.

Thank you, operator and thanks to all of you who are listing on the call for your patience this morning as we implemented a solution for technical issues we’re having with our website today. With me today are Indra Nooyi, PepsiCo's Chairman and CEO; and Hugh Johnston, PepsiCo's CFO. We'll lead off today's call with a review of our second quarter performance and 2013 outlook and then we will move on to Q&A. Because of the delayed start to our call and the fact that I know that this is a busy earnings day for all of you, we've kept our prepared remarks short this morning. We’re going to have one question limit and we may not be able to get through the full queue of analyst questions. If that's the case I'd ask you to please call me after we conclude the call this morning and I’ll be happy to take your questions individually. Before we begin please take note of our cautionary statement. This conference call includes forward-looking statements, including statements regarding 2013 guidance and our long-term targets based on currently available information. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted in such forward-looking statements. Statements made on this conference call should be considered together with cautionary statements and other information contained in today's earnings release and in our most recent periodic reports filed with the SEC. Unless otherwise indicated all references to EPS and total operating profit growth are on a quarter basis. In addition, references to organic revenue results in this call exclude the impact of acquisitions and divestitures, structural changes and foreign exchange translation. To find disclosures and reconciliations of non-GAAP measures that we may use when discussing PepsiCo's financial results, please refer to the glossary and other attachments in this morning's earnings release and to the Investors section of PepsiCo's website under the Events & Presentations tab. As we discuss our results today, please keep in mind that our Q2 reporting period is the 12 weeks ended June 15 for our North America business and the months of March, April and May for the vast majority of our businesses outside of North America. Now, it's my pleasure to introduce, Indra Nooyi.

Thanks Jamie and good morning everyone. I’m very pleased to report another quarter of strong results. In Q2 we had our sixth consecutive quarter of mid-single-digit organic revenue growth. We generated double-digit core EPS growth and drove significant improvement in cash flow. Our organic revenue growth in the quarter was 4.2%, in line with our mid-single-digit long-term target, with particularly strong growth in international beverages, at Frito-Lay North America, Latin American snacks, and snacks and beverages throughout Asia, Middle East, and Africa. We are encouraged by the continued strength in the top line with our marketplace investments playing an important role in driving solid growth, brand equity and market share results. Organic revenue growth reflected each of our full business units achieving positive net price realization in the quarter. Our overall servings increased 4% with snacks volume growth of 3%. Beverage volume grew 1.5% on an organic basis and our international beverage growth was strong, up 11% on a reported basis and 5% on an organic basis. We had good profit flow through with core gross margins including 120 basis points in the quarter. A&M up 55 basis points, core constant currency operating profit up 11%, and our core operating margin up 120 basis points. Ex the Vietnam gain and incremental investments, our core constant currency operating profit was up 8% and core operating margins improved by 60 basis points. Our productivity program remains clearly on track. We have targeted $900 million in savings this year which is the second year of our three-year program and we are well on our way to achieving our current goal of $3 billion. Year-to-date management operating cash flow excluding certain items was more than $2.3 billion, a significant increase over the first half of 2012. And we returned over $2.7 billion to shareholders…

Great. Thanks, Indra, and again good morning, everyone. I will spend just a minute covering the financial results and guidance in a little bit more detail and then we will open up the lines for your questions. For Q2, organic volume grew 3% in snacks and 1.5% in beverages. Organic revenue grew 4.2%. Our core gross margins improved by about 120 basis points and we increased A&M expense by 13%. Core operating margin improved by 120 basis points and core constant currency operating profit grew 11%. As we've previously disclosed and mentioned in the release, we realized $137 million pre-tax gain on our Vietnam refranchising and incrementally invested $46 million pre-tax in the quarter. Excluding the impact of the Vietnam gain in incremental investments, core operating margin improved by 60 basis points and core constant currency operating profit grew by 8%. Our core effective tax rate was 24.5%, approximately 335 basis points below Q2 2012. And core constant currency EPS grew 19% and 13% % excluding the Vietnam gain and incremental investment. So, between core constant currency division operating profit growth of 11% and core constant currency EPS growth of 19%, we got about 8 points of leverage. About 1.5 points of that came from net interest expense, 5 points came from tax rate which will reverse in the second half as we're forecasting the full year tax rate to come in at approximately 27%, and 1 point from weighted average share count which was down 1% year-on-year. Overall, the quarter came in as expected with pricing actions, commodity inflation and productivity all in line with our expectations. On a reported basis, net revenue was up 2% and that was driven by a 1.5 point drag from ForEx and 1 point negative impact from structural change reflecting the China and…

(Operator Instructions) Our first question is coming from John Faucher from JPMorgan.

Hugh, I want to talk a little about the gross margin. You talked about sort of more cost pressures flowing through in the back half. I'm assuming some of that's sort of corn in the cadence of the hedging and things like that, as well as may be some of the shorter term raw material impacts. Can you talk about how you see that playing out a little bit further forward? Will there be a corn benefit at some point over the next 12 to 18 months, do you see that roll out? And can you talk just about what you're seeing on sort of the resin side as well as some of the more chemical or petroleum based raw materials? Thanks.

Yeah. Sure, John, happy to. Again a lot of the impact that we're seeing is, we were in the first half overlapping a higher inflation from 2012 and we're lapping lower inflation in the back half of 2012. As to the commodities, it's really a combination of a couple of areas. Some of it is in the whole Ag complex and corn obviously is a piece of that, and some of that is also PET as well in the back half, again driven more by the overlaps than anything else. It will be roughly even between Q3 and Q4 and it should play out as we mentioned earlier. Regarding 2014, it's really premature to comment on that. We're still six months away from that. We try not to get into 2014 until we get to the guidance on that and for me to just start talking about pieces of it probably wouldn't be beneficial to do right now. So, we'll hold on that until we get to our Q4 call in next February.

Our next question comes from the line of Bryan Spillane from Bank of America.

Hi this is [Maria Golop], good morning. I'd like to ask about the Vietnam gain. So it's giving you some incremental funds to spend. You previously had a funding budget for 2013 and this adds to it. So my question really is, sort of what type of specific activities are you spending on and in what geographies? And then related to that, why shouldn't we expect sort of an incremental boost to sales in the near term from these investment activities?

Hugh, you want to?

Yeah, I would be happy to handle that. So where you're going to see us invested is largely in international and it will be geared towards top line driving types of activities. Now when we do these things they typically don't pay back immediately, you typically see the payback in one to two year types of time frames. So I wouldn't necessarily expect to see a short term acceleration in revenue driven by all of that. What we're really doing here is extending both the duration and the durability of our strong top-line growth as well as flowing it ultimately through to stronger bottom-line growth. So we feel these are the right decisions to make for the franchise as well as to enhance and solidify our operating performance.

Our next question comes from the line of Caroline Levy with CLSA.

I just wondered if you could comment since your international and even your domestic quarter ends a little earlier than many other companies on how June looks and just volume wise, particularly in beverages if you still face huge challenges that then carry through to the third quarter giving you some pause on any recovery in beverage volumes looking out this year

Caroline, we don't really comment on one month’s performance, but we'll talk more about it in our Q3 call.

Our next question comes from the line of Dara Mohsenian with Morgan Stanley. Dara Mohsenian – Morgan Stanley: Indra, you mentioned in your remarks that you're looking for ways to drive margin improvement on the beverage side of the business and obviously the strategic piece of that you probably will be hesitant to comment on. But I was hoping you could comment on what you can do internally to boost beverage margins as you look out over the next few years. And as you look at that business, do you think the lower margin structure that exists versus beverage or CPG peers in general, is that more due to structural reasons such as scale et cetera? Or are there significant cost savings opportunities you can go after internally on that business beyond what you've already outlined?

Dara, I presume you’re talking about North American beverages, because when I was talking about margin improvement opportunities I was talking about North American beverages. Just roughly speaking, our franchise business has got much better margins than an operating business in the beverage world, because you've got the entire cost line to work with. I think in the North American beverage business, as we've mentioned before Dara, we've been investing in many technologies, whether it's processing technology, packaging technology, ingredient technology and one-by-one some of these technologies are beginning to start being commercialized. So as we look at our productivity program and we’ve talked about the next [branch] of productivity, some of that next branch of productivity is from North American beverages. And that comes from some of these technologies beginning to get implemented in the marketplace. And that's what gives us confidence that there are opportunities to improve margin performance. On top of that, we’ve really cranked up innovation machine and the combination of the new innovation coming to the marketplace driving top-line in a category that has slowed down a lot. But our goal is to use the power of our portfolio to drive the top-line growth. Coupled with these new technologies and different ways of working within North America to improve the productivity of the operations is what gives us confidence that we can improve the margins in North American Beverages.

Our final question comes from the line of Bill Schmitz with Deutsche Bank.

Hey, can you just elaborate a little bit more, just update us on the acquisition strategy. I think you're still sticking with just smaller niche fields that fill in strategic holes. And then maybe just some commentary on some of the noise recently in the press.

Bill, we’ve been incredibly consistent. PepsiCo is an extremely well architected portfolio geographically. From a product perspective, we are hitting our stride. Every part of the business is functioning well and we do not need large scale M&A to deliver on our financial goals. We do have a strategy to focus on tuck-in acquisitions, and we’ve said tuck-in acquisitions in any year will be $500 million or less. And that's all we are focused on. And I would look beyond the noise and let's just focus on PepsiCo and the performance of the company. And we feel very good about it. Thank you, Bill. So thank you all for your questions. In closing, let me just say that our performance for the second quarter and through first half of 2013 are excellent indications of how our well constructed and developed portfolio, coupled with disciplined execution reinvestment, can drive high quality top and bottom line results on a sustainable basis. That is the purpose of PepsiCo. And I thank you for your time this morning and for the confidence you’ve placed in us with your investments. Have a great day.

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