Dive Brief:
- Elliott Investment Management has built a stake of about $4 billion in PepsiCo. The activist investor is seeking changes at the food and beverage giant, outlining in a letter ways the company can accelerate revenue and increase earnings growth.
- Elliott, now one of PepsiCo’s largest investors, said the CPG maker should consider refranchising its company-owned bottling network to independent bottlers similar to its archrival Coca-Cola and review its food operations to divest underperforming assets. PepsiCo also should communicate how it will implement these and other initiatives to accelerate growth and improve profitability.
- PepsiCo said in a statement that it would review Elliott’s presentation, adding that the company “maintains an active and productive dialogue with our shareholders and values constructive input on delivering long-term shareholder value.”
Dive Insight:
Even as companies across the food and beverage industry struggle, PepsiCo has underperformed compared to its peers, Elliot said in a presentation.
The New York-based company has been hit in North America by decelerating growth and slipping margins in food and “persistent” share loss and margin erosion in beverages. Pepsi cola, for example, has fallen to fourth place behind Coke, Dr Pepper and Sprite, according to Beverage Digest data.
“PepsiCo – long admired as one of the world’s most respected and well-run CPG businesses – has become a dramatic underperformer,” Elliott said in its letter. “While unfortunate, this disappointing trajectory has created a historic opportunity.”
For years, the challenges plaguing PepsiCo’s beverage business were offset by its “resilient and high-performing food business,” Elliott noted. But recently, a “challenging” consumer environment has dragged down PepsiCo’s snacking business, putting” pressure on the CPG bellwether with more than $90 billion in annual revenue.
The activist investor said “a lack of strategic clarity,” in addition to decelerating growth and eroding profitability across its North American food and beverage businesses, “has obscured PepsiCo’s enormous potential, including the significant attractiveness of its fast-growing international business.”
Elliott told PepsiCo’s board that its suggestions could increase the company’s stock price, trading at about $148.50 when the letter was sent, by at least 50%.
“PepsiCo finds itself at a critical inflection point,” the activist investor noted. “The Company has an opportunity – and an obligation – to improve financial performance and regain its position as an industry leader.”
In its statement, PepsiCo underscored its efforts to drive growth and transform its portfolio through innovation and international expansion. “We are confident that the successful execution of these initiatives positions PepsiCo to accelerate growth, strengthen our competitive advantage, and deliver meaningful, long-term value for our shareholders,” the company said.
PepsiCo has faced challenges recently as consumers flock toward better-for-you offerings and rein in spending due to inflation. During its second quarter ended June 14, PepsiCo noted its ability to navigate a “challenging environment,” with revenue edging 1% higher to $22.73 billion despite a small decline in volumes.
Earlier this year, PepsiCo CEO Ramon Laguarta said the company is focusing more on catering to consumers looking for value and boosting healthy options to jumpstart its snacks business.
As part of that effort, PepsiCo will offer additional multi-count packages in smaller counts with lower price points. It is also rolling out versions of Cheetos and other popular brands without artificial colors and flavors while expanding use of avocado and olive oil, a response to growing consumer and regulatory pressure to remove synthetic additives and seed oils.
The food and beverage giant also has turned to acquisitions and innovation to fill gaps within its portfolio. During the last year, PepsiCo acquired prebiotic soda brand Poppi brand and Siete Foods, a maker of heritage-inspired Mexican-American foods. In addition, it has announced plans to launch a prebiotic version of its namesake cola.
