PepsiCo, one of the leading consumer-packaged goods companies in the United States, is under scrutiny from activist investor Elliott Investment Management, which is calling for urgent changes to reverse underperformance and unlock shareholder value.
Elliott’s Concerns Over Frito-Lay North America
Elliott described Frito-Lay North America (FLNA) as “one of the premier assets” in the US snack market. However, the firm warned that the division needs quick and decisive action to maintain growth and profitability. The investment management company has taken a $4 billion stake in PepsiCo, representing about 2% of the company’s outstanding shares.
According to Elliott, PepsiCo’s share price is deeply undervalued, with the company lagging behind competitors despite its strong brand portfolio.
Challenges in Beverage and Snack Divisions
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PepsiCo Beverages North America (PBNA): The division suffers from chronic share loss, lagging margins, and a bloated brand portfolio.
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Pepsi Foods North America (PFNA): Years of heavy capital spending without expected growth have compressed margins.
Elliott’s Recommendations Include:
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Resetting the cost structure to reflect current demand.
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Exiting non-core brands that drag down growth.
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Fueling core iconic brands and expanding into high-potential categories.
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Reviewing bottling and distribution systems for efficiency.
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Streamlining product portfolios for better profitability and market presence.
Potential Brand Divestitures
Elliott identified several PepsiCo brands acquired from Quaker Oats for potential divestiture, including:
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Ben’s Original (rice/pasta)
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Pearl Milling Company (pancake mixes/syrups)
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Cap’n Crunch and Life cereals
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Quaker hot cereals and snack bars
Proceeds from these divestitures could be reinvested in core brands, new product innovations, and strategic acquisitions.
Financial Outlook and Shareholder Value
Elliott estimates that implementing these measures could lead to a 50% upside for investors. The firm believes that PepsiCo can become a faster-growing, higher-margin business with stronger market leadership.
Despite the pressure, PepsiCo responded constructively, stating that it values shareholder input and will consider Elliott’s suggestions within the framework of its long-term strategy for sustainable growth.
About Elliott Investment Management
Founded in 1977, Elliott is a multi-strategy investment firm managing $76.1 billion in assets. The firm has a history of engaging with major consumer companies, including Starbucks and Ahold Delhaize, to improve operational efficiency and shareholder returns.
