Company: PepsiCo
Business: PepsiCo is 1 of the world's largest user packaged goods companies, with a portfolio of immoderate of the astir iconic brands successful nutrient and beverage. Its brands include: Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and SodaStream. Its segments see Frito-Lay North America (FLNA); Quaker Foods North America (QFNA); PepsiCo Beverages North America (PBNA); Latin America (LatAm); Europe; Africa, Middle East and South Asia (AMESA), and Asia Pacific, Australia and New Zealand and China Region (APAC). FLNA makes, markets, distributes and sells branded convenient foods, which see branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos maize chips, Lay's murphy chips, and others. QFNA's products see Cap'n Crunch cereal, Life cereal, Pearl Milling Company syrups and mixes, Quaker Chewy granola bars, Quaker grits, Quaker oatmeal and others. PBNA makes, markets and sells beverage concentrates and fountain syrups nether assorted beverage brands, including Aquafina, Bubly, Diet Pepsi, Gatorade and others.
Stock Market Value: $211.28 cardinal ($154.32 per share)
Activist: Elliott Investment Management
Ownership: ~1.9%
Average Cost: n/a
Activist Commentary: Elliott is simply a multistrategy concern steadfast that manages astir $76.1 cardinal successful assets (as of June 30, 2025) and is 1 of the oldest firms of its benignant nether continuous management. Known for its extended owed diligence and resources, Elliott regularly follows companies for years earlier making an investment. Elliott is the astir progressive of activistic investors, engaging with companies crossed industries and aggregate geographies.
What's happening
On Tuesday, Elliott sent a presumption and missive to the committee of PepsiCo detailing the company's accidental to reaccelerate maturation and amended show done greater focus, improved operations, strategical reinvestment and enhanced accountability.
Behind the scenes
PepsiCo is 1 of the world's largest user packaged goods companies, with a portfolio of immoderate of the astir iconic brands successful nutrient and beverage. Globally, the institution is the fig 1 subordinate successful snacking and the fig 2 subordinate successful beverages trailing lone Coca-Cola.
Pepsi is divided betwixt its North America concern (60% of revenue) and International (40%). Within North America, its segments are PepsiCo Foods North America and PepsiCo Beverages North America, each of which relationship for astir 30% of the company's full revenue. Frito-Lay North America, which makes up astir 90% of PFNA, is the ascendant person successful salty snacks and a accordant maturation driver. PBNA has a portfolio of iconic brands, similar its flagship Pepsi, Mountain Dew, and Gatorade, and a scope that rivals Coca-Cola successful a precise charismatic and high-margin extremity market. Despite its scale, marque spot and way grounds of growth, Pepsi's banal has underperformed, losing astir $40 cardinal successful marketplace headdress implicit the past 3 years and trailing its benchmark, the S&P Consumer Staples Index, by 169 percent points implicit the past 20 years.
Strategic missteps successful the company's halfway North America businesses are astatine the basal of this underperformance. In 2010, some Coca-Cola and Pepsi acquired astir of their bottlers. However, portion Coca-Cola moved to refranchise its bottling business, Pepsi kept these vertically integrated. This determination has proven to beryllium a costly mistake for the PBNA segment.
Prior to this strategical divergence, PBNA's operating margins were 300 bps higher than Coca-Cola. Now, PBNA's operating margins are 1,000 bps lower, reflecting the outgo pressures that travel with keeping these cost-intensive and little borderline operations successful house.
PBNA's 2nd misstep was its effect to the changes successful user soda preferences. As soda depletion declined successful the aboriginal 2000s, PBNA shifted its absorption distant from soda and towards healthier categories. While this was justified astatine the time, soda preferences person since stabilized, yet PBNA has not been reinvesting into soda. This deficiency of absorption connected its halfway products has had superior repercussions, including the delayed motorboat of Pepsi Zero Sugar and reduced investments successful halfway brands similar Mountain Dew. Moreover, alternatively of putting wealth into these proven brands and products, Pepsi has overextended into weaker brands similar Starry, Rockstar, and SodaStream, portion besides expanding into different stock-keeping units, oregon SKUs, including limited-time offerings and spirit extensions, resulting successful higher manufacturing and organisation costs. As a result, PBNA has astir 70% much SKUs than Coca-Cola contempt generating astir 15% little successful retail sales.
PBNA's weaknesses person forced Pepsi to go progressively babelike connected PFNA, and its FLNA core, to prolong wide maturation and conscionable show targets.
In 2020, expecting accrued request from Covid, Pepsi began to prosecute assertive concern successful PFNA, with superior expenditures rising from $3.3 cardinal successful 2018 to $5.2 cardinal successful 2022. There was immoderate logic to this determination astatine the time, but the Covid-fueled maturation didn't last. Yet capex has continued to emergence to $5.3 cardinal successful 2024, contempt FLNA income really contracting 0.5%.
To marque matters worse, Pepsi was not conscionable expanding capex, but selling, wide and administraive costs arsenic good and PFNA's operating margins fell from 30% to 25% implicit this clip period.
These problems person heavy weighed connected Pepsi's wide performance, arsenic it has caused the marketplace to mostly place its prosperous planetary business, which is increasing rapidly with expanding margins. Once a premium maturation offering, Pepsi presently trades astatine 18x P/E versus a ten-year mean of 22x, and an implicit 4 crook discount to its benchmark compared to a humanities 1.4 crook premium.
Elliott, who has announced a $4 cardinal presumption successful PepsiCo, issued a missive and broad presumption detailing its accidental to reaccelerate maturation and amended show done greater focus, improved operations, strategical reinvestment and enhanced accountability. For PBNA, Elliott believes the archetypal measurement is refranchising the bottling network. This determination makes a batch of consciousness – returning to a strategy that historically outperformed its closest rival - from the clip PepsiCo refranchised its bottlers successful 1999 until it repurchased them successful 2010, the PepsiCo strategy importantly outperformed the Coca-Cola system.
Next is portfolio optimization. PBNA simply has excessively galore products and needs to rationalize its SKU number and divest from underperforming brands. Elliott points to the caller sale of Rockstar to Celsius arsenic a premier illustration of the opportunities that beryllium to simplify the portfolio.
Both of these steps should escaped up PBNA's spending power, which Elliott believes should beryllium reinvested successful the halfway soda franchises and prime caller maturation categories (i.e. macromolecule and probiotics). For PFNA, fixed its important deceleration successful top-line growth, Elliott believes it is clip to halt this assertive maturation strategy and realign its outgo basal and optimize the portfolio.
Elliott specifically points to Quaker arsenic a imaginable divesture, highlighting its halfway of the sheet products that remainder extracurricular FLNA's snack core. Moves similar these would let PFNA to ore connected areas wherever it has existent competitory advantage, specifically successful its FLNA products, arsenic good arsenic assistance reconstruct margins and escaped up superior for reinvestment successful some integrated maturation and accretive bolt-on M&A. Elliott believes that these changes to the North American concern would not lone amended the company's operations but besides assistance reset the greater Pepsi concern story.
Currently, this is simply a communicative of underperformance and mediocre execution, which has weighed down connected the company's valuation and near the planetary concern overlooked and astatine a discount.
Specifically, Elliott believes that if this program is implemented effectively, it tin provide astatine slightest 50% upside to shareholders. Elliott is 1 of the astir prolific activistic investors contiguous and has the resources and way grounds to power meaningful alteration astatine these types of megacap companies.
But way grounds and resources are meaningless if you bash not contiguous a broad program that demonstrates a thoughtful way for semipermanent worth creation, and Elliott's 74-page presumption does conscionable that.
Additionally, portion activists are often unfairly stereotyped arsenic short-term investors owed successful portion to immoderate who are occasionally correctly characterized that way, this presumption should beryllium viewed arsenic "Exhibit A" successful however activists similar Elliott person evolved implicit the years to beryllium semipermanent minded successful alignment with shareholders. Elliott's program includes recommendations like: "Reinvest to Revitalize Core and Grow with Focus," "Pursue Organic and Inorganic Investment To Drive Long-Term Growth," "then usage the incremental proceeds from these actions to reinvest to thrust semipermanent growth," and "By right-sizing costs and shedding non-core assets, PFNA tin unlock superior to reinvest some organically and inorganically to substance semipermanent grow."
In fact, successful 74 pages, Elliott uses the connection "reinvest" 54 times and not erstwhile uses the connection "buyback" contempt acknowledging however undervalued Pepsi shares are now. Yes, stock buybacks present mightiness beryllium large for the short-term, but Elliott's reinvestment program is what volition beryllium champion for the long-term.
For each of these reasons, it is hard to reason with Elliott's investigation oregon recommendations and we would expect that shareholders and absorption hold with much, if not all, of it. Assuming that, the adjacent measurement is execution of the program and this mightiness beryllium the astir understated, but important, portion of Elliott's presentation.
A bully activistic and bully committee members enactment absorption successful executing their program but holds them accountable if they autumn short. That is precisely what we expect Elliott to bash here. At this aboriginal stage, Elliott's program appears straightforward capable that we bash not expect determination to beryllium overmuch pushback, and governance changes bash not look indispensable astatine this constituent to marque an impact. That being said, we expect Elliott to continually show the concern and advancement of absorption and clasp them accountable if they neglect to present connected strategical actions and updated fiscal targets.
Ken Squire is the laminitis and president of 13D Monitor, an organization probe work connected shareholder activism, and the laminitis and portfolio manager of the 13D Activist Fund, a communal money that invests successful a portfolio of activistic 13D investments.
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