Analysis - PepsiCo finds stability but Peltz factor lingers
PepsiCo is under pressure from Nelson Peltz
Group beverage volumes were up by 2% and PepsiCo Americas Beverages (PAB) saw sales in Q2 rise by 1% in organic terms.
Analysts praised PAB's performance, with Stifel's Mark Swartzberg upgrading PepsiCo's stock from Hold to Buy partly because of PAB's “stabilising”. Swartzberg expects the top line on the unit to “become less of a headwind” and for that to continue.
Bonnie Herzog at Wells Fargo said PAB “continues to demonstrate improvements” as PepsiCo maintained or grew share against The Coca-Cola Co in a number of categories, including CSDs, sports drinks, RTD teas and chilled juices in Q2. “PepsiCo's ability to have positive net price realisation remains strong and we are encouraged by its ongoing pricing discipline,” Herzog says.
So, what is behind's PAB's stability?
According to Swartzberg, the unit benefited from an increase in brand support in 2012, as well as new innovations. In Coca-Cola's H1 results, also released this week, CEO Muhtar Kent said smaller packaging sizes had contributed to 60% of North America's volumes growth. PepsiCo has followed suit with its own smaller sizes to similar success.
For PepsiCo, however, there remains an element of uncertainty in the shape of so-called “activist investor” Nelson Peltz. This week, it emerged that Peltz, who has long agitated for PepsiCo to separate its snacks and beverage businesses, had won the support of one if the US' largest pension funds. According to the Financial Times, the California State Teachers’ Retirement System, known as Calstrs, sent a letter to a senior PepsiCo director last month, urging the company to put Peltz on the company's board.
PepsiCo's CEO Indra Nooyi has so far stood firm against Peltz's manoeuvrings, but will be wary of any signs of a groundswell in his favour.
However, Swartzberg, who backs a split of PepsiCo's snacks and drinks units, goes some way to pouring cold water on Peltz concerns, for investors at least.
“We think talk about a split-up exceeds embedded expectations of a split-up,” he says, though adds that “this is an admittedly subjective statement”.
Subjective or not, Nooyi will be pleased to hear it.
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