PepsiCo is expected to publish its 2012 strategic review next month

PepsiCo is expected to publish its 2012 strategic review next month

Speculation this week that PepsiCo is looking to cut thousands of jobs in the US has increased the focus on the soft drinks firm's strategic review and on what the company needs to change. Michelle Russell looks at the latest developments in an ongoing saga.

PepsiCo was keen to dismiss reports yesterday (5 January) that it is considering cutting around 4,000 jobs and reduce pension contributions. Eliminating a 401k match on its pension scheme could save the company US$75m, reports have suggested.

The New York Post, in its report on the job cuts, expanded on its report last month, which claimed that around 1,000 jobs could be cut at PepsiCo. The soft drinks group is under pressure early in 2012 to deliver a plan for long-lasting growth in its native North America, amid concern that the company has lost focus. 

Although denied by PepsiCo, reports of heavy job cuts were welcomed by some analysts. Sanford Bernstein said that potential staff cuts could work in favour of PepsiCo if the company "spends the savings wisely back on brand building", especially in North America beverages.

"Looking ahead over the next three years, we estimate that PepsiCo will need to spend an incremental US$1.8bn on brand support in order to preserve current areas of strength and remedy brands in need of revival," Bernstein said in a note.

"Investment would elevate PepsiCo's North American beverage advertising as a percentage of sales to 5.8% by 2014, while elevating PepsiCo's advertising and other marketing spend as a percentage of North American beverage sales to 10.4% - essentially back to 2000/2001 levels and a significant increase over the recent trough," it added.

However, InvestorPlace editor Jeff Reeves told the Huffington Post was keen to keep some perspective on PepsiCo. 

He said: "PepsiCo is sitting on eight consecutive quarters of year-over-year revenue gains and is on track to see its fiscal 2011 earnings jump about 37% from 2008 numbers. PepsiCo isn't in dire straits, it's just squeezing employees to impress Wall Street."

That said, the widespread reports of unrest among PepsiCo investors are becoming hard to ignore. A groundswell of PepsiCo investors appear to believe that their company has overstretched and, in doing so, has neglected its core business. A comparison with The Coca-Cola Co makes the situation look even worse: Pepsi's share price has risen by just 2% in five years, while Coke's is up by almost 44% over the same period.    

PepsiCo announced in November that it was extending the deadline its business plan review for 2012 and beyond. This followed a year in which PepsiCo reduced its earnings forecast twice on the back of rising commodity costs, fielded reports of a potential split and seen its CEO, Indra Nooyi, singled out for criticism.

Job cuts would be in-keeping with a tough economic climate in the US, where unemployment remains stubbornly high. PepsiCo, then, is not alone  in terms of companies evaluating efficiencies.

However, it faces challenges unique to its particular business portfolio. Its share price rose by 1.6% last year, compared to a 6.4% gain by The Coca-Cola Co. Now, the calls for an 'all-singing, all-dancing' new strategy are being heard loud and clear across the industry. Once that train is in motion, it can prove hard to stop.

PepsiCo's share price edged up by 0.78% to $66.22 at 1323 GMT today.