Comment - Indra Nooyi has PepsiCo on Right Track
PepsiCo's CEO, Indra Nooyi, is driving the company in the right direction, argues Dean Best
Despite the whirlwind of speculation around PepsiCo, investors should avoid the short-term desire for returns and see the benefit of the company's long-term strategy. With a focus on health and wellness, chairman and CEO Indra Nooyi is, for all the reported frustration at the firm's recent financial performance, on a path that many would argue is the right road for the company.
The drinks and snacks giant has found itself in the business headlines on almost a daily basis in recent weeks, as a number of analysts and investors clamour for the company to split in two. Supporters of a split argue that the move would unlock value for shareholders. Speculation that PepsiCo could follow the likes of Kraft in dividing in two intensified last week when it emerged that Nelson Peltz - who has a record of agitating for change at a number of blue-chip companies - had acquired a stake in the company. The rumour-mill spun faster when a report in the US then claimed that a bloc of PepsiCo directors were warming to the idea of a split, a move that Nooyi is understood to be against.
However, 24 hours later, it emerged that Peltz had sold his stake, adding to the uncertainty that surrounds PepsiCo at the moment. In some ways, Peltz's exit from the company's share roster does little to diffuse the speculation over its plans. As well as the debate among investors and analysts over whether PepsiCo should split in two, a scheduled company update on its strategy has been delayed until next year, while the report that said a faction of the group's directors wanted to examine a carve-up of the business also claimed Nooyi was preparing to announce two separate acquisitions.
It is difficult to know what the situation is. Much of the speculation could be true - some directors could support a split, while Nooyi could be keen to push ahead with the company's stated strategy - but, so far, PepsiCo has made little public comment on the rumours.
For all the apparent frustration over PepsiCo's recent performance, there are reasons to believe that Nooyi, with her goal to expand the company's portfolio of healthier products, is on the right track.
PepsiCo's stock has outperformed the S&P 500 since Nooyi took charge of the company five years ago. Last year, Nooyi announced plans to triple PepsiCo's sales of nutritious products to US$30bn by 2020 and the company has since snapped up Russia's largest dairy producer, Wimm-Bill-Dann. There has also been speculation over a possible tie-up with German dairy firm Müller.
Among some analysts and investors, there is some disappointment with the performance of PepsiCo's core North American soft drinks performance, particularly in comparison to arch-rival The Coca-Cola Co. However, it would be folly to let that frustration dictate a demand for a split. For one, there is a robust rationale for having soft drinks and snacks in the same portfolio - not least in the pricing power it can give the company over its retail customers. Furthermore, Nooyi's strategy to expand PepsiCo into healthier categories is sound and takes in both snacks and soft drinks.
Consumer demand for healthier products is a long-term trend that has withstood the downturn and shows little sign of abating.
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