PepsiCo should review the make-up of its food and drinks businesses in North America to boost its performance after a period of “poor financial results”, activist investor Elliott Investment Management has said.
The activist investor, which manages funds with a $4bn stake in PepsiCo, has argued the US food and drinks giant is at “a critical inflection point”.
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Elliott, which has pushed for changes at companies including Starbucks in recent years, today (2 September) published a letter sent to PepsiCo’s board that called for action at the Pepsi Max and Lay’s maker.
Describing PepsiCo as “a dramatic under-performer”, Elliott partners Jesse Cohn and Marc Steinberg said the company should become “a more focused, streamlined” business.
They called on the Gatorade owner to weigh up the potential refranchising of its drinks bottling network in North America and review its beverage portfolio in the region to make that side of the business less complex.
Cohn and Steinberg said the group’s PepsiCo Beverages North America (PBNA) division – which accounted for 30% of revenue in 2024 – had “underperformed its peers for more than a decade on both growth and margins.
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By GlobalDataThey pointed to “several related strategic missteps”, including “self-inflicted share losses” in the soda market and a “proliferation of new brands and SKUs”.
The Elliott partners believe the performance of PepsiCo Foods North America (PFNA) had “more than offset” results from the drinks arm in the region but added: “More recently, however, PFNA has begun to falter. Growth has slowed due to a challenging consumer backdrop and series of PepsiCo-specific issues, while substantial increases in investment spending well beyond the needs of the current demand environment have meaningfully compressed profit margins.”
They urged PepsiCo to better “align” PFNA’s costs to the “present volume reality” and streamline the division’s portfolio by offloading “non-core and underperforming assets”.
PepsiCo has two foods businesses centred on cereals and snacks within PFNA. In 2024, the snacks-focused Frito-Lay North America generated revenues of $24.76bn, with the much smaller Quaker Foods North America bringing in $2.68bn.
The Elliott partners said PFNA could be supported by more investment in “proven brands”, improving the “value perception” and pursuing M&A.
The letter added: “Greater strategic focus, faster organic growth and meaningful profit-margin expansion would warrant a valuation in line with peers, the market and PepsiCo’s own history, representing a path to more than 50% stock-price increase from today’s depressed levels.
“Elliott’s goals at PepsiCo are straightforward: help the company sharpen focus, drive innovation, become more efficient and unlock the value that its leading brands, unmatched scale and world-class employees deserve. The path back to winning is clear and achievable.”
Shares in PepsiCo, which up to the end of Friday were down 1% this year, had risen 2.44% compared the last day of trading to $152.27 at 11:43 GMT.
Last year, after Starbucks held talks with Elliott on how the coffee group could boost sales and improve its operations, the US giant changed CEO, appointing Chipotle Mexican Grill chief executive Brian Niccol to lead the company.
Just Food has approached PepsiCo for comment.
In 2024, PepsiCo booked net revenue of $91.85bn, up 0.4% on a year earlier. Operating profit grew 7.5% to $12.89bn. Net income increased 5.3% to $9.58bn.
In July, the company reported a 0.3% decline in first-half net revenue, although it saw a 1.7% rise organically. Operating profit dropped 35.4% to $4.37bn. Adjusted for one-off items, “core”, constant-currency, operating profit fell 5.1% to $6.7bn. Net income slid 39.6% to $3.01bn.
Alongside the results, PepsiCo said it would look to boost its productivity by “integrating” its businesses in North America.
“When it comes to the North America market, we have one new layer of opportunity that is going to give us a lot of opportunities to improve our cost structure over the next three, four years, which is the North America integration,” chairman and CEO Ramon Laguarta said.
“We have two large businesses, almost $30 billion each that have been operating almost a full value chain side by side. Now, with the investments we’ve made in technology, with the new data that we have in systems, we’re going to start looking at those businesses in a more integrated way to perform some of the value chain tasks in an integrated way.”
