Company: Pepsico
Business: Pepsico is one of the world's largest companies for consumer packaging with a portfolio of some of the best -known brands in food and drinks. The brands include: Lay's, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Sodastream. The segments include Frito-Lay North America (Flna); Quaker Foods North America (QFNA); Pepsico drinks North America (PBNA); Latin America (Latam); Europe; Africa, Middle East and South Asia (Amesa) as well as Asian -Pacific, Australian and New Zealand and Chinese region (APAC). Flna makes, market, distribute and sell brand internship, including brand dips, snacks with cheetos cheese taste, Doritos tortilla chips, fritos-corn chips, lay potato chips and others. The products of QFNA include Cap'n crunch muesli, life muesli, pearl grinding company Sirupe and Mixes, Quäker -KaGreisel -Granola -Bars, Quäker -Grits, Quäker -Hair flakes and others. PBNA makes, market and sell beverage concentrates and wells under various beverage brands, including Aquafina, Bubly, Diet Pepsi, Gatorade and others.
Market value: USD 211.28 billion ($ 154.32 per share)
Activist: Elliott Investment Management
Property: ~ 1.9%
Average costs: n/a
Activist comment: Elliott is a multi -strategy investment company that manages assets of around 76.1 billion US dollars (June 30, 2025) and is one of the oldest companies of its kind under continuous management. Elliott is known for his extensive diligence and resources and regularly follows the companies for years before making an investment. Elliott is the most active of activist investors and is committed to companies in all industries and several regions.
What happens
On Tuesday, Elliott sent a presentation and a letter to the Pepsico board, in which the possibility of the company was described to react growth and to improve performance through greater focus, improved processes, strategic reinvestment and improved accountability.
Behind the scenes
Pepsico is one of the world's largest companies for consumer packaging with a portfolio of some of the best -known brands in food and drinks. Worldwide, player number one is the number one in snacking and the No. Two player in drinks that only meet Coca-Cola.
Pepsi is divided into his business in North America (60% of sales) and internationally (40%). In North America, the segments Pepsico Foods North America and Pepsico are drinks of North America, each of which is about 30% of the company's total turnover. Frito-Lay North America, which is about 90% of PFNA, is the dominant guide in salty snacks and a constant growth driver. PBNA has a portfolio of legendary brands, such as the flagship Pepsi, Mountain Dew and Gatorade as well as a range that competes with Coca-Cola in a very attractive and high margin end market. Despite its scale, brand strength and record of success of growth, the Pepsi share has lost a market capitalization of almost 40 billion US dollars in the past three years and has covered its benchmark, the S&P Consumer Staples index in the past 20 years.
Strategic misconceptions in the company's core business in North America are the root of this underperformance. In 2010, both Coca-Cola and Pepsi acquired most of their bottlers. While Coca-Cola to capture his filling business, Pepsi kept it vertically integrated. This decision has proven to be a costly mistake for the PBNA segment.
Before this strategic divergence, the operating edges of PBNA were 300 basis points higher than Coca-Cola. Now the operative edges of PBNA are 1,000 BPS lower, which reflects the cost pressure that is associated with the maintenance of these cost-intensive and lower margin operations in the house.
PBNA's second misstep was his reaction to the changes in the consumer -Soda preferences. When soda consumption declined in the early 2000s, PBNA relocated its focus from soda to healthier categories. While this was justified at that time, the soda preferences have stabilized since then, but PBNA has not reinvested in soda. This lack of focus on its core products had serious effects, including the delayed introduction of Pepsi Zero Sugar and reduced investments in core brands such as Mountain Dew. Instead of involving money into these proven brands and products, Pepsi has overstretched weaker brands such as Starry, Rockstar and Sodastream and at the same time expanded into other inventory or skus, including only limited offers and taste expansion, which lead to higher production and distribution costs. As a result, PBNA has around 70% more ski than Coca-Cola, although retail sales achieve about 15% less.
The weaknesses of PBNA have forced Pepsi to become more dependent on Pfna and its Flna core in order to maintain the total growth and achieve performance goals.
Pepsi began to expect an increased demand from Covid in 2020 and began to make aggressive investments in PFNA, with investments from $ 3.3 billion to $ 5.2 billion in 2022 in 2018. This decision gave a certain logic at that time, but the Covid burning growth did not last. However, the Capex rose to 5.3 billion US dollars in 2024, although FLNA's turnover actually completed 0.5%.
In order to make things worse, Pepsi not only increased Capex, but also the sales, general and administrative costs, and the operational margins of PFNA sank from 30% to 25% during this period.
These problems have heavily burdened Pepsi's overall performance because the market has largely overlooked its successful international business, which grows quickly with growing margins. As soon as Pepsi offers a premium growth range, he currently acts with an average of ten years with 18x P/E and a discount of over 4 returns on his benchmark compared to a historical premium of 1.4 turn.
Elliott, who announced a position of 4 billion US dollars in Pepsico, published a letter and a comprehensive presentation in which the opportunity to react to growth and improve performance through greater focus, improved operations, strategic reinvestment and improved accountability. For PBNA, Elliott believes that the first step captures the filling network. This step makes a lot of sense -back to a system that has historically exceeded its closest competitor -from the time when Pepsico woke up its bottlenecks in 1999 until his return in 2010, the Pepsico system significantly exceeded the Coca -Cola system.
Next comes the portfolio optimization. PBNA simply has too many products and has to rationalize its number of Sku and sell from below -average brands. Elliott refers to the recent sale of rock star Celsius As the main example of the possibilities that make the portfolio simplify.
Both steps should release PBNA's output, from which Elliott believes that they should be reinvested in the Kern -Soda franchise companies and that they should select new growth categories (ie protein and probiotics). In view of his considerable delay in the top line growth, Elliott is of the opinion that it is time to set this aggressive growth strategy and to realign its cost base and to optimize the portfolio.
Elliott expressly points out quacker as a potential sale and emphasizes its center of the record products that rest outside the flna snack core. With such movements, PfNA can concentrate on areas in which it has a real competitive advantage, in particular in its FlNA products as well as in the restoration of margins and to the release of capital for reinvestment for reinvestment both in organic growth and in acckretive M&A. To reset greater pepsi investment history.
At the moment, this is a story of underperformance and poor execution that has burdened the company's evaluation and has overlooked international business and has been overlooked with a discount.
In particular, Elliott believes that, if it is effectively implemented, this plan can turn the shareholders upside down. Elliott is one of the most productive activist investors today and has the resources and the track record to influence a sensible change in these types of Megakap companies.
However, the success balance and resources are meaningless if you do not present a comprehensive plan that shows a thoughtful way for the creation of long-term value, and the 74-page presentation by Elliott does exactly that.
While activists are often wrongly stereotyped as short -term investors, some of whom are sometimes characterized by occasionally correctly correct, this presentation should be considered “exhibiting” in the way activists like Elliott have developed over the years in order to be aligned with shareholders in the long term. Elliott's plan includes recommendations such as: “Insert the core and grow with focus”, “pursue organic and inorganic investments to promote long-term growth”, “use the incremental proceeds from these measures to reinforce long-term growth” and “by the legal size and the connection of non-core assets. Long-term.
In fact, Elliott on 74 pages uses the word “Reinvesting” 54 -times and not even the word “repurchase”, although he recognized how undervalued Pepsi shares are now. Yes, share purchases are now great for short -term, but Elliott's reinvestment plan is what is best in the long run.
For all of these reasons, it is difficult to argue with Elliott's analysis or recommendations, and we would expect shareholders and management to agree a lot, if not all of them. Assuming that the next step is the execution of the plan and this may be the most understood but most important part of Elliott's presentation.
A good activist and good board members support management in executing your plan, but keep them accountable if you are neglected. This is exactly what we expect Elliott here. At this early stage, Elliott's plan appears uncomplicated enough that we do not expect that there is a lot of setback, and the changes to the government do not seem to be necessary at this point in order to achieve an influence. Apart from that, we expect Elliott to continuously monitor the situation and progress of management and to account for them if they are not strategic measures and updated financial goals.
Ken Squire is the founder and president of 13D monitor, an institutional research service for shareholders, and the founder and portfolio manager of the 13D Activist Fund, an investment fund that invests in an activist 13D investment.