Amidst talk that PepsiCo Inc. might split its beverage and food units in an effort to boost the company”™s value, one analyst called the discussions “pure speculation” and predicted the company would remain intact.
Following recent action taken by companies such as Kraft Foods Inc. and Sara Lee Corp. to separate portions of the respective companies in search of more profits, PepsiCo seems to be headed in the opposite direction with the company”™s creation of the Power of One ”“ Americas Council and the Global Snacks Group.
The goal of the Power of One ”“ Americas Council is to ensure coordination between the company”™s food and beverage units, from sales and marketing to distribution and back-of-office operations. The new council will be headed up by PepsiCo Americas Foods CEO John Compton.
“The combination of our snack and beverage portfolios creates significant value for our shareholders through synergies driven by a common customer base and distribution platform, supplier leverage and shared infrastructure,” PepsiCo spokesman Jeff Dahncke stated in an email.
He added that the value of the combined portfolio has been strongest in PepsiCo”™s international markets. Over the past year competitor Coca-Cola Co. ”“ which derives much of its profits from its international markets ”“ has outpaced PepsiCo, with the former”™s stock down just 1.02 percent compared with an 8.3 percent drop for PepsiCo.
The creation of a Global Snack Group, following the previous formation of a Global Nutrition Group and Global Beverages Group by PepsiCo, is aimed at promoting the company”™s branding worldwide. It will also be led by Compton.
PepsiCo did not have further comment on talk that the company could split into two separate units.
Retail markets analyst Howard Davidowitz said while the speculation around a potential break-up is understandable, PepsiCo”™s value is as high as ever.
“This is a powerhouse company,” said Davidowitz, chairman of Davidowitz and Associates Inc., a national retail consulting and investment banking firm headquartered in New York City. “The brand is just so, so strong. Of course they have competition. But I think at the end of the day this is just a powerhouse brand. The problem is that the stock price doesn”™t reflect that.”
The likely reason behind PepsiCo”™s relatively weak stock performance is a marked increase in commodity prices, such as corn, Davidowitz said.
“Corn has had a gigantic run-up. That”™s used in a lot of their products. The cost of commodities is up and there”™s speculation that that”™s going to affect their margins.”
Year-to-date, PepsiCo”™s stock has still outpaced the S&P 500 index, which is down by 10.45 percent as of Oct. 5.
Should PepsiCo choose to split its beverage and food businesses, Davidowitz said that the company could reap the rewards. At the present, however, he said that the speculation has been fueled by analysts, with no word from the company.
“None of this is coming from PepsiCo. This is just speculation of a group of analysts,” Davidowitz said. “If you look at what Pepsi owns, they”™ve got incredible brands which obviously can be marketed for a fortune ”¦ so that”™s the basis of this whole talk.
“My instinct is they”™re not going to do anything and this is pure speculation, but it”™s understandable speculation.”
PepsiCo chairman and CEO Indra Nooyi said in a statement that the company was well positioned and would deliver on its growth targets for 2011.
“As I look at our business and our organization today, I believe we are well equipped to deliver on our financial targets for the year and drive healthy, sustainable growth in the future,” she said, adding that the Power of One ”“ Americas Council would hopefully “result in greater operating efficiency, speed to market and value.”
