The Pepsico plan includes investing in some of its famous brands, and climbing others

Company: Pepsico

a job: Pepsico It is one of the largest consumer commodity companies packed in the world, with a group of some of the most famous brands in food and beverages. Her brands include: Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quker and Sodastream. Its slices include Frito Lay in North America (FLNA); North America Cuker Foods (QFNA); Pibsico North American Drinks (PBNA); Latin America (Latam); Europe; Africa, the Middle East, South Asia (Amissa), Asia Pacific, Australia, New Zealand and the Chinese region (APAC). FLNA, markets, distribution and sale of comfortable branded foods, which include branded declines, cheese flavored snacks, tortia slices in Doritus, corn flakes, Fritus, potatoes in Lay, and others. QFNA products include Cap’N Crunch, Life Pills, Milling Pearl Milling, Mix, Granola Quker, Quker Frits, Quker Oatmeal and others. PBNA is made, marketing and selling drinks and fountains under various drinks, including Aquaffina, Bubly, Diet Pepsi, Gatorade and others.

Market value shares: 211.28 billion dollars ($ 154.32 per share)

Activist: Investment Department Elliot

ownership: ~ 1.9 %

Average cost: us

Activist’s comment: Elliott is a multi -asset investment company that manages about $ 76.1 billion of assets (as of June 30, 2025) and is one of the oldest companies of its kind under continuous management. Elliot, known for due care and due resources, is regularly known as companies for years before investing. Elliott is the most active among active investors, and to participate with companies across industries and multiple geographical regions.

What is happening

On Tuesday, Elliot sent a presentation and a message to the Pepsico Board of Directors, which explains the company’s opportunity to exchange growth and improve performance through the greater focus, improve operations, strategic investment, and improve accountability.

backstage

Pepsico is one of the largest packed goods companies in the world, with a group of the most famous brands in food and beverages. Globally, the company is the first player in snacks and the second player in backward drinks only coca cola.

Pepsi is divided between its business in North America (60 % of revenues) and international (40 %). Inside North America, its sectors are in Pepsico Foods in North America and Pepsico drinks in North America, each of which represents about 30 % of the company’s total revenues. North America, which constitutes about 90 % of PFNA, is the dominant in salty snacks and a fixed growth driver. PBNA has a group of iconic brands, such as pioneer Pepsi, Mountain Dew and Gatorade, and follow the competition of Coca-Cola in a very attractive end market. Despite its scale, brand strength and growth record, Pepsi shares have weakened in poor performance, losing nearly $ 40 billion in the market over the past three years and failed to do the S& Por STAPLES, by 169 percentage points over the past twenty years.

The strategic errors in the company’s basic companies in America are the root of this performance. In 2010, Coca -Cola and Pepsi acquired most of the owners of bottles. However, while Coca-Cola moved to re-arrangements for filling work, Pepsi kept this integrated vertical. This decision has proven that it is a costly error for the PBNA sector.

Before this strategic difference, PBNA operating margins were 300 basis points than Coca-Cola. Now, PBNA operating margins are 1000 less basis points, which reflects cost pressures that come while maintaining extensive margins in terms of cost and margin at home.

The second mistake of PBNA was its response to the changes in the preferences of the consumer soda. With the decrease in the consumption of soda in the early first decade of the twentieth century, the PBNA has turned its focus away from the soda and towards health groups. Although this was justified at the time, soda preferences have been stabilized since then, the PBNA has not been reinforced in soda. This lack of focus on its basic products had serious repercussions, including the delay in the launch of Pepsi Zero Sugar and the decrease in investments in basic brands such as Mountain Dew. Moreover, instead of placing money in these installed brands and products, Pepsi has exceeded weaker brands such as Starry, Rockstar and Sodastream, with expansion also in other stock conservation units, or SKU, including limited time offers and flavors, which leads to high manufacturing and distribution costs. As a result, PBNA has about 70 % SKU more than Coca-Cola despite its generation about 15 % in retail sales.

The weaknesses of PBNA Pepsi were forced to become increasingly dependent on PFNA, and its FLNA nucleus, to maintain total growth and achieve performance goals.

In 2020, with the expectation of increasing demand from Covid, Pepsi began to follow the aggressive investment in PFNA, with capital expenditures increased from $ 3.3 billion in 2018 to $ 5.2 billion in 2022. There were some logic of this decision at that time, but the wild fuel growth did not last. However, CAPEX continued to rise to $ 5.3 billion in 2024, although FLNA sales are actually 0.5 %.

The mud is worse, Pepsi was not only increasing, but the costs of sale, general and administrative costs as well, and PFNA operating margins decreased from 30 % to 25 % during this time period.

These problems have been greatly affected by the general performance of Pepsi, as it has been overlooked by the market to a large exact international business, which grows rapidly with the expansion of margins. Once a distinguished growth is offered, Pepsi is currently trading 18x P/E for average ten -year average, and more than 4 points approves their reference compared to the 1.4 historical insurance premium.

Elliot, who announced a position of $ 4 billion in Pepsico, issued a comprehensive letter and show that explains his opportunity to decline in growth and improve performance through the greatest focus, improve operations, strategic investment, and improve accountability. For PBNA, Elliott believes that the first step is to replace the packing network. This step is very logical – a return to a system that historically outperformed its closest rival – since Pepsico has reshaped its bottles in 1999 until it was reshaped in 2010, the Pepsico system greatly outperformed the Coca -Cola system.

Next is to improve the portfolio. PBNA simply contains a lot of products and needs to rationalize the SKU number and strip it of weak brands. Elliot refers to The last sale From Rockstar to Celsius As a major example of the opportunities to simplify the portfolio.

Both the two steps should be released on PBNA, which Elliot believes should be re -invested in the basic soda privileges and the choice of new growth categories (i.e. protein and probiotics). For PFNA, due to the great volunteering in the upper growth, Elliott believes that it is time to stop this aggressive growth strategy, reorganize the cost base and improve the portfolio.

Elliot specifically refers to Quker as a potential abstraction, highlighting the center of panel products that relax outside the FLNA heart. Such moves would allow PFNA to focus on the areas with a real competitive advantage, specifically in their FLNA products, as well as helping to restore margins and free capital to re-invest in both organic growth and Prot-on M & A. Elliott believes that these changes on North America’s business will not only improve the operations of the company, but also help in reset the story of the Great Pepsi investment.

Currently, this is a story of poor performance and poor implementation, which caused the evaluation of the company’s evaluation and left the international works that were ignored and deduced.

Specifically, Elliot believes that if this plan is implemented effectively, then it can Provide at least 50 % of the upward trend For shareholders. Elliott is one of the most abundant active investors today and has resources and a busy record to influence a meaningful change in these types of MegacAP companies.

But the busy record and resources are meaningless if it does not provide a comprehensive plan that shows a deliberate path to create value in the long run, and the 74 -page ELLIOTT offer.

In addition, while activists are often fairly stereotype as investors in the short term due to some who are sometimes characterized by this way, this presentation should be seen as “exhibition” in how activists such as Elliot develop over the years to think about compatibility with the shareholders. The ELLIOTT plan includes recommendations such as: “Reintefest Core and Grow” focus “,” Follow -up of organic and inorganic investment to push long -term growth “,” then use the increasing returns from these measures to re -invest to long -term growth “,” right -sized costs “, get rid of non -governmental assets, and PFNA can worsen organically.

In fact, at 74 pages, Elliott uses the word “re -investment” 54 times and does not once use the word “repurchase” despite the recognition of the extent to which Pepsi shares are now reducing. Yes, the shares re -purchases may now be great in the short term, but the Elliott plan is what will be the best in the long run.

For all these reasons, it is difficult to argument with the analysis or recommendations of Elliot, and we expect that the shareholders and management will agree with a lot, if not all. Assuming that the next step is to implement the plan and this may be part of the most important, but important Eliott presentation.

A good activist and members of the Board of Directors support the administration well in implementing their plan, but he bears responsibility if they fall short. This is exactly what Elliot is expected to do here. At this early stage, Elliot’s plan appears to be so clear that we do not expect there to be a lot of decline, and the changes of governance are not necessary at this stage to make an effect. However, we expect Elliott to monitor the situation and progress in the administration constantly and hold them accountable if they fail to provide strategic procedures and update financial goals.

Ken Squire is the founder and head of 13D Monitor, an institutional research service on shareholders ’activity, founder and manager of the 13D activist Fund portfolio, a joint fund that invests in a set of 13D active investments.