PepsiCo CFO Hugh Johnston has quashed suggestions that the global snacks and beverage giant could split into two.
In August, Kraft Foods announced its plans to dividen in two, prompting industry analysts to wonder whether PepsiCo would follow suit.
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Analysts at Sanford Bernstein have said a global snacks company and a global beverages company would likely be the best structure given the benefits of shared marketing and technology. Investors could also receive a financial benefit if a split did occur, they argued.
However, when Johnston, speaking on a conference call about PepsiCo’s third-quarter results yesterday (12 October), was asked if a split was being considered, he acknowledged the company was looking at “all sorts of combinations” but he ultimately poured cold water on the idea.
He said: “The senior management of this company is extremely shareholder value orientated and in the process of turning over every stone to look for opportunities. But in this case I have to tell you with some of the things that have been discussed by media and analysts, we really don’t see the value.”
Johnston spoke of the advantages that PepsiCo’s beverage arm gives the company in developing countries in terms of scale and local knowledge, which, he said, allows its snacks business to gain ground in each market.
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By GlobalData“Taking that apart, we clearly create additional costs, with unclear benefits,” Johnston said. “We see ourselves has having highly complementary businesses and taking it apart I know would be very costly and I really don’t see the benefit in doing so.”
Speculation over splitting the company aside, PepsiCo appears to have a lot celebrate in these results, especially in terms of food.
Indra Nooyi, PepsiCo’s chairman and CEO, outlined said snacks volume increased 8% and highlighted the growth in volumes in emerging markets, such as India (which grew 19%), Turkey (16%), Saudi Arabia (12%) and double-digit revenue growth in China.
Nooyi said innovative products tailored to local tastes is fuelling growth in emerging and developed markets. Walkers Crinkles, she said, had achieved 25% household penetration in the UK and she pointed to the introduction of lines such as Lay’s olive oil and Ruffles Burger King flavours in Turkey and a new Lay’s multigrain snack line in local flavours like chilli pecan and spring onion in China.
Russia, where PepsiCo acquired dairy processor Wimm-Bill-Dann earlier this year, was also singled out as a star performer, despite some short-term challenges, such as commodity inflation, a drop in disposable incomes and a very hot summer that had a detrimental impact on their agricultural programmes
Zein Abdalla, CEO of PepsiCo Europe, said: “It’s one of our largest businesses globally, and a market that we really believe has an enormous long-term potential.
“The fundamentals in Russia are very strong. It’s one of the countries that has got, I think, a very robust set of economic indicators, low debt ratios, good foreign exchange reserves and strong and, obviously, continuous leadership.”
