Blog: Will PepsiCo move to calm shareholders tomorrow?

Michelle Russell | 8 February 2012

PepsiCo is set to publish its earnings results tomorrow (9 February), spanning a year in which the snacks and beverage giant has had its fair share of headlines.

Highs included the completion of its purchase of Russian dairy company Wimm-Bill-Dann and hitting the US$1bn mark with three more of its brands - Diet Mountain Dew, Brisk and Starbucks.

PepsiCo also bought a 5% share in Tingyi (Cayman Islands) Holding Corp, in exchange of its bottling operations in China. PepsiCo has the option to acquire 20% at a later date.

Analysts believe the move is a smart one for PepsiCo, given that bottling plants are a non-core asset for them.

However, widespread reports of unrest among PepsiCo investors have become hard to ignore in the last 12 months. A groundswell of PepsiCo investors appear to believe that their company has overstretched and, in doing so, has neglected its core business.

Reports in mid-November claimed that some members of PepsiCo's board want to take a closer look at splitting the snack and beverage units, a move that group CEO Indra Nooyi was thought to be against. Nooyi found a supporter in our managing editor Dean Best, who argued in late-November that the company's shareholders should focus more on the long-game than target short-term gains.

Whether this will indeed be the case will be revealed tomorrow, but Bernstein Research analysts believe that PepsiCo should address "at least three core issues head-on" when it presents its business outlook to investors.

The analysts note the need for "significant brand reinvestment", especially in North American beverages, the need for "accelerated cost-cutting", and the need to refocus its near-term portfolio strategy back on core beverages and snacks and away from "often-emphasised health & wellness objectives".

"Even though most investors with whom we speak seem supportive of a plan similar to that outlined above, many remain inherently skeptical of PEP management and their ability to deliver; much of this skepticism is rooted in a series of perceived (and, we believe, largely real) missteps over the past several years," the analysts said.

"While rebuilding trust will be a challenge for PEP, we remain cautiously optimistic based on recent developments; we hope that management delivers," the added.

While much of the speculation surrounding the company has died down since November, could PepsiCo be planning a big announcement to calm its shareholders this week?


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