PepsiCo should review the make-up of its food and drinks businesses in North America to boost its performance after a period of “poor financial results”, activist investor Elliott Investment Management has said.
The activist investor, which manages funds with a $4bn stake in PepsiCo, has argued the US food and drinks giant is at “a critical inflection point”.
Elliott, which has pushed for changes at companies including Starbucks in recent years, today (2 September) published a letter sent to PepsiCo’s board that called for action at the Pepsi Max and Lay’s maker.
Describing PepsiCo as “a dramatic under-performer”, Elliott partners Jesse Cohn and Marc Steinberg said the company should become “a more focused, streamlined” business.
They called on the Gatorade owner to weigh up the potential refranchising of its drinks bottling network in North America and review its beverage portfolio in the region to make that side of the business less complex.
Cohn and Steinberg said the group’s PepsiCo Beverages North America (PBNA) division – which accounted for 30% of revenue in 2024 – had “underperformed its peers for more than a decade on both growth and margins.
They pointed to “several related strategic missteps”, including “self-inflicted share losses” in the soda market and a “proliferation of new brands and SKUs”.
The Elliott partners believe the performance of PepsiCo Foods North America (PFNA) had “more than offset” results from the drinks arm in the region but added: “More recently, however, PFNA has begun to falter. Growth has slowed due to a challenging consumer backdrop and series of PepsiCo-specific issues, while substantial increases in investment spending well beyond the needs of the current demand environment have meaningfully compressed profit margins.”
They urged PepsiCo to better “align” PFNA’s costs to the “present volume reality” and streamline the division’s portfolio by offloading “non-core and underperforming assets”.
PepsiCo has two foods businesses centred on cereals and snacks within PFNA. In 2024, the snacks-focused Frito-Lay North America generated revenues of $24.76bn, with the much smaller Quaker Foods North America bringing in $2.68bn.
The Elliott partners said PFNA could be supported by more investment in “proven brands”, improving the “value perception” and pursuing M&A.
The letter added: “Greater strategic focus, faster organic growth and meaningful profit-margin expansion would warrant a valuation in line with peers, the market and PepsiCo’s own history, representing a path to more than 50% stock-price increase from today’s depressed levels.
