Elliott’s plan for PepsiCo includes investing in some of its iconic brands, shedding others

Company: Pepsico

Business: Pepsico With a portfolio of the most iconic brands in food and beverage, it is one of the world’s largest consumer packaged goods companies. Brands include: Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Sodacream. Among the segments, Frito-Level North America (FLNA); Quaker Foods North America (QFNA); Pepsico North America (PBNA) drinks; Latin America (Latam); Europe; Africa, Middle East and South Asia (AMESA) and Asia Pacific, Australia and New Zealand and China Region (APAC). FLNA, branded bottoms, cheetos cheese flavored snacks, Doritos Tortilla chips, Fritos corn chips, Lay’s Potato chips, and other branded branded foods, markets, markets, distributes, distributes and sells. The products of QFNA include Cap’s Crunch cereal, life cereal, pearl milling company syrup and mixtures, Quaker Chewy Granola bars, Quaker Grits, Quaker Oatmeal and others. PBNA, Aquafina, Bobly, Diet Pepsi, Gatorade and others, including various beverage brands, beverage concentrates and fountain syrups, markets, markets and sells.

Stock market value: 211.28 billion dollars ($ 154.32 per share)

Activist: Elliott Investment Management

Ownership: ~ 1.9%

Average Cost: N/A

Activist Comment: Elliott is one of the oldest companies in the type of constant management that manages an asset of approximately $ 76.1 billion (as of June 30, 2025). Elliott, known for its comprehensive situation detection and resources, regularly follows companies for years before investing. Elliott is the most active of activist investors interacting with industries and companies in multiple geographies.

What’s going on

On Tuesday, Elliott sent a presentation and letter to the Pepsico Board that details the company’s opportunity to focus more focus, advanced operations, strategic re -investment and advanced accountability.

Behind the curtain

Pepsico is one of the world’s largest consumer packaged goods companies in the world with a portfolio of the most iconic brands in food and beverage. Globally, the number one player in the company snack and number two for drinks only Coca.

Pepsi is divided between North American work (60% of income) and international (40%). In North America, the segments Pepsico Foods North America and Pepsico Beveges North America, each of which constitutes approximately 30% of the total income of the company. Frito-Lay North America, which constitutes approximately 90% of PFNA, is a dominant leading and consistent growth driver in salty snacks. PBNA has a flagship Pepsi, Mountain Dew and Gatorade, and has an access of Coca-Cola in a very attractive and high-margin last market. Despite its scale, brand power and growth registry, Pepsi’s shares have lost about $ 40 billion in the last three years and the criterion of S&P Consumer Staple Index has scored 169 percent in the last 20 years.

The strategic false steps in the company’s core North American enterprises are on the basis of this low performance. In 2010, he acquired most of both Coca-Cola and Pepsi bottles. However, Coca-Cola moved to perform bottling, while Pepsi integrated them vertically. This decision has been proven to be an expensive error for the PBNA segment.

Before this strategic separation, PBNA’s operating margins were 300 BPS higher than Coca-Cola. Now, PBNA’s operating margins are lower than 1,000 BPS, which reflects the cost prints of keeping intensive and lower margin operations at home.

PBNA’s second false speech was his response to changes in consumer soda preferences. As Soda consumption decreased in the early 2000s, PBNA shifted its focus towards soda and healthier categories. Although this is right at that time, soda preferences have been stabilized since then, but PBNA has not invested in soda again. The lack of focusing on core products has experienced significant repercussions, including reduced investments such as Pepsi Zero Şeker’s delayed launch and mountain dew reduced investments. Moreover, instead of putting money on these proven brands and products, Pepsi expanded to other stock holding units or SBKs, including limited -time proposals and flavor extensions that lead to higher production and distribution costs, and to weaker brands such as Starry, Rockstar and Sodastream. As a result, PBNA has about 70% more sku than Coca-Cola, although it produces approximately 15% less in retail sales.

The weaknesses of PBNA have forced Pepsi to maintain overall growth and to meet performance goals and to depend on more PFNA and FLNA core.

Pepsi, waiting for the increasing demand from Covid in 2020, began to invest aggressively in PFNA and capital expenditures rose from $ 3.3 billion to 2022 to $ 5.2 billion in 2018. At that time, this decision had a logic, but Covid fuel did not last. Nevertheless, Capex continued to rise to $ 5.3 billion in 2024, although FLNA sales were actually transferred to 0.5%.

Worse, Pepsi not only increases Capex, but also sales, general and administrative costs and PFNA’s operating margins fell from 30% to 25% during this period.

These problems aggravated Pepsi’s overall performance, as the market caused the rapidly growing Müreffehe international business with expanding margins. Pepsi, which has a premium growth proposal once, currently provides a discount of 22x in 18x P/e and 4 rounds of measurement compared to historical 1.4 tour premiums.

Explaining a position of 4 billion dollars in Pepsico, Elliott has released a letter and comprehensive presentation that details the opportunity to rearrange and improve performance through focusing, advanced operations, strategic re -investment, and more accountability. Elliott for PBNA believes that the first step changes the bottling network. This move, until the purchase of Pepsico’s back in 1999, until it was purchased in 2010, the Pepsico system Coca -Cola since the time showing significant better performance – historically, return to a system that performs better than the closest competitor – very logical.

Portfolio optimization. PBNA needs to rationalize the number of SKUs and relieve low -performance brands. Elliott points last sale Rockstar Centigrade As the best example of opportunities to simplify the portfolio.

Both of these steps should release the PBNA’s spending power, which Elliott believes should be re -investing in core soda franchisees and selecting new categories of growth (ie protein and probiotics). For PFNA, considering significant slowdown in high -level growth, Elliott believes that it is time to stop this aggressive growth strategy and rearrange the cost base and optimize the portfolio.

Elliott emphasizes the center of plate products that stand outside of FLNA’s snack core, especially as a potential hand. Such movements will allow PFNA to concentrate on areas with real competitive advantage especially in FLNA products and help to release the edge gaps and capital for the re -investment in both organic growth and the accumulated bolt. Elliott believes that these changes in North American business will not only improve the company’s operations, but will also help to reset the larger Pepsi investment story.

Currently, this is a low performance and weak execution story that hosts the company’s valuation and led to the international business and leaves a discounted.

In particular, Elliott believes that if this plan is implemented effectively, at least 50% reversal to shareholders. Elliott is one of the most productive activist investors today and has resources and registers to influence significant change in Megacap companies.

However, if you do not offer a comprehensive plan that shows a thoughtful way to create long -term value, registration and resources are meaningless, and Elliott’s 74 -page presentation makes this.

In addition, even though activists are unjustly cliché as short -term investors for some of them, partly characterized in this way, this presentation should be seen as a “exhibition” about how activists such as Elliott developed with shareholders. Elliott’s plan: “Re -investment to revive and focus on the core”, “organic and inorganic investments to ensure long -term growth”, then use incremental revenues from these actions to ensure long -term growth and “right -sizing and both organic and cow revitalization of PFNA.

In fact, on 74 pages, Elliott uses the word “re -investment” 54 times and does not use the word “reputation” once, although it accepts how important Pepsi shares are. Yes, sharing purchases can now be great for the short -term, but Elliott’s re -investment plan will be the best for the long -term.

For all these reasons, it is difficult to discuss with Elliott’s analysis or suggestions, and we expect the shareholders and management to be too much, if not all. Assuming this, the next step is the execution of the plan, which can be the simplest but important part of Elliott’s presentation.

A good activist and good board members support management in executing their plans, but they hold them responsible if they are inadequate. This is exactly what we expect Elliott to do here. In this early stage, Elliott’s plan seems simple enough to expect too much return, and governance changes seem necessary to create an effect at this point. However, we expect Elliott to constantly monitor the status and progress of the administration and to hold them responsible if they cannot achieve strategic actions and updated financial objectives.

Ken Squire is the founder and president of the 13D Monitor, a corporate research service on shareholder activism and is the founder and portfolio manager of the 13D Activist Fund, an investment fund investing in the investment portfolio of the activist 13D.