The Elliott Pepsico plan involves investing in some of its iconic brands, throwing others

Company: Pepsico

Business: Pepsico is one of the largest world -class consumer companies, with a portfolio of some of the most emblematic brands in food and drink. Its brands include: Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Sodastream. Its segments include Frito-Lay North America (FLNA); Quaker Foods North America (QFNA); Pepsico Beveges North America (PBNA); Latin America (Latam); Europe; Africa, the Middle East and South Asia (Amesa) and the Asia -Tihoetan region, Australia and New Zealand and China (APAC). FLNA makes, markets, distributes and sells branded comfortable foods that include branded cheese cheese, cheese -aroma, Doritos tortilla chips, Fritos corn chips, Lay potato chips and others. QFNA products include Cap’n Crunch cereals, life cereals, syrups and mixtures of pearls grinding companies, Quaker Chewy Granola Bars, Quaker Grits, Quaker Oatmeal and others. PBNA makes, markets and sells beverage and fountain syrups on various beverages, including Aquafina, Bubly, Diet Pepsi, Gatorade and others.

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

Activist: Elliott Investment Management

Property: ~ 1.9%

Average price: n/a

Activist Comment: Elliott is a multistrategic investment company that manages about $ 76.1 billion assets (as of June 30, 2025) and is one of the largest companies of this type with continuous management. Known for its extensive proper check and resources, Eliot regularly follows companies for years before making an investment. Elliott is the most active of activists investors, engaging in industries and multiple geographies.

What happens

On Tuesday, Elliott sent a presentation and a letter to the Council of Pepsico, detailing the company’s ability to realize growth and improve efficiency through a larger focus, improved operations, strategic reinvestment and increased accountability.

Behind the scenes

Pepsico is one of the world’s largest packaged goods companies in the world, with a portfolio of some of the most emblematic brands in food and drink. Worldwide the company is the number one player in breakfast and player number two in drinks only Coca-ColaS

Pepsi is divided between its business in North America (60% of revenue) and international (40%). In North America, its segments are Pepsico Foods North America and Pepsico Beveges North America, each representing about 30% of the company’s total revenue. Frito-Lay North America, which represents about 90% of PFNA, is the dominant leader in salt snacks and a steady growth engine. PBNA has a portfolio of emblematic brands, such as its leading Pepsi, Mountain Dew and Gatorade, and a range that Coca-Cola rivals a very attractive and high-margin end market. Despite its scale, brand power and growth tracking, Pepsi’s shares are lower, losing almost $ 40 billion in a market cap over the last three years and leaving its indicator, the S&P Consumer Staples Index with 169 percentage points over the last 20 years.

The strategic wrong steps in the main enterprises of North America of the company are at the heart of this insufficient performance. In 2010, both Coca-Cola and Pepsi acquired most of their bottles. However, while Coca-Cola moves to refrigerate its bottling business, Pepsi retained these vertically integrated. This solution turned out to be an expensive mistake for the PBNA segment.

Previously, strategic discrepancy PBNA operating margins were 300 bps higher than Coca-Cola. The PBNA operational margins are now 1000 BPS lower, reflecting the pressure of costs that come with the preservation of these cost and lower margins in the house.

The second wrong step of the PBNA was his answer to changes in the preferences of consumer soda. As soda consumption decreased in the early 2000s, PBNA shifted its focus from soda and to healthier categories. Although this was justified at the time, soda’s preferences have been stabilizing since then, but the PBNA is not reinvested in soda. This lack of focus on its main products has serious consequences, including the delayed launch of Pepsi Zero Sugar and reduced investments in major brands such as Mountain Dew. In addition, instead of incorporating money into these proven brands and products, Pepsi has been overcome in less brands such as Starry, Rockstar and Sodastream, while expanding into other storage units or SKU, including offering limited times and prolonged flavors, leading to higher production and distribution costs. As a result, the PBNA has about 70% more SKU than Coca-Cola, although it generates about 15% less than retail sales.

The weak sides of the PBNA have forced Pepsi to become more and more dependent on the PFNA and its Flna nucleus to maintain overall growth and to meet the goals of efficiency.

In 2020, expecting increased demand by Covid, Pepsi began to seek aggressive investment in PFNA, with capital expenditures increasing from $ 3.3 billion in 2018 to $ 5.2 billion in 2022. There was some logic for this decision at the time, but the covida growth did not continue. Still, Capex continued to increase to $ 5.3 billion in 2024, although FLNA sales were actually infected by 0.5%.

To make things worse, Pepsi not only increased Capex, but also sales, total and administrative costs, but PFNA’s operational margins dropped from 30% to 25% during this period of time.

These problems have greatly weighted Pepsi’s overall performance, as this caused the market to largely neglect its prosperous international business, which is rapidly increasing with the expansion of margins. After offering premium growth, Pepsi is currently trading at the 18x p/e against a ten -year average of 22x, and over 4 turns discount to its indicator compared to the historical premium with 1.4 turn.

Elliott, who announced a $ 4 billion position in Pepsico, has issued a letter and a complete presentation, describing in detail the ability to react and to improve efficiency through more focus, improved operations, strategic reinvesting and increased accountability. For the PBNA Elliott, it is believed that the first step is to refresh the bottling network. This move makes a lot of sense – returning to a system that historically outperforms its closer competitor – from the time when Pepsico refrigerated its bottles in 1999 until it redeemed them in 2010, the Pepsico system greatly superior to the Coca -Cola system.

The following is the optimization of the portfolio. PBNA just has too many products and should rationalize the number of SKUs and released from brands that are smaller. Elliot points out the recent sale of Rockstar to Celsius As an excellent example of the opportunities that exist to simplify the portfolio.

Both of these steps must release the consumption force of PBNA, which Elliot believes should be reinvested in Core Soda’s franchises and choose new growth categories (ie protein and probiotics). For PFNA, given its significant slowdown in the height of the highest lines, Elliot thinks it is time to stop this aggressive growth strategy and to reconfigure its costs and to optimize the portfolio.

Elliott specifically refers to Quaker as a potential sale, emphasizing the center of the products of the plates that rest outside the core of Flna’s breakfast. Movements like these would allow PFNA to concentrate on areas where there is a real competitive advantage, in particular in its FLNA products, as well as to help restore margins and release the capital for reinvestment in both organic growth and the BOLT-on M&A accrective. Eliot believes that these changes to the North American business would not only improve the company’s operations, but also help reset the bigger Pepsi investment history.

At present, this is a story of insufficient performance and poor performance that weighs on the company’s estimate and left the international business neglected and at a discount.

CONCRETE, Elliot believes that if this plan is fulfilled effectively it can provide at least 50% upwards of shareholders. Elliott is one of the most fruiting activist investors today and has resources and tracking to influence meaningful change in these types of MEGACAP companies.

But tracking and resources are pointless if you do not present a comprehensive plan that demonstrates a thoughtful way to create long -term value, and the presentation of Elliot’s 74 pages does just that.

In addition, while activists are often unjustly stereotypical as short -term investors, which are partly due to some who are sometimes properly characterized in this way, this presentation must be seen as an “exhibition of A” in how activists like Elliot have evolved over the years to be long -term in accordance with shareholders. Elliott’s plan includes recommendations such as: “Reinvestment for the revival of the nucleus and growth with focus”, “pursuit of organic and inorganic investments to stimulate long -term growth”, “then use increasing receipts of these actions to stimulate the long -term growth”, and “through the size of the right. Growth “and” by the cost of sizing the right and disposing of non -drain assets can develop for fuel.

In fact, in 74 pages, Elliot uses the word “reinvestment” 54 times and has not once used the word “buying”, although it acknowledges how underestimated the Pepsi shares now. Yes, redemption of shares can be great for the short-term, but the Elliot reinvestment plan is what will be the best for the long run.

For all these reasons, it is difficult to argue with the analysis or recommendations of Elliott and we would expect that shareholders and management agree with many, if not all, from it. Assuming that the next step is the implementation of the plan and this may be the most common, but important, part of Elliott’s performance.

Good activist and good board members support the management in the implementation of their plan, but carries them responsible if they do not reach. That’s what we expect Elliot to do here. At this early stage, Elliot’s plan seems clear enough that we do not expect many discounts and at this point changes in management do not seem necessary to influence. Given, we expect Elliot to constantly monitor the situation and progress of management and keep them responsible if they fail to perform strategic actions and updated financial goals.

Ken Squire is the founder and president of 13D Monitor, an institutional research service for shareholders’ activism, and founder and portfolio manager of the 13D activist fund, a mutual fund that invests in a portfolio of activist 13D investment.