Company: PepsiCo
work: PepsiCo It is one of the world’s largest consumer packaged product companies and has a portfolio of the most iconic brands of food and drinks. The brands include Lay’s, Doritos, Cheetos, Gatorade, Pepsi-Cola, Mountain Dew, Quaker and Sodastream. That segment includes Frito-Lay North America (FLNA). Quaker Foods North America (QFNA); Pepsico Beverages North America (PBNA); Latin America (Ratum); Europe; Africa, Middle East, South Asia (AMESA), Asia-Pacific, Australia, New Zealand and China Region (APAC). FLNA manufactures, markets, distributes and sells brand-name useful foods, including branded dips, cheat-stew-flavored snacks, Dorito Strutilla chips, Frito Scorn chips, Ray’s potato chips and more. QFNA’s products include Cap’n Crunch Creal, Life Creal, Pearl Milling Company Sylups and Mixes, Quaker Chewy Granola Bars, Quaker Grits, Quaker Oatmeal and more. PBNA manufactures, markets and sells beverage concentrates and fountain syrup under a variety of beverage brands, including Aquafina, Bully, Diet Pepsi, and Gatorade.
Stock Market Value: $21.128 billion ($154.32 per share)
Activist: Elliott Investment Management
Ownership: ~1.9%
Average cost: n/a
Activist Commentary: Elliot is a multi-strategy investment company that manages approximately $76.1 billion in assets (as of June 30, 2025), and is one of the oldest companies of its type under continuous management. Known for its large due diligence and resources, Elliott regularly tracks businesses for years before making an investment. Elliott is the most active activist investor and has engaged with companies in the industry and multiple regions.
what’s happening
On Tuesday, Elliott sent a PepsiCo presentation and letter detailing opportunities to re-stimulate growth and improve performance by improving focus, improving operations, strategic reinvestment and increasing accountability.
Behind the scenes
PepsiCo is one of the world’s largest consumer packaged commodity companies, with a portfolio of the most iconic brands in food and drinks. Globally, the company is the number one snack player and second in drinks. coca cola.
Pepsi is divided into North American business (60% of revenue) and international (40%). Within North America, its segments swallow North America and PepsiCo drinks in North America, each of which accounts for about 30% of the company’s total revenues. Fritrey North America, which accounts for around 90% of PFNA, is the dominant leader in salty snacks and consistent growth drivers. PBNA has a portfolio of iconic brands, including flagship Pepsi, Mountain Dew and Gatorade, with a reach comparable to Coca-Cola in a highly attractive and marginal market. Despite its size, brand strength and track record of growth, Pepsi stocks have lost around $40 billion in market capitalization over the past three years, dragging the S&P Consumer Staples index, a benchmark of 169 percentage points over the past 20 years.
The strategic failures of the company’s core North American companies lie at the root of this inaction. In 2010, both Coca-Cola and Pepsi acquired most of the bottlers. However, Coca-Cola moved its bottling business into a franchise, but Pepsi continued to integrate these vertically. This decision has proven to be a costly mistake for the PBNA segment.
Before this strategic divergence, the operating margin of PBNA was 300 bps higher than Coca-Cola. Currently, PBNA’s operating margins are 1,000 bps lower, reflecting the cost pressures associated with maintaining these cost-intensive and low margin operations in the home.
The second failure of PBNA was its response to changes in consumer soda preferences. With soda consumption declining in the early 2000s, PBNA shifted its focus from soda to healthier categories. This was justified at the time, but soda preferences have been stable ever since, but PBNA has not reinvested in soda. The lack of focus on this core product has had serious consequences, including delayed launch of PepsiZero Sugar and reduced investment in core brands such as Mountain Dew. Furthermore, instead of putting money into these proven brands and products, Pepsi overexpands to weaker brands like Starry, Rockstar, Sodastream, and expands to other stockholder units, or SKUs that include limited time offer and flavor expansion, resulting in higher manufacturing and distribution costs. As a result, PBNA has around 70% more SKUs than Coca-Cola, despite having around 15% less retail sales.
Due to PBNA’s weaknesses, Pepsi has become increasingly dependent on PFNA and its FLNA core, maintaining overall growth and achieving its performance goals.
In 2020, in anticipation of an increase in demand from Covid, Pepsi began pursuing an aggressive investment in PFNA. This increased from $3.3 billion in 2018 to $5.2 billion in 2022. There were some logic about this decision at the time, but the community-fueled growth did not continue. However, despite FLNA’s sales actually being signed on 0.5%, CAPEX continues to grow to $5.3 billion in 2024.
Worse, Pepsi not only has increased CAPEX, but also has also sold sales, general costs and administrative costs, with PFNA operating margins down from 30% to 25% over this period.
These issues have greatly overwhelmed Pepsi’s overall performance. This has led the market to largely overlook thriving international businesses and is growing rapidly as margins grows. Once the premium growth offering, Pepsi currently trades at 18x P/E at an average of 22x for a decade, with four or more discounts on the benchmark compared to the historic 1.4-turn premium.
Announcing its $4 billion position at PepsiCo, Elliott issued a letter and comprehensive presentation detailing opportunities to re-stimulate growth and improve performance by improving focus, improving operations, strategic reinvestment and strengthening accountability. For PBNA, Elliott believes the first step is to reorganize the bottledling network. This move makes a lot of sense – going back to a system that is better than its historically closest competitors – from PepsiCo relocated its bottler in 1999 until it repurchased its repurchase in 2010, the PepsiCo system was far ahead of the Coca-Cola system.
Next is portfolio optimization. There are too many products in PBNA, and you need to streamline your SKU count and sell from low-performing brands. Elliott points out the recent sale of Rockstar Celsius As a representative example of the opportunities that exist to simplify your portfolio.
Both of these steps must release the PBNA payload. This believes Elliott needs to reinvest in the core soda franchise and select new growth categories (i.e. proteins and probiotics). For PFNA, given the significant slowdown in topline growth, Elliott believes it’s time to halt this aggressive growth strategy and readjust its cost base and optimize its portfolio.
Elliott particularly points out Quaker as a potential sale, highlighting the centre of the plate product outside the FLNA snack core. Such a move will allow PFNA to concentrate in areas with a true competitive advantage, particularly in FLNA products, regaining margins and reinvestment in both organic growth and additional bolt-on M&A. Elliott believes these changes to North American businesses will not only help improve the company’s business, but also help reset Pepsi’s investment story.
Now, this is a tale of inperformance and inadequate executions, squeezing the company’s reputation and overlooked and discounted international business.
Specifically, Elliott believes that if the plan is implemented effectively, it could provide shareholders with at least 50% upside down. Elliott is one of the most prolific activist investors today and has the resources and track record of impacting meaningful changes in these types of megacup companies.
But without presenting a comprehensive plan that shows a thoughtful path to long-term value creation, achievements and resources are meaningless, and Elliott’s 74-page presentation does just that.
Moreover, activists are often unfairly stereotyped as short-term investors, partly due to those who are so correctly characterized, but this presentation should be viewed as an “exhibition” in a way that has evolved to cause activists like Elliot to fall into a long-term mind in alignment with shareholders over the years. Elliott’s plans include “reinvestment to regenerate and focus and grow the core,” “pursuing organic and inorganic investments to promote long-term growth,” “to use incremental revenue from these actions to promote long-term growth,” and “to reinvest both fuel and fuel to promote appropriate costs and emit non-core assets.”
In fact, on page 74, Elliott uses the word “Reinvest” 54 times and, despite acknowledging that Pepsi’s stock is undervalued, he does not use the term “buyback.” Yes, stock buybacks may be great in the short term, but Elliott’s reinvestment plan is the best in the long term.
For all these reasons, it is difficult to discuss Elliott’s analysis and recommendations, and we expect shareholders and management to agree to many, if not all, of them. Assuming that, the next step is to execute the plan, which may be the most conservative but important part of Elliott’s presentation.
Great activists and excellent board members will help management implement the plan, but will be accountable if there is a shortage. That’s exactly what Elliot expects to do here. At this early stage, Elliott’s plan appears easy enough, and we don’t expect to see a lot of pushbacks, and at this point it doesn’t seem to require any governance changes to make an impact. That being said, Elliott expects to continue monitoring the status and progress of management and hold them accountable if they fail to provide strategic action and updated financial goals.
Ken Squire is the founder and president of 13D Monitor, an institutional research service for shareholder activity, and is the founder and portfolio manager of 13D Activist Fund, a mutual fund investing in a portfolio of activist 13D investments.
