This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Ignore the Activist Investors: Pepsi Still Satisfies

NEW YORK ( TheStreet) -- It seems fitting that shareholders of PepsiCo (PEP) -- which owns the rights to the motto, "Bet you can't eat just one" -- are never satisfied. While no one would dare call Pepsi a slouch, the company has always had bigger ambitions than to play second fiddle to rival Coca-Cola (KO).

Having outperformed its chief nemesis in some critical metrics over the past couple of quarters, I believe management is on the right track. But just like eating one potato chip, investors are far from content.

Pepsi shareholders, led by activist investor Nelson Peltz, are demanding drastic operational changes. They are pleading for the company to breakup its beverage business from its snack food operation. They believe Pepsi would generate significantly more value through a key acquisition. These demands are being made despite the fact that Pepsi shares have led Coca-Cola's by as much as 15% over the past several months.

The name at the top of investors' shopping list is snack-food giant Mondelez (MDLZ). While I do understand the rationale behind this proposed acquisition, I don't subscribe to the notion that it will immediately remedy what is believed to be ailing Pepsi. Let's not forget, while volumes have indeed been on the decline, this has also been an issue for both Coca-Cola and other rivals like Dr. Pepper Snapple (DPS).

For that matter, weak volume and compressed margins have been the story within the entire food and beverage sector. As I've pointed out recently, Pepsi is battling a shift in beverage consumption due to (among other things) nutritional fears. Obesity has become an issue for nearly 40% of Americans and has become a global concern.

To that end, acquiring Mondelez, which specializes in sweet snack foods, won't fix this. Nor will it help spur higher beverage consumption. Pepsi's Frito-Lay business, which posted 4% growth in the fourth quarter, continues to be the strength of the overall operation. Not to mention, almost all of the growth was organic.

Thus, Pepsi's salty snacks are outperforming Mondelez's sweet snacks by a decent margin. As for Pepsi "catching up" to Coca-Cola, given that Pepsi's year-over-year revenues increased 1% this quarter compared to Coca-Cola's 4% decline, an argument can be made that Pepsi has already surpassed its chief rival. This is now the third consecutive quarter in which Pepsi has bested Coke in terms of performance.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs