Beer Marketer's Insights - PepsiCo Reports Cease-Fire with Activist Investor Elliott Management; No Big Rethink on Refranchising but Smaller-Scale Tests Seen in Works

PepsiCo agreed to cull sku's and cut prices but didn't signal any major rethinking of refranchising in details disclosed yesterday afternoon of settlement with activist investor Elliott Management. Announcement didn't spark large Wall Street reaction, with shares edging down a tad in trading so far today. The resolution contained "certain commercial and financial priorities to enhance shareholder value," but does not include board seat for Elliott, tho the dialogue between the two companies will continue. Initiatives aimed at improving organic revenue growth, productivity savings and operating margin rely heavily on revival of sluggish PepsiCo Foods North America along with more general boost in affordability investments (meaning price cuts to drive volume) and sped-up innovation stream and cost-cutting. At PFNA, co already has closed 3 plants and shut several production lines this year and is aiming to slash sku count by nearly 20% by early next year.Announcement made vague reference to refranchising issue by saying "we are carefully evaluating an integrated model and intend to take a nuanced approach factoring in key components such as return on investment, scale and market share at a US state level," with a comprehensive update due in a year's time. Co was more specific on investor call this morning. "A full refranchising of our North American beverage operation is not under consideration, as we do not believe it will improve marketplace performance nor maximize shareholder value," said chmn/CEO Ramon Laguarta. "Rather, we&#39;re piloting an integrated food and beverage model in Texas and are examining and analyzing the results." One source familiar with plan said PEP is likely to undertake a couple of regional refranchising experiments in coming year or so to explore pros & cons of approach. As we've reported, Elliott as well as some Wall Street analysts have observed marked divergence in performance dating back to point when Coca-Cola refranchised its US bottling system and PepsiCo decided to stand pat with current vertically integrated system. At recent Beer Marketer's Insights conference, some panelists pointed to potential PEP refranchising as creating oppty for beer houses to add scale (BBI, Dec 4). But today's events made clear no sweeping reversal is imminent at Pepsi.Innovation also was a theme, with Laguarta pointing to such moves as revamping of Naked refrigerated juice brands as well as relaunch of Lay's globally, better flagging potato base to improve nutritional perception of brand. And while some eyebrows were raised at announcement this week that Doritos will be among brands participating in new Formula 1 partnership inked by PEP, that event will be used to herald such additions as Doritos Loaded and Doritos Protein that similarly up nutritional cred of what's been regarded as indulgent snack brand. (We got assist from SeekingAlpha transcript in writing this story.)

PepsiCo Reports Cease-Fire with Activist Investor Elliott Management; No Big Rethink on Refranchising but Smaller-Scale Tests Seen in Works

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