Nooyi’s Drink Tank: Keep Pepsi’s Beverage and Snacks Units United
PepsiCo (NYSE:PEP) CEO Indra Nooyi is standing firm in her conviction to keep the company’s snack and soft drink division together, despite pressure from notable shareholders. In an interview Friday on CNBC’s ”Squawk Box,” Nooyi refuted the claim that the businesses would perform better if they were to be separated, and instead insisted, “These two categories are better together, not just in the United States, but around the world.”
Nooyi has fielded significant pressure from shareholders, especially Nelson Peltz, over a division of the two businesses because consumers have shown a clear pivot in their interest in sugary soft drinks, while Pepsi’s snack unit, the biggest in the world, is performing much better. However, Nooyi believes that it still makes sense for Pepsi to govern the divisions in tandem, posing the question on Squawk Box, “If you eat a bag of Fritos, do you reach for a beverage?”
Like its rival Coca-Cola Company (NYSE:KO), Pepsi’s soft drink business has been underperforming due to consumers showing deflated interest in sugary, calorie-laden drinks, and Peltz argues that Pepsi’s thriving snack unit is being overshadowed by its struggling beverage unit. Peltz is a major Pepsi shareholder, and made his concerns known back in July at the CNBC-Institutional Investor Delivering Alpha Conference. However, it is clear that Nooyi is unwilling to be swayed by even the most activist investors about her strategy moving forward. Despite Peltz’s urgings to have Pepsi buy Mondelez (NASDAQ:MDLZ), a snack food company previously owned by Kraft (NASDAQ:KRFT), Nooyi has showed no signs of moving in that direction, and doesn’t look like she’s ready to give up Pepsi’s soft drink business any time soon.
Pepsi shares were up 0.31 percent, sitting at $83.11 as of 1:45 p.m. Friday, and investors are now eager to learn how the company fared in the fourth-quarter — figures that will be released next month. CNBC reports that Pepsi earned $1.24 a share, excluding one time items, in the third-quarter, and that figure beat analyst expectations of $1.17.
Though consumers have shown an increased interest in lower-calorie and more healthful beverage offerings — something Nooyi predicted as early as 2006 — Pepsi has managed to still appeal to customers by offering more diet offerings and drinks that are lower in calories. CNBC reports that an independent evaluation executed this week showed that the world’s largest food and beverage companies, including Pepsi, have far surpassed a five-year goal set in 2010 to cut trillions of calories from products sold in the U.S., and evidence of that can easily be seen in Pepsi’s newest and current offerings.
Nooyi told Squawk Box in her interview Friday that she has fought internally and externally to “reduce the salt and sugar and fat in our fun-for-you products,” while also boosting the content of Pepsi’s “good-for-you products” and still allowing them to taste great. Nooyi recognizes that she has a far way to go, as soft drinks sales are still slower than they once were; however, she and her team are still planning ways to further increase Pepsi’s popularity in the future, and for now, it is clear that the CEO doesn’t plan on separating her divisions anytime soon.