What Makes PepsiCo One of America's Best Companies

Purchase, N.Y.-based PepsiCo (NYSE: PEP  ) is well-known for its soft drinks; Pepsi Cola was first formulated in 1898. However, today's PepsiCo has a huge portfolio of 22 beverage, snack, and food brands. These include Quaker Oats branded products, Frito-Lay (which includes well-known snacks like Tostito's, Dorito's, and Sunchips), Tropicana (which includes Dole and Naked Juice), and Gatorade.

It's a good bet it's difficult to find an American household that doesn't include several PepsiCo products in the cupboard or the refrigerator.

Regardless, times are changing, and PepsiCo is changing with them. It doesn't want to be known as just another soda and snack brand. PepsiCo's dedicating itself to "Performance with Purpose," "the belief that what is good for business can and should be good for society."

The case for PepsiCo
PepsiCo employs 297,000 people worldwide, including 107,000 in the U.S. PepsiCo provides employees with a full list of benefits for their health and financial wellness. One of its major initiatives is to create diversity in the workplace; last year, Black Enterprise magazine included Pepsi on its "40 Best Companies for Diversity" list.

Technically, PepsiCo's biggest customers are big retail companies like Wal-Mart (NYSE: WMT  ) (which is in fact its biggest customer), but its products are fairly ubiquitous for a reason. Interbrand ranks Pepsi the 22nd most valuable brand. The fact that the Coke (NYSE: KO  ) vs. Pepsi battle has raged for years and it would be difficult to find anyone who doesn't know what that means shows that people have certainly had a thirst for its products.

PepsiCo runs a high return-on-capital business that's growing at home and around the world. One of the company's biggest claims to fame is its reputation as a steady dividend payer. Dividends have increased for 40 consecutive years.

Even if critics deride PepsiCo's junk food reputation, the company under CEO Indra Nooyi has been trying to evolve into a more socially responsible corporation. In 2011, PepsiCo landed on the Dow Jones Sustainability World Index for the fifth year running, the North America Index for the sixth year, and was the No. 1 company in the Food and Beverage category. That year, it invested $525 million in research and development money into getting healthier ingredients as well as development and implementation of environmentally sustainable ways of running its operations.

Although in the past PepsiCo came under attack for its water usage policies in developing countries, it has addressed its reputation as a water guzzler (and water waster) to the extent that it is becoming part of the solution instead of the problem by replenishing water resources and dramatically improving water-use efficiency. 

Risks to consider
Soft drink consumption has recently dropped as prices have risen, and while PepsiCo is diversifying its beverage offering, soda still represents a quarter of its sales. Rising ingredient prices will hurt the company if it can't pass on some of those costs to consumers, some of whom are already struggling financially.

What's more, consumers are becoming increasingly aware of health concerns associated with some foods and beverages, resulting in different choices. PepsiCo's offerings for junk food junkies could still taint its reputation despite efforts to offer healthier products with healthier ingredients.

Beyond consumer awareness and critics' opinions, government regulations could change, and studies have been trying to assess the health effects of drinking carbonated soft drinks,, for example. Rising rates of obesity and illnesses like diabetes have put sugary snacks and drinks on the radar as part of an American health epidemic.

Wall Street and short-term investors and traders haven't been high on CEO Indra Nooyi's vision to push health and nutrition in PepsiCo's business, so a lot of long-term success depends on Nooyi standing strong against Wall Street-type short-term tunnel vision.

The Foolish bottom line
Pepsi may be an old company, but it's clearly an evolver, particularly under current management. PepsiCo's product diversification and reinvention are forward-thinking efforts to improve the long-term trajectory of its business.

Click here to read about the rest of The 25 Best Companies in America.


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9/27/2016 2:43 PM
PEP $107.56 Up +0.53 +0.50%
PepsiCo CAPS Rating: ****
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WMT $72.25 Up +0.63 +0.88%
Wal-Mart Stores CAPS Rating: ***