PepsiCo to Critics: We're Doing Just Fine, Thank You

Despite persistent criticism, PepsiCo has no plans to do anything drastic. After all, a long history of diversified products, great brands, and wise management allowed PepsiCo to make its shareholders rich.

Jun 1, 2014 at 2:00PM

Consumer-products giant PepsiCo (NYSE:PEP) may seem like a boring company, but its history of enriching shareholders is anything but boring. PepsiCo has made its investors boatloads of money over a long period of time, thanks to its effective management, world-class brands, and products that are bought every day across the world in a good economy or bad.

That's the formula that has allowed PepsiCo to provide such impressive returns to investors over the course of its history. The company recently increased its dividend for the 42nd consecutive year. Its track record is evidence of the powerful business PepsiCo operates. For that reason, PepsiCo should keep generating strong returns for a long time to come.

Pepsi Brands


PepsiCo: Not in a hurry to shake things up
If you think there isn't much fizz in the soda industry, you'd be right, and that's just how PepsiCo likes it. The company is under pressure from analysts and investors to shake things up, but management has long resisted calls to change strategy just for the sake of doing something.

PepsiCo's major adversary in the soda wars, Coca-Cola (NYSE:KO), announced a partnership with Keurig Green Mountain (NASDAQ:GMCR). Coca-Cola invested $1.2 billion in Keurig for a 10% stake in the company. Together, they will develop an at-home cold beverage system, utilizing Keurig's existing coffee-brewing technology.

At the time, this partnership seemed like the next big hit. But to a certain extent, it seems like Coca-Cola might be afraid of shifting consumer preferences. Consumers are slowly demonstrating a distaste for the sparkling beverages that make up the bulk of Coca-Cola's business because of the high calories and sugar. Even diet drinks, like Coca-Cola's flagship Diet Coke, are facing scrutiny for their chemicals.

The reason why PepsiCo hasn't pursued a similar partnership is that it holds a much more diversified business than Coca-Cola. PepsiCo's revenue mix is evenly split between food and beverages. PepsiCo holds a slew of brands that aren't under as much pressure as soda right now. These include Gatorade, Quaker, and Frito-Lay. Besides which, the likelihood of an at-home cold-soda-beverage platform becoming a smash hit is far from guaranteed.

SodaStream has had such a product on the market for several years now, and it's by no means a widespread phenomenon. The investment represented a drop in the bucket for Coca-Cola from a financial perspective, so it doesn't have much to lose. But it's clear that PepsiCo is in no rush to pursue a similar deal. Nor should it be.

PepsiCo keeping it all in the family
In addition, one of its biggest investors, Nelson Peltz of Trian Fund Management, recently pressured PepsiCo's board of directors to spin off its North American beverage business. Trian, which owns about 1% of PepsiCo, believes that the company could create substantial value for shareholders by pursuing a spinoff by basically separating the wheat from the chaff. PepsiCo's foods business is growing faster than its beverage unit, so Peltz feels the sum of the parts is worth more than the whole.

But PepsiCo's board won't spin off the beverage unit, and rightly so. There's really no reason to. The beverage business isn't growing rapidly, but it's still massively profitable and represents a core brand connection with consumers.

PepsiCo's performance speaks for itself
PepsiCo hasn't bowed to complaints from analysts and investors that its growth isn't impressive enough and that it should do something big to shake things up. The truth is that the company simply doesn't need to spend a lot of money on something that may or may not pan out. It produced 10% earnings growth last quarter and announced a 15% dividend increase in May. Plainly stated, PepsiCo is doing just fine.

PepsiCo has returned more than $60 billion to shareholders over the past decade through dividend payments and share repurchases. This year, it expects to return $8.7 billion to investors, which would represent a 35% increase from last year. It's plain to see that PepsiCo is right on track and doesn't have anything to prove.

Warren Buffett just bought nearly 9 million shares of this company
Imagine a company that rents a very specific and valuable piece of machinery for $41,000 per hour (That's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report details this company that already has over 50% market share. Just click HERE to discover more about this industry-leading stock... and join Buffett in his quest for a veritable landslide of profits!

Bob Ciura owns shares of PepsiCo. The Motley Fool recommends Coca-Cola, Keurig Green Mountain, and PepsiCo. The Motley Fool owns shares of PepsiCo and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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