PepsiCo Stock Hits 32-Year High, but Why?

May 20, 2013
Decent first quarter but also investment firms buys a big stake.

When its first-quarter earnings exceeded analysts’ expectations, PepsiCo Inc.’s stock hit a 30-plus year high April 18, according to split-adjusted data compiled by Bloomberg. While a number of analysts voiced admiration for the world’s largest snack maker, some of the buoyancy also may be due to the interests of a large investment fund.

Trian Fund Management, led by activist investor Nelson Peltz, announced the same day it had increased its investment in PepsiCo to $269 million. The fund also has a $494 million in Mondelez International, according to ValueWalk.

The 3 percent jump in PepsiCo stock (closing at $81.25 per share) came despite a 4.6 percent dip in first-quarter net income, to $1.08 billion, or 69 cents a share, from $1.13 billion, or 71 cents, a year earlier, the news service reported. But core earnings per share were 77 cents, beating the 71-cent average of 14 analysts’ estimates compiled by Bloomberg.

PepsiCo officials reported:

* 4.4 percent organic revenue growth “with a good balance between volume growth and price realization.”

* PepsiCo Americas Foods organic revenue grew 6 percent in the quarter driven by organic revenue growth in all divisions, including Frito-Lay North America, Quaker Foods North America and Latin America Foods.

* Frito-Lay North America market share in the U.S. grew in the quarter, reflecting 4 percent volume growth driven by strategic investments and disciplined execution.

* PepsiCo Americas Beverages core constant currency operating profit grew 4 percent in the quarter reflecting favorable effective net pricing and productivity gains.

* Revenue in the Asia/Middle East/Africa segment grew 15 percent in the quarter (net revenue declined 14 percent).

* On an organic basis, emerging and developing market revenue grew 12 percent.

* On an organic basis, international beverage volume grew 6 percent and international snack volume grew 5 percent.

* On track to return a total of $6.4 billion to shareholders in 2013 through approximately $3.4 billion in dividends and approximately $3.0 billion in share repurchases.

PepsiCo last year acknowledged an introspection of its businesses amidst flagging sales growth and hinted at a restructuring. Increased marketing across the board and a particular emphasis on carbonated drink sales were earmarked.

Regarding the SEC filing by Trian Fund Management L.P., PepsiCo stated: “In recent weeks, we have held meetings with Trian to discuss and consider their ideas and initiatives as part of our ongoing evaluation of all opportunities to drive long term growth and shareholder value. Trian is a respected investor, and we look forward to continuing constructive discussions with them.”

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