PepsiCo Bottler Deals To Draw Scrutiny At Investor Meeting

   By Anjali Cordeiro 
   Of DOW JONES NEWSWIRES 
 

NEW YORK -(Dow Jones)- PepsiCo Inc. (PEP) shareholders are waiting to see if the soda maker can hit a home run with its bottler acquisitions.

The company, which hosts its investor meeting at Yankee Stadium next week, is expected to offer deeper insight into how it will use the deals to revive soft drink sales in the U.S., work better with retailers and fend off rival Coca-Cola Co. (KO). It also is likely to emphasize efforts to curb costs in both its beverage and snacks businesses.

"This meeting will be a little like their coming out party in talking about the bottler integration," said Jim Tierney, a portfolio manager at W.P. Stewart, which holds PepsiCo shares. "I think they are on the right path, but investors want more details and comfort."

The two-day investor outreach, which starts Monday, is the company's first major public meeting since closing the acquisitions of Pepsi Bottling Group and PepsiAmericas last month. Chief Executive Indra Nooyi, a loyal Yankees fan herself, has said the acquisitions will make the company's distribution system more nimble.

Among other things, W.P. Stewart's Tierney is looking for specifics on the company's strategy to cut costs, plans to get new products to market faster and its business goals for the next three to five years with the bottler deals now complete. Also of interest will be plans to keep the international business growing and tap the snacks business for more profits.

PepsiCo's Frito-Lay snacks business has done well in North America despite the slump in consumer spending. ConsumerEdge Research analyst Bill Pecoriello said in a research note that PepsiCo is likely to discuss changes to the infrastructure at Frito-Lay North America that will yield as much $500 million in savings through 2013.

Globally, a moderation in commodity costs could help PepsiCo, and particularly the snacks business. JPMorgan analyst John Faucher wrote in a recent research note that PepsiCo's decision to hedge its raw materials exposure through 2009 at the peak in 2008 was probably its single biggest mistake of the past few years, but that as these hedges roll off this year the company may be able to expand gross margin.

PepsiCo's shares lagged the broad market in 2009 amid weaker sales of soft drinks in the U.S. The stock has since picked up steam, gaining 9% for the year to date and topping the Standard & Poor's 500 index's 5% rise. Coca-Cola shares are down 5.5% for the year to date.

Still, PepsiCo is now faced with the challenge of integrating the two bottlers seamlessly into its own operations and wringing out cost savings from that process. In the process it will be faced with a newly energized competitor as Coca-Cola completes its own acquisition of Coca-Cola Enterprises Inc.'s (CCE) North American operations later this year.

PepsiCo has not yet said how distribution for products like bottled water or individual brands like Gatorade might change with the recent acquisitions, and how its distribution system might work differently with large retailers like Wal-Mart Stores Inc. (WMT).

Walter Todd, a portfolio manager at Greenwood Capital, which holds PepsiCo shares, said he is hoping to see the company respond to the Coca-Cola bottler deal, particularly since PepsiCo will have a head start of only a few months.

Through the recession, the slump in the U.S. was offset by strength in PepsiCo's international operations, which held up well and are likely to draw attention at the meeting. The company has said that it now will direct more investment into markets like China. The head of the key international business, Michael White, announced his departure late last year.

"People want to reacquaint themselves with the [international] team given Mike White's departure," Tierney said.

-By Anjali Cordeiro, Dow Jones Newswires; 212-416-2200; anjali.cordeiro@dowjones.com

(END) Dow Jones Newswires

March 17, 2010 13:45 ET (17:45 GMT)

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