Cola major may spendup to $2 bn in wellness products;
looking at buys that would add to earnings within a year.
PepsiCo Inc. may make two or more acquisitions outside North America this year to add snacks or drinks it doesn’t already make or enter new regions, chief executive officer Indra Nooyi has said.
The company may spend $5 million (about Rs20 crore) to $2 billion to buy products that would help its offerings more closely mirror the “food pyramid” created by the US agriculture department Nooyi said.
The guidelines promote consumption of grains, proteins, fruits and vegetables, and suggest limiting the salty and sugary foods that make up much of PepsiCo’s sales.
PepsiCo, the maker of Fritos chips and Mountain Dew soda, is looking for purchases that would add to earnings within a year, Nooyi said in a telephone interview on Tuesday.
The company is seeking to expand and gain market share abroad, she said. “We’ve been generally more active internationally than in North America because there are more properties available,” PepsiCo’s chief executive officer said. The company wants to fill the gaps in its product line-up, she said.
The company bought the biggest potato chip makers in both Egypt and Saudi Arabia in 2001, which “doubled our scale” in those markets by adding local brands such as Chipsy and Tasali, she said.
PepsiCo, based in Purchase, New York, gets 63% of its sales in North America. Coca-Cola Co. gets 70% of its sales from overseas. That gives PepsiCo room to expand internationally, said Manny Goldman, who covered PepsiCo during almost 30 years as an analyst at securities firms, including UBS Painewebber Inc. and ING Barings.
Big, big world
“It’s a big, big world out there, and Pepsi’s still primarily a North American company,” said Goldman, now a beverage-industry consultant in Hillsborough, California. “If you’re the chairman of Pepsi, where do you want to be in the next 20 or 30 years? As much overseas as you can be.”
PepsiCo may make “slightly more than two” purchases before the end of 2007, depending on the pace of negotiations and the time it takes to study companies’ financial statements, Nooyi said.
Buying more overseas snack and drink brands would duplicate the company’s acquisition strategy in the US, where it snapped up products including Stacy’s Pita Chip Co. in November 2005 and Naked Juice Co.—giving it protein smoothies and juices to compete with Coca-Cola’s Odwalla brand—in January this year.
Place to be
“They know that wellness is the place to be,” said Mariann Montagne, an analyst with Minneapolis-based Thrivent Asset Management. “Pepsi takes pride in the amount of thought that goes into the decision-making.” Thrivent manages $70 billion in assets, including PepsiCo shares.
PepsiCo bought New Zealand’s Bluebird Foods Ltd, which makes potato chips and granola bars, in January for $168 million.
In June, it joined with a bottler to acquire a controlling stake in Ukrainian juice-maker Sandora Llc. for $542 million to expand the juices to other parts of Eastern Europe.
Two years ago, PepsiCo paid $152 million for Sara Lee Corp.’s European nuts division. It bought Poland’s Star Foods SA last year to add pretzels and corn chips.
PepsiCo may also buy businesses in North America, said Nooyi, who has been with the company for 13 years and took over as CEO in October.
“If an interesting acquisition came up in North America that filled up part of the food pyramid that we’re not significant in, we might do that,” Nooyi said.
In addition to purchases, Nooyi said PepsiCo will develop products at a faster rate. The company on Tuesday said it plans to add a new low-calorie Gatorade sports drink, in addition to new flavours or packaging for Propel and SoBe Lifewater.
Overseas, PepsiCo has added regional flavours of snacks, such as white mushroom Lay’s potato chips in Russia and lentil snacks in India.
“They could buy more products with a strong local following, or distinct regional flavours,” said Bill Schultz, chief investment officer at McQueen Ball & Associates in Bethlehem, Pennsylvania, which holds PepsiCo shares.
“They really have tried to focus on keeping their acquisitions in line with what they’ve done domestically, only overseas.”
PepsiCo has made at least 10 acquisitions of smaller companies since the beginning of 2004, which have helped its sales growth outpace that of Coca-Cola.
Sales of PepsiCo have increased an average of 8.4% over the past five years, compared with 6.5% of Atlanta- based Coca-Cola.
Shares of PepsiCo fell 33 cents to $66.26 Tuesday in New York Stock Exchange composite trading. They have increased 5.9% this year, compared with 10% for Coca-Cola, the world’s largest soft-drink maker.
PepsiCo on Tuesday reported second-quarter profit rose more than analysts estimated on overseas gains.
Net income increased 13% to $1.56 billion, or 94 cents a share, exceeding estimates by 5 cents.
Sales advanced 10% to $9.61 billion, on higher shipments of Lay’s potato chips in Russia and Gamesa snacks in Mexico and beverage sales in China and Europe.
