CEOs don't handle the day to day grind of a company, they think about the big picture. That's what PepsiCo (PEP 1.57%) CEO Ramon Laguarta was focused on in the second half of 2024. Two big announcements highlight the potential for the future at this giant consumer staples company and show why Dividend King PepsiCo has been such a strong competitor for so long.
What news did PepsiCo serve up?
PepsiCo's namesake is a soda. While beverages are a very important part of the company's business, it is not the only one that investors need to watch. In fact, it might not even be the most important. PepsiCo is, after all, number two in beverages but a solid number one in salty snacks with its Frito Lay business. It was Frito Lay that offered the biggest news in the back half of 2024.
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The most recent announcement was PepsiCo's acquisition of the 50% of Sabra that it didn't already own. Sabra makes dips and spreads, which you could classify as packaged foods (where PepsiCo competes via its Quaker Oats business), but which probably fits more closely with salty snacks. Sabra is best known for its namesake hummus, however PepsiCo is likely to invest heavily in innovation and try to expand out into new areas with the well-recognized brand.
At $400 million, the Sabra deal isn't a huge one for a consumer staples giant like PepsiCo, but it does offer solid growth opportunities. A bigger transaction was announced a few months before the Sabra deal, when PepsiCo agreed to buy Siete Foods for $1.2 billion. Siete is a Mexican-American brand that makes products that range from chips to packaged foods, hitting multiple areas of the PepsiCo portfolio. The growth opportunity here is probably larger than the one provided by Sabra given that PepsiCo can expand Siete's reach by simply plugging the brand into its vast distribution network. Innovative new products and brand extensions will add to that opportunity over the longer term.
PepsiCo is building for the future
To be fair, PepsiCo isn't hitting on all cylinders today. And investors are reacting as you might expect, by selling the stock. Now off by around 25% or so from its all-time high in 2023, PepsiCo stock is in its own personal bear market. The dividend yield, notably, is near the highest levels in recent history at around 3.8%. In many ways the stock looks like it has been placed on the deep discount rack.
Here's the thing, PepsiCo is a historically well run company. That fact is highlighted by its status as a Dividend King, with 52 consecutive annual dividend increases. You don't build a record like that by accident, it requires consistently strong performance in good periods and bad ones. That last bit is the important part when you think about the Sabra and Siete acquisitions. Despite the headwinds PepsiCo is facing right now it is still investing for the future.
If history is any guide, PepsiCo will shift as needed to get its existing business back on track. That's what good companies do. Exceptional companies, meanwhile, take the additional step of always (no matter what is happening) looking for ways to grow over the long term. That's what PepsiCo's CEO was doing when he green lighted the Sabra and Siete deals. These transactions also highlight another important fact about PepsiCo, it has the financial strength and size to act as an industry consolidator. That means it doesn't have to create everything from the ground up, it can snatch up "good ideas" via acquisitions like the ones that were just announced.
PepsiCo is a long-term investment
There are good reasons why PepsiCo's stock is in a funk right now, highlighted by relatively weak financial results. That happens to even the best run companies from time to time. The big story here is that, despite the tough stretch, PepsiCo is still working to position itself for long-term growth. If you are a long-term investor, given the historically high yield on offer, you might want to consider adding PepsiCo to your portfolio today. While the earnings news isn't fantastic, the acquisition news is pretty darn exciting.
