PepsiCo Inc. shares fall following drinks business split rejection

February 14, 2014 10:22 am

PepsiCo Inc.’s shares fell on Thursday after the soft drink maker announced that the company would not separate its drinks business in spite of the declining soda market in the U.S. and activist investor pressure.

The announcement of PepsiCo Inc. that it would increase its shareholder capital returns by 35% to 8.7 billion dollars in 2014 and extend its cost-cutting failed to consolidate the confidence in the company, pushing down PepsiCo’s shares by more than 2 percent on Thursday.

PepsiCo is currently considered as the second largest soft drinks manufacturer by market share in the world. The company was reported to have rejected the call from its activist investor Nelson Peltz to separate its drinks and snacks businesses. PepsiCo Inc. explained that it would “maximise shareholder value” by keeping the units working together.

Tom Mullarkey, who is one of the analysts working for Morningstar, said that this decision has long been expected, but the company’s share price decrease may indicate disappointment with Pepsi’s insistence on its “power of one” strategy.

As reported by the Financial Times, Ali Dibadj, who is working for Bernstein Research said that the main issue was “a broader industry concern” as drinks manufacturers grapple with changing consumer tastes.

Some analysts also underscored the fact that the company’s core earnings expected in 2014, which are estimated to 4.50 dollars, are well below Wall Street analysts’ forecasts of 4.69 dollars, which is considered a source of great disappointment for the company’s investors.

PepsiCo Inc. said for the Financial Times that unfavourable foreign exchange rates would cut 4 percentage points from core profit growth in 2014. The company also projected a 7% rise this year, which trails the low-end long-term “high single-digits” target.

JPMorgan’s John Faucher said for the Financial Times: “The cash return and productivity helps, but probably not enough to get the stock up today.”

PepsiCo Inc. fell by 2.21% on Thursday in New York and settled the session at $79.69, marking a one-year change of +11.45%. According to CNN Money, the 13 analysts offering 12-month price forecasts for PepsiCo Inc. have a median target of $89.00, with a high estimate of $95.00 and a low estimate of $84.00. The median estimate represents a +11.68% increase from the last close.

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