An eye on the future is all well and good, but Wall Street will pay relatively little for it if they fear that near-term execution will suffer as a result. Although PepsiCo's (NYSE:PEP) decisions in recent years to prioritize healthier foods may make sense in a world increasingly hostile to sodas and salty snacks, the fact remains that many analysts and investors are much more concerned about the the pace of share erosion today. Although PepsiCo's restructuring efforts announced with fourth quarter earnings are logical, there's a real risk that it's too little, too late.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Q4 On Target
PepsiCo didn't deliver too many surprises for the fourth quarter. Revenue rose 11% as reported and slightly surpassed the averaged analyst estimate. Real growth was more on the order of around 9%, though, as an extra week and foreign exchange both impacted reported results.

Overall beverage volume growth of 3% was OK, but nothing special relative to what Coca-Cola (NYSE:KO) reported a couple of days before. Global snack volume of 8% wasn't bad, though. Looking at the segments, Frito-Lay was pretty solid, while Quaker Foods and the beverage business were both soft.

Gross margin fell more than two points as reported, while GAAP operating income was up just 1%. Division operating profits were up 7%, though, and adjusted operating income rose 11%. All in all, PepsiCo basically did what was expected on profits. (For related reading, see Analyzing Operating Margins.)

The New Plan - Does It Go Far Enough?
Wall Street has been waiting to see something dramatic from PepsiCo management as it pertains to reigniting growth. After all, PepsiCo has been losing share in sodas (some to Coca-Cola, some to private label companies like Cott (NYSE:COT), juices (to Coca-Cola, Kraft (NYSE:KFT), and several others), and snack foods (mostly to private labels) for a couple of years.

The question is whether this plan solves PepsiCo's problems.

Arguably, the key to success lies in the plan to increase marketing spending by a range of $500 million to $600 million in 2012, with incrementally higher marketing spend (as a percentage of sales) in the years following. Much of this will be focused on North America, with attention paid not just to advertising but also on in-store presentation and distribution routes.

That sounds nice, and it is, but it's a strategy that may fail to deliver the hoped-for results. Coca-Cola can easily match any incremental spending in beverages. Likewise, Kellogg (NYSE:K), ConAgra Foods (NYSE:CAG) and Kraft (post-stock split) can certainly respond with marketing investment of their own if this proves to really drive any share back towards PepsiCo.

To pay for this plan, PepsiCo is also launching a thee-year $1.5 billion "productivity plan" that will include employee firings, facility consolidations and improved/streamlined internal systems.

Unfortunately, this plan may not drive all that much improvement in long-term performance. It doesn't seem to address PepsiCo's relative overseas weakness (in comparison to Coca-Cola or Kraft, at least). It also doesn't address a model that arguably makes less sense as time goes on - companies like Kraft, Sara Lee (NYSE:SLE) and Ralcorp (NYSE:RAH) have recently announced/launched splits or spin-offs and it's unclear at present whether all of PepsiCo's pieces really fit together (particularly Quaker). (For additional reading, see Understanding Stock Splits.)

The Bottom Line
PepsiCo is far from a bad business; it's just not as good as it could be when you compare it to companies like Coca-Cola or Kellogg. Unfortunately, I suspect that this latest strategic investment plan is not going to fire up the shareholder base, nor ease the pressure on management to deliver better results here and now.

PepsiCo is modestly undervalued now, but not so much so that I'm interested in owning it. It's admittedly hard to find consumer goods stocks that are both better and cheaper, and the PepsiCo dividend is pretty attractive, but I'd rather pay too much to own Kellogg or Coca-Cola. (To learn more, check out Valuing Large-Cap Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Stephen Simpson did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  2. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  3. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  5. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  6. Professionals

    What to do During a Market Correction

    The market has what? Here's what you should consider rather than panicking.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  8. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  9. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
  10. Stock Analysis

    The Safest Stocks You Can Invest in Right Now

    These stocks are likely to hold up better than others in a bear market, but there's a twist.
  1. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  2. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  3. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  4. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  5. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
  6. Impact investing

  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!