Are Pepsi Results Enough to End Peltz’s Split Call?

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July 23 (Bloomberg) -- Bill Schmitz, analyst at Deutsche Bank Securities, talks with Erik Schatzker about second-quarter results from Pepsi as the company raised its annual forecast on a reduction in costs and looks at whether the strong quarter is enough to squash calls from activist investor Nelson Peltz to split up the company’s businesses. He speaks on “Market Makers.” Schmitz, his family and firm, do not own shares of PepsiCo, but PepsiCo is an investment banking client of Deutsch Bank Securities, which received non-investment banking compensation from PepsiCo in 2014.

Margin expansion at pepsi.

Is that enough for indra nooyi to silence the critics that might side with nelson peltz?

I do not think so.

He has made it clear that he is in it for the long haul.

He has his mind made up.

Nelson peltz might not be quiet, but the folks that he needs to persuade to go along with him are listening to his story on the one hand, and looking at the numbers that noo yi is delivering on the other.

Is she offering enough?

Look, this will be a great set of results.

It is only one quarter and he has some broader point about having the benefits of a beverage and snack business together.

It is one battle in a long war, and like i said, he will continue to press pepsi shareholders.

It is probably not enough to get him to walk away, or the people that he needs to influence.

Does he have a point?

Would pepsi be a better company if it were two companies -- food on the one hand, beverage on the other?

I do not think so.

First of all, if you separated the business, it would result in additional cost of 800 bill -- $800 million to $1 billion.

Talking about activist investors broadly, it is actually a win-win for pepsi investors and even for indra nooyi and the board because as long as he is hanging around the net, you have downside support and there's pressure on the company to do it better and faster, which they might not otherwise feel the urgency to do it he was not sticking around.

Better and faster is something every investor would like.

What is going to satisfy, again, all those other people?

I'm not sure, because pepsi have such a big foodie business, it is probably not fair to direct it direct -- and.

Directly with coke, -- compared it directly with coke, but i was looking at the margins.

Coke is 25%. can pepsi do anything to approach that number?

Probably not.

We can go into the subtleties, but because coke is much more of a soft drink business, fundamentally, unless pepsi made some pretty draconian changes to their business model, it is almost mathematically impossible to approach coke's margin structure.

Taccone and is a good use -- good -- draconian is a good word to use.

At what point do the cost cuts begin to become taccone and and hurt the business more than they help -- draconian and hurt the business more than they help?

The changes they embarked onto a half years ago was driven by an activist shaking things up, and the money they are saving, it is now a gadget putting it at the bottom line -- it is not like they aren't eating it to the bottom line.

After hearing the apple guys beat, -- the cat should -- speak, it is not like they're just cutting costs and uploading to the bottom line to drive earnings.

They are trying to reinvest a decent portion of the savings back into the business, and on a relative basis, it is working.

If you look at their market share trends, in most markets, especially the food side, they looked pretty healthy.

In what category, bill, do you think you see those investments delivering those overtime?

It is probably doritos.

It kind of sounds silly because you look at health and wetness -- wellness, and you look at fritos and doritos.

The salty snack business is almost like a wholemeal or place an alternative.

You are starting to see it.

That business in the u.s. and internationally.

Food is local, and it has not globalized yet, but as you have urbanization in emerging markets and people go from agrarian type of occupations to more office-type -- service type jobs, they have less time, so the snacking behavior taking for granted in the u.s. is starting to emerge in a lot of these fast-growing developing markets.

Will that mean that one year or two years from now we will see food account for an even greater percentage of pepsi's revenue than the two thirds it accounts for now?

It is about half right now.

Trend-wise, the snack business should grow dramatically faster than the beverage business, as it is done for the last three or four years.

Bill, t were very much.

This text has been automatically generated. It may not be 100% accurate.


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