Bridgewater Associates' new positions in 4Q 2013: Important points

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Part 2
Bridgewater Associates' new positions in 4Q 2013: Important points PART 2 OF 7

Why Ray Dalio’s Bridgewater Associates opened a position in Pepsi

Bridgewater Associates and PepsiCo

PepsiCo Inc (PEP) is a global food and beverage company and it’s a 0.19% new position in Bridgewater’s ~$12 billion long portfolio.

The company’s shares fell 3% recently, after PepsiCo reported earnings that beat estimates but missed on revenue. Excluding charges and other items, earnings were $1.05 a share—more than the $1 a share analysts expected. Revenue rose 1%, to $20.12 billion. For the full year, the company reported revenue up 1%, to $66.4 billion. In 4Q 2013, Pepsi’s snacks division saw 3% growth in volume and generated $7.9 billion in revenue. Beverages increased 1%, adding $12.2 billion to the company’s overall revenue.

Why Ray Dalio&#8217;s Bridgewater Associates opened a position in Pepsi

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The company has seen pressure to spin off its struggling North American beverages business in favor of its profitable snack unit that comprises the brands Lay’s, Cheetos, and Doritos, especially from activist investor Nelson Peltz of Trian Fund Management. Soda sales have been witnessing a decline in North America as more health-conscious consumers opt for low-calorie and non-carbonated beverages such as juices and health drinks. The company is also facing competition from its biggest rival, Coca Cola (KO), and Dr Pepper Snapple Group (DPS). Peltz was also pushing PepsiCo to merge with Oreo cookie maker Mondelez International (MDLZ), but he abandoned that plan after being given a seat on Mondelez’s board last month.

Trian said in a presentation last year:

  • “We believe PepsiCo is at a strategic crossroads as secular forces ranging from changing consumer tastes  to the increased importance of emerging markets have changed the outlook of PepsiCo’s key businesses. Management’s plans (increased advertising and marketing spend, the hope of “disruptive” carbonated soft drinks (CSD) innovation, and productivity initiatives that have not hit the bottom-line) are unlikely to be game-changers long-term.”

But Pepsico rejected the proposal and reiterated that it plans to retain its beverage unit, and expects to introduce naturally sweetened, lower-calorie beverages that might revive sales of soft drinks. The company said on the earnings call that following an “exhaustive analysis and review,” it believes North American beverage unit “creates value and is optimized within PepsiCo’s structure today.”

The company initiated a new five-year $5 billion productivity program (2015–2019) by accelerating investment in manufacturing automation, further optimizing the company’s global manufacturing footprint, including closing certain manufacturing facilities, re-engineering go-to-market systems in developed markets, expanding shared services, and implementing simplified organization structures to drive efficiency.

Why Ray Dalio&#8217;s Bridgewater Associates opened a position in Pepsi

The Doritos and Tropicana creator also announced a 15% increase in its annualized dividend, to $2.62 per share from $2.27 per share, to take effect with the June 2014 payment. It also anticipates increasing share repurchases in 2014, to approximately $5 billion. Combined, these programs are expected to return a total of $8.7 billion to shareholders in 2014—a 35% increase from 2013 levels.

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