22 Jul

PepsiCo Eyes Growth in Africa with Pioneer Foods Acquisition

WRITTEN BY Sharon Bailey

On July 19, PepsiCo (PEP) announced that it had agreed to acquire South Africa’s Pioneer Foods Group for 110 South African rand per share, or about $1.7 billion. Pioneer Foods manufactures food and beverage products. It owns popular brands such as Weet-Bix, Liqui-Fruit, Ceres, Sasko, Spekko, Safari, and White Star.

PepsiCo expects to complete the acquisition in the first quarter of 2020.

The rationale behind the acquisition

PepsiCo’s acquisition of Pioneer Foods will help it expand its presence in South Africa, particularly in sub-Saharan Africa.

On its fourth-quarter earnings call, PepsiCo said that accelerating its international expansion was one of its three strategic priorities. Its other two priorities are improving its North America Beverages business and investing in its Frito-Lay North America business to sustain its leadership.

PepsiCo has a presence in over 200 countries. In 2018, its international operations accounted for about 43% of its overall revenue. The acquisition should help PepsiCo leverage Pioneer Foods’ manufacturing and distribution capabilities and go-to-market network to strengthen its business in sub-Saharan Africa.

Pioneer Foods’ various food offerings should also help PepsiCo better understand local tastes and preferences so it can expand its product portfolio.

The Coca-Cola Company (KO) has made several acquisitions recently. The most notable was its acquisition of British coffee company Costa for $4.9 billion. Its other deals included its acquisition of Australia’s Organic & Raw Trading and its purchase of a stake in sports drink brand Bodyarmor.

PepsiCo enhanced its product portfolio with its acquisition of SodaStream in 2018. The company acquired the manufacturer of at-home sparkling water makers for about $3.2 billion.

PepsiCo’s recent performance

PepsiCo surpassed analysts’ revenue and earnings expectations in the second quarter. The company’s second-quarter revenue rose 2.2% to $16.45 billion on a reported basis. Its organic revenue rose 4.5% driven by growth across all its geographic regions.

The company’s second-quarter adjusted EPS of $1.54 surpassed analysts’ estimate of $1.50, but its second-quarter adjusted EPS fell 4.3% year-over-year. Rising commodity costs and higher advertising expenses dragged its adjusted EPS down.

Coca-Cola is scheduled to announce its second-quarter earnings results on July 23. To learn about the expectations for the beverage giant’s results, read Will Coca-Cola’s Q2 Results Beat the Expectations?

YTD movement

On July 19, 14 out of 23 analysts had “hold” ratings on PepsiCo, and eight had “buy” ratings on its stock. Only one analyst gave it a “sell” rating.

On July 19, PEP was up 17.7% YTD (year-to-date). It was ahead of the 8.5% YTD rise in Coca-Cola stock. However, both stocks lagged the S&P 500’s rise of 18.7% YTD.

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