PepsiCo to Cut 8,700 Workers

PEP to focus on North American advertising with savings

   
PepsiCo to Cut 8,700 Workers

PepsiCo (NYSE:PEP) certainly has a way with corporate spin. According to a Pepsi press release Thursday morning, the company is focused on “strategic investments to drive growth.”

In plain English, that means layoffs for 8,700 employees in order to increase its ad budget.

According to Pepsico, the company will “increase advertising and marketing support behind its global brands by $500-$600 million in 2012, with particular focus on North America.”

But if you keep reading this press release, you’ll also find that Pepsi is planning on “optimization of operating practices and organization structure, including a reduction in force of about 8,700 employees, about 3% of global workforce.”

With spin like that, maybe the public relations staff is trying to look good in an effort to avoid getting the axe.

PepsiCo stock is admittedly in need of a boost. The company’s five-year return is a measly 3%, compared with 41% for rival Coca-Cola Co. (NYSE:KO). Short term performance is also lackluster, with PEP stock lagging the broader Dow Jones Industrial Average in the last 12 months.

Competition from Coke isn’t the only problem. Energy drink giant Monster Beverage Corp (NASDAQ:MNST) and smaller soft drink purveyor Dr. Pepper Snapple (NYSE:DPS) are on the ups while Pepsi has lagged.

But let’s not forget that Pepsi is also a global foods giant, with brands that include Lays potato chips and Quaker oats. Even if you concede Pepsi has to cut costs — which isn’t exactly obvious, considering eight straight quarters of year-over-year revenue increases — this makes the focus on U.S. advertising a bit of a head scratcher.

Consider that snack food giant Kraft (NYSE:KFT) recently announced a shakeup in operations, splitting out Kraft global snack food operations into a separate business from its grocery store staples like mac & cheese in order to address the specific challenges of each segment. The focus on North American advertising makes it appear that Pepsi isn’t going to use these cuts to capitalize on emerging market growth like Kraft and others — but that it’s digging in back home in the U.S.

We’ll have to wait and see for more details on the layoffs to emerge, and updates on Pepsi’s strategy. Judging by this cryptic press release that tries to hide the job cuts, it’s unlikely we’re going to get any specifics in the immediate future.


Article printed from InvestorPlace Media, http://investorplace.com/2012/02/pepsico-to-cut-8700-workers/.

©2014 InvestorPlace Media, LLC

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