PepsiCo recently finalized a substantial $1.2 billion purchase, deviating from its traditional focus on fizzy drinks.
After a decade in business, the Garza family sold their company Siete Foods to financial giant PepsiCo for a cool $1.2 billion. While this deal might not seem noteworthy for Pepsi, a purchase over a billion bucks is always something to keep an eye on.
The shocker here? Siete Foods doesn't produce a single beverage, much less a carbonated one. Instead, this company specializes in offering grain-free and dairy-free choices in the Mexican-American food market.
This purchase fits well with Pepsi's recent acquisitions of Sabra and Obela in November. Although Pepsi already owned half of both ventures, they went ahead and bought the remaining shares, expanding their food portfolio even further.
Pepsi's focus on food may catch some investors off guard, but it's been a wise move for years now. In fact, food products account for a considerable chunk of Pepsi's revenue. Over the past year, they've generated over $90 billion, with snacks and food in North American markets bringing in nearly as much as beverages.
Let's not forget that food is where the real money lies for Pepsi. Their North American Frito-Lay division alone accounted for 39% of their Q3 operating profit, while the North American beverage division only managed 24%. Even Pepsi's small Quaker Foods division in North America boasted a Q3 operating margin of 15%, compared to the beverage division's meager 8%.
It's no wonder, then, that Pepsi is actively seeking food companies to add to their portfolio. It's good business, and with Siete's diverse, health-conscious offerings, they're bound to see success.
But what about investing in Pepsi stock? Well, returns have been steady but unspectacular, averaging just a 7% annual gain over the past decade. However, that's not to say there aren't merits to investing in Pepsi.
Their diverse and beloved product portfolio makes them one of the safest investments around. And right now, with their stock price on the downturn, it's a better time than ever to jump on board.
Pepsi's P/E ratio of 22 is lower than its 10-year average, and their dividend yield is currently over 3.5%, making them an attractive option for investors looking for a reliable income stream. Plus, with 39% of their revenue coming from international markets, there's potential for growth as these markets continue to develop.
In conclusion, Pepsi is investing in food companies because food is earning them better margins than beverages. While they might not see the same explosive growth as start-ups, their focus on profitability and solid investments means they're likely to continue making money in the long run.
And when it comes to investing in Pepsi, despite their average returns, many would argue they're a goldmine for stability and income, making them a worthwhile addition to any portfolio.
This significant acquisition of Siete Foods by Pepsi further expands their focus on finance and investing in the food sector, as they aim to generate more revenue from grain-free and dairy-free choices in the Mexican-American food market. With food products accounting for a significant portion of Pepsi's revenue and their diverse product portfolio offering stability, investing in Pepsi stock could provide a reliable income stream, especially considering their lower P/E ratio and attractive dividend yield.
