In line with its strategy to shift toward healthier options, PepsiCo Inc. (PEP - Free Report) will acquire Bare Foods, a U.S.-based maker of baked fruit and vegetable snacks. No terms of the deal were disclosed.
The addition of Bare Foods’ fruit and vegetable chips will expand Frito-Lay’s better-for-you snack offerings.
Also, Bare Foods’ baked crunchy fruit and vegetable assortments resonate well with current consumer preference. Bare Foods products are Non-GMO Project verified and come with clean labels.
Performance with Purpose
The decision to add this organic food maker is well in line with PepsiCo’s Performance with Purpose initiative, which aims to increase healthier food options in PepsiCo’s portfolio.
"For nearly a dozen years, PepsiCo has been committed to Performance with Purpose, our vision of making more nutritious products, while also reducing added sugars, salt and saturated fat. Bare Snacks fits perfectly within that vision," states Indra Nooyi, chairman and chief executive officer of PepsiCo.
Notably, PepsiCo’s recent efforts toward innovation in snacks focus on higher-margin healthy and premium offerings, since there is a definitive market for such products now. Nutritional products have increased the percentage of the company’s total portfolio from 38% in 2006 to 50% in 2017. This percentage is likely to increase considering the company’s rapid innovation and focus on adapting to changing consumer preferences.
Moreover, PepsiCo has augmented its beverage portfolio to include more non-carbonated beverages to reduce dependence on colas. As of Mar 24, 2018, PepsiCo increased the volume mix of non-carbonated beverages by 7 percentage points since 2010. The company has been growing its value share in a number of its fastest-growing categories including tea, enhanced water and sparkling water. Meanwhile, tea portfolio under Lipton and Pure Leaf has driven retail sales in the range of mid-single digits to as high as 21% over the past 17 quarters.
Changing demographics and purchasing behaviors make it essential for PepsiCo and other food as well as beverage giants like Coca-Cola Company (KO - Free Report) , Monster Beverage Corporation (MNST - Free Report) and Dr Pepper Snapple Group, Inc. (DPS - Free Report) to understand and capitalize on main consumer insights that identify growing trends. Health awareness has been a prime concern for consumers in recent times. Capitalizing on this trend can prove to be beneficial for any food and beverage company.
PepsiCo’s shares have lost around 16% year to date, compared with the Zacks Soft Beverages industry's decline of 11.2%. Also, earnings estimates have moved downward by 1 cent for 2018 and 2 cents for 2019 in the last 30 days.
Nevertheless, we believe that the company’s new product lineup consisting of healthier options, productivity improvement and cost-saving initiatives should boost profits and the stock’s performance in the upcoming quarters.
PepsiCo carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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