With the local currency now hovering at about R16 to the greenback, it might be a good time to grab some top-quality and consistently yielding rand hedge stocks to shore up long-term investment portfolios. One stock that offers food for thought is consumer brands giant PepsiCo, which is undergoing a period of introspection and contemplation to see how it can extract more value from its business.
The company has just reported fourth-quarter 2025 numbers, and while the results were decent enough, with some signs of a turnaround emerging, the weakening dollar helped carry the load. The international business — remembering PepsiCo bought South African consumer brands business Pioneer Foods for R26bn in 2020 — posted strong results, helped in part by foreign exchange translation and better growth than the domestic US operations.
The core US food and beverage divisions were sluggish, which has been the case for some time now. The impact of cost inflation and the cost of living squeeze, particularly in the US business, has crimped revenue and earnings growth and forced the company to re-evaluate its operations. Despite the muted operational and financial performance, PepsiCo guided to a 4% dividend increase in financial 2026, which would be its 54th annual increase — a track record to be aware of, considering the rand’s strength at the moment.
One of the key differentiators between PepsiCo and rival Coca-Cola is that PepsiCo manages a lot of its bottling and distribution internally, whereas Coca-Cola has long since exited that function in favour of focusing purely on marketing and brand building. One possibility is for PepsiCo to do the same. Given the complex nature and high capital expenditure requirements of handling bottling and distribution in-house, and given that its competitor has shown how it can be outsourced, it could be an option to spin off PepsiCo’s bottling operations to unlock value for shareholders. The company doesn’t have plans for it yet, but activist investor Elliott Investment Management, which took a $4bn position in PepsiCo in late 2025, believes this is a lever the company should pull. So, it’s a case of “watch this space”.
The core US food and beverage divisions were sluggish, which has been the case for some time now
CEO Ramon Laguarta says engagements with Elliott have been constructive, and PepsiCo management has taken on board some of Elliott’s feedback regarding the broader future strategy. But for now bottling will remain an in-house operation.
PepsiCo has half its business in food and snacks. Frito-Lay is its marquee brand in its food and snacks stable, but input cost pressures and the trend towards more health-conscious alternatives have put it under pressure. PepsiCo has been raising prices to offset cost pressures, but these price increases are starting to affect performance as consumers balk at price points for products they feel should be cheap.
PepsiCo is now looking to cut prices or limit increases, and is trying to make up for the margin on volumes. It is also looking at smaller pack sizes to offer lower price points, and some “shrinkflation” is happening. It is also conducting a brand and product review across its whole portfolio to consolidate around more of its core brands and recycle capital in both productivity initiatives and marketing spend.
Some thinning of its product offering was already evident in the past quarter, and this is expected to continue as the company moves into 2026 and 2027. PepsiCo might be taking a lesson here from Unilever, which is seeking to offload a significant portion of the brands under its control to become a more streamlined business, focused on allocating capital to what it has identified as key strategic brands.
PepsiCo trades at a discount to Coca-Cola, but it feels as if there are a lot more self-help opportunities and strategy levers it can pull in its business over the next few years to try to close that valuation gap. The gap will be closed by better earnings growth and returns on capital; the current strategy has that at its core. Elliott’s presence should ensure that management and the board keep a sharp eye on unlocking shareholder value — quickly.
Running alongside these operational and strategic initiatives is a high-quality global business with a long-term track record of dividend payments. The company also has a share buyback programme.
For investors scanning for rand hedge shares over the long term with a decent chance of some earnings and valuation upside, PepsiCo might be one to run the rule over.
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