Pepsi boss calls it a day

Indra Nooyi is stepping down after 12 years as head of PepsiCo. She has kept the company intact – but can her successor? Alice Gråhns reports.

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Indra Nooyi leaves a big question unresolved

Indra Nooyi "is the prototypical globetrotting, Davos-attending chief executive", says Lex in the Financial Times. Yet her position at the helm of $166bn food-and-drink group PepsiCo involves "the trumpeting of, say, Mozzarella n' Marina' flavoured potato crisps". She's done so "with aplomb". This week, Nooyi said that she's stepping down in October, meaning her 12-year stint as "one of America's most visible chief executives" is coming to an end. She'll remain as chairman until early next year.

When Nooyi took the job in 2006, guiding big packaged food and drink companies was simply about "not messing things up". That's no longer the case. During her tenure Nooyi has fought off activists seeking change, as the firm underperformed rival Coca-Cola, notes Lauren Silva Laughlin on Breakingviews. In 2012, for example, hedge-fund manager Nelson Peltz of Trian Partners wanted her to merge with Oreo biscuit maker Mondelez as a precursor to splitting PepsiCo's underperforming drinks unit from its high-growth snacks arm (which sells brands such as Doritos and Walkers crisps). After a two-year battle, Nooyi did neither, arguing that the opportunities for cross-promotion meant that diversification makes sense. She did put Peltz's representative Bill Johnson on the board, but in 2015 effectively triumphed and celebrated the 50th anniversary of Pepsi's merger with snack group Frito-Lay.

The break-up question still hangs over Pepsi

With Nooyi leaving, "two big problems trail in her wake", says Andrea Felsted on Bloomberg. At a wider market level her departure leaves the S&P 500 with just 23 female CEOs, fewer than 5% of the total, and down from 27 last year. At a company level the handover to Ramon Laguarta, who has been with the firm for 22 years, will also have "far-reaching implications". The problem is that the break-up question has not gone away. Sales in PepsiCo's drinks unit, its largest by revenue in 2017, fell last year and in the first two quarters this year as younger consumers seek healthier options. Yet the snack division is growing, with profit margins twice as high as the drinks group Frito Lay North America generates a quarter of group revenue but more than 40% of profit.

Meanwhile, over the past 12 years, PepsiCo's shares have returned roughly 150%, less than both the S&P 500 and Coca-Cola (focused purely on drinks), at more than 190%, notes Laughlin. With Johnson still on the board, Peltz has an opening if he wants to return. It looks as though "Laguarta's tenure may be as consumed with the break-up question as Nooyi's" has been.

Profits slump at private health provider

Spire Healthcare, Britain's second-biggest private healthcare provider, warned this week that its full-year profits would be "materially lower". The share price plunged, wiping a fifth off its market value in a day, notes Ayesha Javed in The Daily Telegraph. Spire warned of rising costs, and also that revenue from the work it does for the NHS which accounts for a third of its turnover had fallen by 9.5% in the first half of the year, as referrals to the private sector decreased, partly due to the relaxation of rules on NHS waiting lists.

The fact that Spire couldn't say exactly how much lower profits would be is worrying, says Matthew Vincent in the FT's Lombard column. And its diagnosis wasn't entirely convincing either. Overall, group revenue only fell by 1.1% to £475m in the first half: "how could that cause an unquantifiable hit to earnings?"

Spire's CEO Justin Ash said that the higher costs should be one-offs to improve quality and training in the hospitals, and that the real issue is knowing whether or not NHS revenues in the second half could make up for this. Some analysts are now cutting full-year earnings by 10%-15%.

It would be "unsurprising" for Spire's share price to fall further from here, says Peter Stephens on Motley Fool.The firm is trying to improve its clinical quality and an increased focus on the private sector could be the boost it needs. But investors may now price in a wider margin of safety and with a number of other healthcare stocks offering stronger prospects, "there could be better opportunities elsewhere".

City talk

Maybe rental office operator IWG "should give its tenants free beer", says Nils Pratley in The Guardian. It worked for WeWork, supposedly worth $20bn as a private company, even though it is loss-making. IWG has been around for 30 years and makes profits. Yet it cannot find a buyer willing to pay even £2.8bn, despite talks with six suitors. The news sent its shares plunging 20%. Yet the moral of IWG's struggle "surely is that the sceptics are right and that WeWork is overvalued".

That Royal Bank of Scotland is now paying dividends again is special, says Robert Lea in The Times. A couple of pennies a share "might not sound much", but it totals £240m, of which £149m will go to the taxpayer (we still own 62.3% of the stock). In effect, RBS has signalled that it "just has too much capital" that it will now pay out. Analysts reckon this wealth pot could be worth £4bn. That makes RBS interesting to investors again the prospect of more gains gives Chancellor Philip Hammond a headache: "Picking a time to exit RBS will be tricky".

Just like the jewels adorning its bracelets, Pandora's profit warnings are "proving pretty collectable", says Andrea Felsted on Bloomberg. In January CEO Anders Colding Friis warned on profits and said the chief financial officer would be leaving. This week he said 2018 revenue would grow by 4%-7%, down from a previous forecast of 7%-10%. Pandora also expects margins to come in at 32%, down from 35%. It gave no explanation for the shift, and as a result the shares slid by 20% and are now down more than 50% over the past year. For now "funds shorting the stock look like they'll be in a better place than those with long positions".

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