Under pressure

Coke gives Pepsi a breather in activist fight

Coke's flat performance is giving PepsiCo boss Indra Nooyi a breather. Growth in snacks helped salvage the second quarter for her. Weak North American soda shipments, though, dragged more heavily on her competitor. It buys time for Nooyi, who faces growing pressure to give a board seat to activist Nelson Peltz.

A decent performance in Lays and Doritos chips helped mask weak growth in Pepsi's drinks business in the three months to June. The company also raised its full-year guidance on Wednesday, which injected a three per cent fizz into the shares. Meanwhile Coke's stock slipped a similar amount on Tuesday morning after it unveiled disappointing North American beverage volumes. For now, these growth struggles are a useful foil for Nooyi. Pepsi's stock price has outperformed its rival's by about 11 percent since Peltz started agitating for a breakup of Pepsi last July, according to Thomson Reuters data. Both, though, have undershot the broader S&P 500 Index.

Pepsi's numbers cushioned the blow delivered by the California State Teachers' Retirement System. Just ahead of earnings, the Financial Times reported that the influential pension fund, which owns a small stake in Pepsi, had asked the company to put Peltz on the board.

The improved performance, however, does not refute the uppity investor's argument that shareholders would be better off if the company separated snacks and soda. On 19 times forward earnings, Pepsi still trades at a slight discount to Coke's almost 20 times multiple, despite its lower exposure to the shrinking US fizzy drinks market. Granted, pumped-up stock prices mean it's hard for Peltz to make a slam-dunk case for a breakup. The shares might not rise enough to justify the disruption. But he's got a point that splitting up Pepsi would create two better-focused companies. So far, Nooyi, despite last quarter's better showing, has yet to prove that she has a powerful counterargument.