PepsiCo's BFY Brands Buyout to Expand Snacking Portfolio

PepsiCo, Inc. PEP intends to acquire BFY Brands, the maker of PopCorners snacks. After the completion of the deal, BFY Brands will report under the company’s Frito-Lay North America division. The transaction is subject to customary conditions and approvals, including regulatory.

The addition of BFY Brands will enhance Frito-Lay's snacking portfolio with more nutritious options. Per PepsiCo’s management, BFY Brands deals with unique products that have great taste and ingredients. BFY Brands’ production capabilities will support the growth of PepsiCo’s existing, more-nutritious snack brands.

PepsiCo has the competitive advantage of selling both snacks and beverages, which are complementary food categories. The complementary portfolio results in cost leverage, capability sharing, cross-category promotions and other commercial benefits. Notably, the company holds the number one position in the global snacks market with popular brands like Doritos, Cheetos and Lay’s. Just over half of PepsiCo's sales come from snacks, while the remainder is contributed by beverages. The company’s strong and growing snacks business has largely made up for its sluggish beverages business in the past several quarters.

The Frito-Lay North American snacks business has delivered consistent solid performance over the last four years. Notably, Frito-Lay is growing value share in salty, savory and macro snack categories. Investments in innovation, marketing, consumer insights and manufacturing capabilities in this segment have led to strong revenue growth for its mainstream brands like Doritos, Cheetos, Ruffles and Fritos. Additionally, it drove double-digit growth for its smaller premium brands such as Bare and Off the Eaten Path.

Gaining significant share in the snacking market, PepsiCo’s Frito-Lay North America business reported core constant-currency operating profit growth of 4% and organic revenue growth of 5.5% in third-quarter 2019. Moreover, organic snacks/food volume increased 1% in the third quarter. This segment is likely to continue delivering strong sales and profits as the demand for savory snacks is rising.

In the past six months, shares of this food and beverage bellwether have increased 5.3%, outperforming the industry’s growth of 1.7%. PepsiCo currently carries a Zacks Rank #3 (Hold).

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