PepsiCo Inc.'s (PEP) incoming CEO will face several key issues when he takes the reins in October, according to analysts following the company.
Among them are how to rekindle growth in the North American beverages unit and ultimately whether to spin off the beverage business from the company's more dynamic snacks division.
Ramon Laguarta, 54, will succeed Indra Nooyi as CEO of the beverage and snack giant in October, the company announced Monday.
Laguarta has been president of the company since last September and previously oversaw the company's European and sub-Saharan Africa operations.
Analysts said Laguarta is assuming the helm during a pivotal period because the company faces the challenge of changing consumer tastes as its snack division assumes greater importance in driving growth. Frito-Lay North America operations accounted for $15.8 billion in revenue in 2017, up slightly from the year before. North America Beverages revenue fell slightly in 2017, to $20.9 billion.
J.P. Morgan analyst Andrea Teixeira said Nooyi defended keeping Pepsi's food and beverage lines together, but activist shareholders might push Laguarta to spin off the businesses. "We think whether or not investors push for this type of change will be dependent on whether or not Pepsi can alter the trajectory of its North American Beverage business," Teixeira wrote in a note Monday.
Pepsi recently offered some positives on that score.
New Gatorade and Mountain Dew products are expected to drive higher sales in North America, executives told J.P. Morgan in July, according to the note. "We believe there is a clear change of tone for the North American operation." Teixeira wrote.
Dara Mohsenian, an analyst for Morgan Stanley, wrote Monday that the announced succession plan should drive a positive reaction in PepsiCo stock because of rekindled discussions of a possible breakup of the company.
Mohsenian set a price target of $127 for PepsiCo stock based on better North American beverage sales in the second half of the year and some continued innovation.
"We also see greater strategic options than peers, on top of greater long-term pricing power," Mohsenian wrote.