Good companies pretty much stay the same. Maybe they do a small acquisition here or a tiny buy there. And then there are companies like PepsiCo (PEP) that do not hesitate to shake things up, so to speak, as Pepsi today is selling Tropicana and Naked beverages for $3.3 billion to a French private equity firm.
I was dumb founded initially on this one. Tropicana is a storied brand with lots of aisle space in every supermarket, perhaps a reason they kept a 39% stake in the combined company.
But my ears perked up and my eyes opened when I spoke to the very smart CFO, Hugh Johnston, about the shuffle. He first told me that the Tropicana brand had grown a bit out of style. There was a moment of hilarity when he asked me if I knew anyone who still starts the day with a glass of Tropicana juice and I said, "every day, I never miss." But I quickly followed with something even I knew: there's a huge amount of sugar in a bottle of Grapefruit juice and that, itself, has gone out of style in favor of Rockstar and Mountain Dew energy drinks, the later of which I am a huge consumer. Mountain Dew Rise, with few calories and the caffeine of two cups of coffee, has become a staple to get me going for my 4 a.m. workout.
PepsiCo's real secret isn't that it knows how to shuffle, so do slow-growers like Kraft Heinz (KHC) or Kellogg (K) . It's that it knows how to innovate. It's got drinks that are much better for the younger consumer who can buy PepsiCo drinks for the rest of his or her life if they are nabbed early.
My Tropicana obsession is a dying out addiction, one that doesn't' fit in with Rockstar, or for that matter Soda Stream, the soda without a bottle that thrives in Europe and will do so here as we come to realize that plastic is NOT a necessary evil.
It's all about trying to keep PepsiCo on a roadmap for 5% growth or more and cutting loose of Tropicana, while not major for a gigantic snack and beverage company, just didn't fit in anymore.
That's how you end up with a shareholder friendly company with a nice almost 3% yield and steady eddie growth.
Who else is always pruning, buying and growing brands? They aren't easy to find even as many will claim they do so. I like McCormick (MKC) , the spice company which has been very aggressive in its acquisitions, given you 9.5% net growth and has given you a four bagger over the last decade.
Or Hormel (HRL) , which has given you an 11% growth rate over the last five years and almost a four bagger during that same period of time we use to measure McCormick.
And then there is Constellation (STZ) , the beer and spirits company that has an astounding five year growth rate of 17% and a stock that gone from $17 to $221 over the last decade. It's secret? A willingness to aggressively shuffle the portfolio and to take on Modelo and Corona when the Justice Department forced the combined Anheuser Busch Inbev (BUD) to sell the American rights to them in 2013. You could say they were lucky but there was no surety that the $5.2 billion acquisition would work out.
To me these companies don't get stuck in a rut. They are always innovating and, if necessary, buying. I think you could do the same with all three.
