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Why PepsiCo might finally sell Quaker Foods

Quaker Oats products in round, red and white containers sit on a shelf.

Photo: Daniel Harvey Gonzalez/In Pictures via Getty Images

Following its sale of the Tropicana juice business to PE firm PAI Partners, PepsiCo's next step may be to sell Quaker Foods, industry sources tell Axios.

Why it matters: CPG conglomerates are aggressively streamlining their portfolios to focus on their biggest brands, growth, and margins.

Flashback: After the beverage and snack giant's deal to buy Quaker Oats to gain control of Gatorade closed in 2001, it considered selling off the food business, but the prospective deal was considered too complicated.

Details: The sale of Tropicana shows current CEO Ramon Laguarta isn't afraid of complicated divestitures.

  • Post extraction, the juice business continues to share a direct store delivery (DSD) distribution network with PepsiCo, industry sources note.

Zoom in: Quaker is a hodge podge of brands that scream divestiture, and PE has historically been a buyer in the sector.

  • Brands include Pearl Milling Company, which is the rebranded pancake and syrup brand Aunt Jemima, as well as Cheetos Mac'N Cheese, Cap'n Crunch and Life cereals, and Rice-A-Roni and Near East side dishes.
  • PepsiCo could retain strategically relevant products like granola bars and rice snacks and fold them into Frito-Lay.
  • Laguarta has acknowledged that while PepsiCo overall wants to make its products healthier, it's in the business of selling sugar, salt and fat.

By the numbers: Quaker is reasonably profitable based on $2.2 billion in net revenue and $452 million in operating profit for the 36 weeks ended Sept. 9.

  • Its revenue, however, is dwarfed by PepsiCo and Frito-Lay.
  • At 5%, Quaker is also generating the slowest growth, compared to 12% for Frito-Lay and 9% for PepsiCo.
  • Sources say a sale of Quaker would allow PepsiCo to focus on its core businesses, as it competes with Coca-Cola.

Yes, but: The valuation multiple for the division would likely fall below where PepsiCo's stock currently trades, sources say.

  • The company's enterprise value is about 15x analyst normalized EBITDA, per PitchBook.

Of note: Hostess thrived by doubling down on selling sugary snacks.

PepsiCo did not respond to a request for comment.

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