PepsiCo to pay $1.2 billion to buy Siete, to boost multicultural food offering

By Tomi Kilgore

Acquisition announcement comes a week before earnings are reported, with analysts expecting continued weakness in snacks

Shares of PepsiCo Inc. traded higher Tuesday, bucking the selloff in the broader stock market, after the beverage and snacks giant announced an agreement to buy Mexican-American foods maker Siete Foods for $1.2 billion.

Products of Garza Food Ventures LLC, which does business as Siete, include grain-free tortilla chips and puffs, taco seasonings, Mexican cookies and salsas.

The announcement of the acquisition comes a week before PepsiCo is scheduled to release its third-quarter results, which analysts expect to show a continued challenging environment for snacks.

PepsiCo's stock (PEP) rose 0.5% in morning trading, putting it on track for a fourth straight gain. The gain comes as the S&P 500 index SPX dropped 1.1%, with just 140 of its components gaining ground.

Read MarketWatch's live updates of Tuesday's stock market action.

"PepsiCo believes in the spirit and authenticity of the Siete brand, and we're excited to carry on the legacy created by the Garza family," said PepsiCo Chief Executive Ramon Laguarta. "We look forward to expanding our multicultural portfolio with these incredible products and even more consumers discovering and enjoying Siete."

The deal is expected to close in the first half of 2025.

Meanwhile, PepsiCo is slated to release its earnings report on Oct. 8, before the market opens. While quarterly profit has beaten Wall Street expectations for at least the past five years, according to available FactSet data, revenue has missed in two of the past three quarters.

In a note titled "Cruel Summer," BofA Securities analyst Byran Spillane reiterated his buy rating on PepsiCo's stock, but cut his price target to $185 from $190.

Spillane also lowered his 2024 estimate for earnings per share by about 1.5% to $8.00, which compares with the current FactSet EPS consensus of $8.14, citing signs of weaker-than-expected demand in the Frito-Lays snacks and Pepsi beverages businesses in North America.

J.P. Morgan analyst Andrea Teixeira kept her rating at neutral, but trimmed her 2024 EPS estimate to $8.15 from $8.16 and her revenue estimate to $93.8 billion from $93.9 billion.

She said that although PepsiCo's stock valuation, in terms of the ratio of price to earnings, has almost never been has cheap as it is now, investors appear to be "hiding out elsewhere" as the snacking business is still trying to find a bottom.

While the reasons for the low valuation haven't changed much over the past three months, "the situation appears to actually be incrementally more challenging than before, given apparent further deceleration in tracked channels despite stepped up promotional activity," Teixeira wrote in a note to clients.

For the third quarter, the FactSet consensus is for EPS to rise to $2.30 from $2.25 a year ago, and for revenue to grow 1.9% to $23.45 billion.

PepsiCo's stock has edged up 0.6% year to date, while shares of rival Coca-Cola Co. (KO) have run up 22.8% and the S&P 500 has advanced 19.4%.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-01-24 1121ET

Copyright (c) 2024 Dow Jones & Company, Inc.