PepsiCo (NYSE:PEP) and Germany’s biggest dairy, Theo Müller Gmbh, are investing $206 million in the New York town of Batavia to build a state-of-the-art yogurt manufacturing plant. This would mark PepsiCo’s entry in the U.S. dairy market.  Outside of the U.S., PepsiCo has a presence in the dairy products market with the acquisition of Russian firm Wimm-Bill-Dann in early 2011. It also has a joint venture with Saudi Arabia’s Almarai, a leading dairy company in the Middle East. PepsiCo competes with leading food & beverage companies around the world including Kraft Foods (NYSE:KFT), Coca-Cola Co (NYSE:KO) and Dr Pepper Snapple (NYSE:DPS). We maintain a price estimate of $71, which is about 10% above the current market price.
PepsiCo To Get Tax Credits
The joint venture between PepsiCo and Theo Müller Gmbh named Waves LLC will create 186 manufacturing and support jobs. This comes at a time when the company announced its plan to reduce the workforce by 3% as part of its 3-year productivity program. This venture should help improve the company’s public image since companies slashing workforce are often viewed negatively in a fragile economy.
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PepsiCo’s investments means that the company will get more than $13 million of tax credits ($3.3 million in Excelsior Jobs Program tax credits and $10 million in Investment Tax Credits). PepsiCo will also benefit from $12 million in sales and property tax savings.
This is part of PepsiCo’s Global Nutrition Group, which aims to expand and innovate the portfolio of healthy products. This investment will provide the company with an opportunity to grab a foothold in the U.S. dairy market, which has seen the yogurt market double in the past decade.  This can be attributed to a structural change in consumption with increasing fondness among consumers for products like yogurt that are considered healthy and natural.Notes: