PepsiCo promises a bonanza to shareholders, but at what cost?

Transnational snack and beverage giant PepsiCo tells investors gathering for the annual shareholder meeting in New Bern, North Carolina on April 7 it is "delivering results today and confidently preparing the future", but a closer look suggests the future may be less bright if current policies continue.

Under pressure from "activist investors", PepsiCo promises to return to investors a whopping USD 8.7 billion through dividends and share buybacks this year. This would represent a 35 percent increase over 2013 at a time of slower growth in developing markets and market saturation in wealthier parts of the world, where consumers are also turning away from carbonated drinks and looking for healthier snack foods.

The main lever for freeing up the cash is "productivity savings" - code for increased outsourcing, contract manufacturing, casualization and closures. The problem for shareholders - not to speak of PepsiCo workers and workers in PepsiCo's supply chain - is that the squeeze comes on top of already aggressive cost-cutting in recent years and will leave little room to confidently prepare the future's inflated returns shareholders are being primed to expect. PepsiCo is cruising for trouble with its obsessive hunt for short-term gains.

Much has already been cut to the bone - meaning PepsiCo can expect the quality issues which outsourcing brings, logistical snags, workplace health and safety issues like those at G&J Pepsi-Cola Bottlers whose Franklin Furnace site in Ohio was cited in February 2014 by the US Occupational Safety and Health Administration for having "consistently failed to protect its workers and implement basic safety requirements."

PepsiCo will also come under heightened scrutiny for failing to respond to brutal human rights violations at Indian warehouses contracted exclusively to their Indian subsidiary. IUF affiliates around the world have been stepping up their support and solidarity actions, and the campaign will continue until PepsiCo changes course.

If the current course spells potential trouble ahead, shareholders might also question whether CEO Indra Nooyi's 2013 USD 18.6 million compensation - a 7% jump over the previous year's - makes sense when the company's cash flow is being vacuumed up to hike dividends and buy back shares. PepsiCo workers around the world are certainly asking if this is the reward for smashing rights.