FOOL PLATE SPECIAL
An Investment Opinion by Randy Befumo

PepsiCo Denies Speculation

PEPSICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> popped up $1 3/8 to $38 1/8 on hopes for yet another spin-off from the ailing junk food purveyor. The company announced the reorganization of its bottling operations, sparking speculation that this is the prelude to a full-scale divesture of the capital-intensive bottling business. Rival COCA-COLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> has long-avoided becoming embroiled in the cash-eating bottling arena, preferring to focus on making and marketing syrup to the world, leaving its bottling business to COCA-COLA BOTTLING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COKE)") else Response.Write("(Nasdaq: COKE)") end if %> among others. The move makes quite a bit of sense as part of PepsiCo's new return on invested capital culture, dovetailing with the decision to dump the cash-eating restaurant businesses that were originally deemed strategically important as a distribution channel for Pepsi products in a Coca-Cola fast food world.

Why might the reorganization and potential divestiture of PepsiCo's captive bottling capacity spiff up its financial statements? A quick look at the historical revenue growth at Coca-Cola Bottling in the company's 10-K suggests that the bottling business is a low-margin, slow growth affair that has increased at the tepid rate of 4.2% a year. Profit growth has been confused because of various one-time acquisition and accounting-related charges, but profits have been virtually flat over the past three full fiscal years. If Coca-Cola Bottling Co.'s $773.8 million in sales were included in Coca-Cola's statements, it would decrease the growth rate and negatively impact margins. Should PepsiCo decide to maximize shareholder value by creating a business that showcases the high margins of the beverage operations and salty snack foods operations, it could command a much higher multiple.

The difference in the financials shows up in the stock appreciation as well. Over the past six and a half years, Coca-Cola Bottling has risen 9.9% annually, while syrup-making Coca-Cola shares have rocketed ahead 34.7% per year. Although PepsiCo's largest independent bottler, WHITMAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WH)") else Response.Write("(NYSE: WH)") end if %>, is already a separate, public company, getting rid of the bottling operations entirely could enhance PepsiCo's attempts to gain higher returns. That said, the company's strong denial of today's story lends credence to the notion that this rumor is idle chatter on the stock exchange floor. In January, PepsiCo announced its plans to divest itself of its restaurant operations, including Taco Bell, Pizza Hut and KFC.

UPS

Enterprise software company TRITEAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEAL)") else Response.Write("(Nasdaq: TEAL)") end if %> gained $1 1/8 to $9 5/8 after announcing a cross-licensing agreement with application software company COREL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSFF)") else Response.Write("(Nasdaq: COSFF)") end if %>.

MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> rose $1 7/16 to $16 5/8 after firing another round in a flurry of PC and server announcements over the last few days.

Family Channel and Christian broadcasting TV programmer INTERNATIONAL FAMILY ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FAM)") else Response.Write("(NYSE: FAM)") end if %> added another $2 to $29 7/8 as investors expect to see a sale of the company to either DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> or NEWS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> in the near future.

CYRIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> gained another $1 7/8 to $27 1/8 after the company told Reuters that it expects booming Asian growth this year, partly due to demand for its Pentium clones.

PRESSTEK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRST)") else Response.Write("(Nasdaq: PRST)") end if %> jumped $6 3/4 to $91 1/4 after announcing on Saturday that it will debut new printing equipment developed with Alcoa Packaging Equipment that will print half-tone images on aluminum cans at a cost equal to conventional printing methods with less pre-press time.

DOWNS

Auto parts distributor and retailer APS HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSI)") else Response.Write("(Nasdaq: APSI)") end if %> lost $1 1/2 to $8 1/2 on reporting a first quarter loss of $0.07 per share, missing estimates of $0.02.

UNICOM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCM)") else Response.Write("(NYSE: UCM)") end if %>, parent company of Illinois's Commonwealth Edison, lost $1 1/4 to $21 1/2 after announcing on Friday a number of new ventures, including plans to get into the natural gas distribution business in unregulated markets.

Staffing company ACCUSTAFF INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASI)") else Response.Write("(NYSE: ASI)") end if %> declined $1 to $23 on a bearish article from Barron's this weekend, which questioned the meaning of an increase in the company's credit line.

AXA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXA)") else Response.Write("(NYSE: AXA)") end if %> fell further, losing $1 5/8 to $30 as investors in the large French financial services company aren't taking kindly to a new Socialist prime minister in that country.

CONFERENCE CALLS

ORTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORTL)") else Response.Write("(Nasdaq: ORTL)") end if %>
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