Indra Nooyi's Pepsi challenge

By the numbers, PepsiCo has done a pretty good job since she took the helm six years ago. So why is the CEO taking so much heat from investors?

"Now tell me again -- what exactly is the issue with this company?"Indra Nooyi asks with an edge to her voice.

She has just rattled off a list of statistics describing the financial performance of PepsiCo (PEP), the company she has run since late 2006. They show that it has been growing, earning high profit margins, and paying respectable returns to shareholders through dividends and stock buybacks. So, she wonders, what's the problem? Why on earth has she been taking such an infernal amount of heat from investors, Wall Street analysts, and the media? For she has been, and she clearly resents it.

She explains how she's been transforming PepsiCo from "a North American fun-for-you company"-- maker of Pepsi, Mountain Dew, Lay's potato chips, Doritos, Cheetos, and hundreds of other foods and drinks -- into a global enterprise with a product line that can prosper in a world where obesity is fast becoming the No. 1 health problem. Making that profound shift, she says repeatedly, is "the right thing"to do. What's more, the company has been "performing while transforming,"delivering those financial results she cites. Yet for all that, the conventional wisdom is that she and PepsiCo are in trouble.

This is the hardest time in any transformation, when the returns haven't arrived and no one knows when or if they will. "The recent past reminds me of pivotal moments in our history when bold leaders made decisions that weren't popular but were the right decisions to position the company for the future,"says Steve Reinemund, Nooyi's predecessor as CEO, who until now hasn't spoken publicly about the company's prospects

The major investments in emerging economies could start to pan out. The new R&D lab is yielding results. Chief scientist Khan, who told Nooyi the effort would take five years to get rolling, notes that "this is year five."A new mid-calorie cola, Pepsi Next, was just introduced and seems to be doing well;the concept has been tried before, but this time the flavor is supposed to be much better. The lab has found a way to make potato chips taste just as salty with less sodium;the result hit the market last year. In a joint venture with Germany's Müller Group, PepsiCo has developed fruit-and-yogurt technology that makes the fruit taste fruitier and lets it sit on top of the yogurt instead of underneath. Most important, the scientists are working on sweeteners. An all-natural zero-calorie sweetener that could be formulated into great-tasting drinks and other products would profoundly change the business. "Based on everything we've seen, we are ahead"of competitors in finding one, says Nooyi.

Until PepsiCo's transformation shows signs of paying off, Nooyi will endure more doubts from Wall Street and the press. She knows it, and it's wearing. "Courage in leadership is very difficult, especially in today's world, where the media doesn't take the time to really understand you,"she says. She has finished her visit to the Frito-Lay plant and is back on the plane, returning to headquarters. The edge is gone from her voice. She speaks very quietly: "And so … when people write all the crap that they do, just … get stoic about it."