June 18, 2010
Pros: • • Ticker Exchange Industry Sector Classification Market Cap. 52 Week Price range Recent Price Current P/E Projected 2012 P/E 2009 EPS Projected 2012 EPS Dividend Yield Morning Star Ratings Beta PEP NYSE Consumer Staples Beverages (NonAlcoholic) Income & Capital Appreciation $103.67 Billion $52.56-67.61 $64.28 16.34 13.81 $3.81 $5.50 3.00% **** .56 • • • • Broad portfolio in the soft drink, saltysnack market and beverages. Acquisition of bottlers will allow for cost savings and new business opportunities Opportunities for growth in healthy snack, and healthy drink markets; growth in emerging markets Commodity (raw materials) volatility, exchange rate risks Increased bad debt and higher interest rates No high prospects for growth
Porter’s Five Forces: • • • • • Threat of Competition: Moderate Threat of New Entrants: Low Threat of Substitutes: Low to Moderate Power of Suppliers: Moderate Power of Buyers: High
PepsiCo, Inc. operates four major businesses: Frito-Lay North America, 31% of sales; Quaker Foods NA, 4%; Latin American Foods, 13% of total revenue, PepsiCo America Beverages, 23% of revenue, Europe, 16% of total revenue, AMEA 13%. PepsiCo recently purchased two of its largest bottling companies for a combined total of $12.6 Billion.1
PepsiCo, a consumer staple equity, currently composes 3.39% of the equity value of the EIF portfolio. As a whole, consumer staples make up 11.00% of the equity portfolio of the EIF. 11% does meet our required consumer staples portfolio. The S&P’s consumer staple has a total weight of 11.5%.
PepsiCo falls under the consumer staples sector. In the sub-sector of consumer staples, PepsiCo competes in the non-alcoholic beverages and salty-snack food market. PepsiCo has the world’s largest portfolio of billion-dollar food and non-alcoholic beverages. They have 19 different product lines that each generates more than 1 billion in annual retail sales. Their main businesses are – Frito-Lay, Quaker, Pepsi-Cola, Tropicana and Gatorade. They also make hundreds of other nourishing foods. They serve more than 200 countries. PepsiCo markets have a high level of competition and low margins. PepsiCo competes against global, regional and local manufacturers on the basis of price, quality, variety and distribution. Some of their main competitors are the Coca-Cola, Kraft Foods Inc, Unilever and many more. One of their main competitors in the non-alcoholic beverage market is the Coca-Cola Company. The Coca-Cola has a larger share of the carbonated drink market. Pepsi, however, has a larger market share related to liquid refreshment beverage consumption. However, in the international market, the Coca-Cola maintains greater market share in nearly all sub-groups of the nonalcoholic beverage market than Pepsi. PepsiCo’s Frito-Lay holds the market leader position in the United States and abroad in the snack market. Because of the high competition, PepsiCo relies on extensive promotion of products in all markets. PepsiCo has constantly updated their product portfolio to meet the consumer changing preferences. PepsiCo’s dominance in the salty-snack market is unrivaled. Frito Lay controls approximately 39 percent of the salty-snack market in the United States. Frito Lay controls nearly 23 percent of the market in Western Europe. PepsiCo’s snack food revenue comprised 33 percent of PepsiCo’s total revenue, but made up 44 percent of PepsiCo’s profit. PepsiCo has and will continue to develop its presence in the snack food market due to its higher profitability. PepsiCo’s is subject to constantly changing trends and preferences either domestically or internationally. There is a greater preference of healthy and diet foods. In recent years, Pepsi has been impacted by an overarching change in consumer preferences to more healthy snack and drink alternatives. Their...