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PepsiCo May Add Fizz to Your Portfolio for Growth
Posted by: abirk (IP Logged)
Date: May 3, 2014 09:09AM
Soft drinks are an all-time favorite among people of all ages. PepsiCo (PEP) being the leader in the beverage industry, is constantly innovating new products and techniques for its valued customers. Over the years, this company has also provided a decent return to its valued investors. It is a global beverage and food company with brands that stand for quality, and are respected household names — Pepsi-Cola, Lay's, Quaker Oats, Tropicana and Gatorade, to name a few. It has a portfolio of enjoyable and wholesome foods and beverages.
People are now much more health conscious as the rate of obesity is accelerating at a great pace. Sugar, being the most important ingredient of soft drinks, is the main contributor to obesity. Health consciousness of people has paved the way to a decline in the consumption of carbonated soft drinks and diet soda in the U.S. market. The only reason for this is numerous health problems such as weight gain, poor dental health, diabetes and cardiovascular disease.
Performance Report Card
One of the main benefits of an investment in Pepsi is that it's a rock-solid dividend stock, even if it doesn't garner the same notability as other high-flying growth stocks. Yet that means it's also likely to crash and burn, and over the long term, the compounding effect of its quarterly payouts, as well as its growth, adds up faster than most investors imagine.
Pepsi was able to grow its revenue at a compounded annual growth rate of 8.65% over the last five years, from $43.2 billion in 2008, to $65.5 billion in 2012. Pepsi was able to grow its dividend at a CAGR of 9.45% over the last 10 years, even through the ups and downs of the economy.
PepsiCo's organic revenues, excluding the impact of currency translation and structural changes, rose 4%. The company attained 3% of leverage due to lower interest expense, tax rate, and share repurchases. PepsiCo returned $2.1 billion to shareholders in the form of dividends and share repurchases reflecting a 47% increase than last year. All in all, the quarter brought improvements to returns for investors according to the industry standards.
The research expenditure catered towards developing new products is proving successful for snacks. Since 2011, PepsiCo has increased its R&D by 25%. This doesn't deserve criticism since products launched from this research over the past three years make up 8% of total sales for the company.
Investment Plans in India
PepsiCo plans to invest more than $5.5 billion in India. The food and beverage company is one of the largest in India and India also represents one of PepsiCo's largest global markets. The company has 38 bottling plants and three food plants in India, according to its website. It hopes to widen the offerings of food and beverages to cater to Indian consumers' "evolving needs," and noted that it has eight brands in the country that generate more than $160 million in annual revenue. PepsiCo will also increase its infrastructure in India in an effort to increase its selling and delivery capabilities, with a particular focus on rural markets. The company intends to provide resources to its farming program which caters to 24,000 farmers things like seed, expertise, insurance, and loans. In order to cut costs by $3 billion through 2014, PepsiCo is also undergoing a strategic initiative.
In addition to India, Pepsi is also expanding in other emerging countries like China, Brazil and Africa through tailored distribution models as well as by offering locally relevant innovation and value-added products. Pepsi is also growing its business in developing markets like Russia, Mexico, Canada and the United Kingdom.
From "Fun-Filled" to "Good-Filled" Products
The company released two new Mountain Dew Kickstart flavors on Jan. 13: black cherry and limeade. These products emphasized low sugar content. With consumers going the healthy way, PEP decided to transform its portfolio from "fun-filled" to "good-filled" products. The transformation has worked well for business and many of the healthier products are giving good margins.
Pepsi has started to introduce a new line of healthy food options in China, where reports of chronic illnesses have been increasing. As consumers become more health conscious, Pepsi and some of its competitors in the global packaged food market are introducing foods that include traditional Chinese folk medicine ingredients like wolfberry plants, chrysanthemum teas and tremella.
PepsiCo's CEO Indra Nooyi believes its business will lean more toward snacks in the future PepsiCo's snacks also retained top positions in a number of its markets. Frito-Lay North America and Quaker Foods North America both reported strong gains in volume when factoring out currency fluctuations, mergers, and divestitures. Frito-Lay's biggest brands -- Ruffles, Cheetos, Doritos, Tostitos, and Lay's -- all served as catalysts for revenue growth.
With net revenues of more than $65 billion and a product portfolio that includes 22 brands that generate more than $1 billion each in annual retail sales, PepsiCo is committed to sustainable growth by investing in a healthier future for the investors. PepsiCo is providing stable returns to its shareholders over the years. The company is expecting to grow its earnings per share by 7% over this year. This indicates that the company will keep its history of consistently increasing dividends. With the recent details of its financials, PepsiCo is expected to quench the thirst of its consumers in the recent times to come.
Stocks Discussed: PEP,