PepsiCo's largest competitors include The Coca-Cola Company (KO) and Dr Pepper Snapple Group (DPS). There is an intense competition between the two companies. They not only compete in soft drinks, but also have branched out to other beverages including coffee, juice drinks, and even water. If Pepsi were to offer a new product it wouldn't be surprising to see Coca-Cola follow suit.
Coca-Cola entered foreign markets differently than Pepsi, providing it an edge over Pepsi. While Pepsi invested heavily in foreign markets, Coca-Cola's appointed bottlers with significant experience easily neutralized any threat PepsiCo could pose. Coca-Cola sees declining demand for sparkling beverages. PepsiCo is in a better position than Coca-Cola and Dr. Pepper Snapple because it has already diversified into the salty snacks market. It also offers a strong dividend.
On the other hand, Dr Pepper Snapple Group has 4.9% decline in its sales of its diet brands, despite a 2.3% increase in units sold on promotion. The company’s flagship brand, Dr Pepper’s sales volume declined 4% followed by the company’s main brands; 7-Up, A&W, Sunkist, and Canada Dry, which were down 1%. Only, Snapple and Mott’s sales volume increased 4% and 2%, respectively.
What to Expect
As I said earlier, people now are much more health conscious, and so to survive in this industry PepsiCo has to constantly keep on innovating. In order to cut costs by $3 billion through 2014, PepsiCo is also undergoing a strategic initiative. The company has a high return on equity which has remained above 30%, with the exception of a brief decrease in 2005 and 2012.
[ Enlarge Image ] Chart from wikinvest.com
The company is expecting to grow its earnings per share by 7% over the next year. This indicates that the company will keep its history of consistently increasing dividends. Every year, PepsiCo has consistently managed to repurchase 1.10% of its outstanding shares. The company boasts successful innovation with the introduction of Aquafina, Gatorade and Propel, Lipton teas and Tropicana. PepsiCo acquired the leading Russian food and beverage company Wimm-Bill-Dann (WBD) in 2011, building its nutrition business.
When it comes to the profitability of PepsiCo, its gross profit margin in the last five years has been around 53.04%, which is quite encouraging. It is making good money since net profit margins are around 11.13%. Next year's estimated earnings will be $4.72 per share. Pepsi boasts a dividend of 2.85% with a payout ratio of 50.1%. The company’s return on equity is quite healthy at around 27%, which means that shareholders can expect good returns on their investments.
The company could do better by cutting down on its operating expenses. The price/earnings ratio of PepsiCo is around $20, which is quite a bit lower than its competitors, which again goes in favor of this company. It has entered into a partnership with Jamba, thereby deciding to give a miss to the boring breakfast by giving something new. A merger of PepsiCo's salty snacks with Mondelez's sweet treats would create a company with nearly $70 billion in annual revenue. The merger could yield an implied value of $175 per share for PepsiCo by the end of 2015.
On a Concluding Note
The company has a consistent dividend track record, as a global food and beverage 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. PepsiCo is committed to sustainable growth by investing in a healthier future for the investors 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 focused on delivering sustainable long-term growth and strong cash returns to shareholders. With this momentum, PepsiCo is expected to quench the thirst of its consumers in the recent times to come.