PepsiCo Inc. (NYSE:PEP) 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.
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. Currently 61% of PepsiCo revenues come from Quaker, Frito-Lay, and other food brands. The additional 39% comes from Pepsi, Gatorade, Tropicana and others.
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. With a current payout ratio of 50%, and EPS set to grow at 7.95% over the next five years according to analysts' estimates, there is plenty of room for this company to grow.
- Warning! GuruFocus has detected 5 Warning Signs with PEP. Click here to check it out.
- PEP 15-Year Financial Data
- The intrinsic value of PEP
- Peter Lynch Chart of PEP
Other Major Soft Drink Players
PepsiCo's largest competitors include The Coca-Cola Company (NYSE:KO) and Dr Pepper Snapple Group Inc. (NYSE:DPS). There is intense competition between PepsiCo and Coca-Cola. The companies 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. The present day represents a vastly different place in terms of consumer preferences.
Consumers, particularly in the U.S., are more health-conscious than ever. The demand for lower-calorie, less sugary beverages is rippling through the soda industry. Pepsi appears to be the one accepting the fact that consumers want to live healthier lifestyles. In response, several years ago Pepsi slowly built a portfolio of brands outside its previous core competency. The company grew revenue and earnings per share by 2% and 12%, respectively, over the first nine months of 2013. Compare this to Coca-Cola, whose revenue and EPS both fell 2% through the first three quarters of the year. While Coca-Cola remains a blue-chip company that registers hefty profits year in and year out, there's no denying the company's underlying results have hit a snag.
Dr Pepper Snapple is also known for its consistent dividend payouts. It yields a dividend of about 3.2%, which is higher than the other two soda titans. But then again it has started to see its share of troubles since last year when its sales went flat for the first nine months, and operating income also declined during the first three quarters of 2013.
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.
On a Concluding Note
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 the next 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.