PepsiCo Is Poised For Further Growth

PepsiCo (PEP, Financial) has been playing well in the beverage industry. Over the years, this company has also provided a decent return to its valued investors. PepsiCo is one of the world's leading food and beverage companies with over $66 billion in net revenue in 2013 and a global portfolio of diverse brands.

The company has a diversified line of products to offer to its consumers. With over 22 brands in its portfolio, PepsiCo's products are sold in more than 200 countries and territories around the world.

Disposable income has been rising all over the world and this beverage giant has more room to grow in the near future. 2015 poses great opportunities for PEP. Its flagship brands include Quaker, Tropicana, Gatorade, Frito-Lay and Pepsi-Cola and is engaged in making hundreds of enjoyable foods and beverages that are loved throughout the world.

Recent Performance

Organic revenue grew 3.1 percent and reported net revenue grew 2 percent. Foreign exchange translation had a 1-percentage-point unfavorable impact on reported net revenue.

Developing and emerging market organic revenue grew 8 percent. On a reported basis, developing and emerging market net revenue grew 3 percent, reflecting unfavorable foreign exchange translation.

Core gross margin and core operating margin expanded 45 basis points reflecting the implementation of effective revenue management strategies and productivity initiatives. The reported gross margin increased 55 basis points and reported operating margin increased 10 basis points.

Core constant currency operating profit increased 5.5 percent. The results reflect gains associated with divestitures of $20 million in QFNA and $15 million in AMEA partially offset by a $23 million impairment charge in Europe associated with a brand in Greece in the current-year quarter, and the lapping of $28 million in incremental investments as well as net gains associated with divestitures in AMEA of $11 million recorded in the prior-year quarter. Reported operating profit increased 2 percent and included the net impact of mark-to-market losses on commodity hedges and restructuring and impairment charges.

The company’s core effective tax rate was 24.2 percent and the reported effective tax rate was 24 percent, both below the prior-year quarter.

Core EPS was $1.36 and reported EPS was $1.32. Core EPS excludes a negative net impact of $0.01 per share related to mark-to-market net losses on commodity hedges and a $0.03 per share negative impact from restructuring and impairment charges. Mark-to-market net gains and losses on commodity hedges are subsequently reflected in core division results when the divisions recognize the cost of the underlying commodity in operating profit. On track to deliver targeted $1 billion of productivity savings in 2014. Cash flow provided by operating activities was $6.7 billion year to date. Free cash flow (excluding certain items) was $5.4 billion year to date.

The company expects to return a total of $8.7 billion to shareholders in 2014 through approximately $3.7 billion in dividends and $5.0 billion in share repurchases.

Opportunities in India

PepsiCo entered India in 1989 and in a short period, has grown into one of the largest food and beverage businesses in the country. PepsiCo growth in India has been guided by its global vision of “Performance with Purpose”. This means that while businesses maximize shareholder value, they have a responsibility to all the stakeholders, including the communities in which they operate, the consumers they serve and the environment whose resources they use.

Large investor and one of the largest food & beverage businesses in India: One of the largest US multinational investors in the country, PepsiCo has been consistently investing in India and has built an expansive beverage and snack food business supported by 38 beverage plants and 3 food plants. PepsiCo and its partners recently announced an additional targeted investment of Rs. 33,000 Crore in India by 2020 in the areas of product innovation, increasing manufacturing capacity, ramping up market infrastructure, strengthening the supply chain and expanding company’s agriculture program. PepsiCo India’s diverse portfolio includes iconic brands like Pepsi, Lay’s, Kurkure, Tropicana, Gatorade and Quaker. In two decades, the company has been able to organically grow eight brands that generate Rs. 1000 crores or more in estimated annual retail sales and are household names, trusted across the country.

A growing portfolio of enjoyable and wholesome snacks and beverages: PepsiCo India’s portfolio reflects its commitment to nourish consumers with a diverse range of fun and healthier products. The portfolio includes several healthier treats like Quaker Oats, Tropicana juices, Tropicana fruit powders, rehydrator Gatorade, Tata Water plus, Lay’s baked range, Quaker flavoured oats and Quaker Nutri Upma & Nutri Poha breakfast range with the power of whole grain.

To End

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 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 health problems such as weight gain, poor dental health, diabetes and cardiovascular disease. However the company is making efforts to change this scenario. It is making strategic moves to improve its position and get desirable to its investors.

There is an indication that the company will keep its history of consistently increasing dividends. With the recent details of its financials, PEP is expected to quench the thirst of its consumers in times to come. Pepsi is one of the world's most iconic and recognized consumer brands globally. Today, the Pepsi portfolio includes three products – Pepsi, Diet Pepsi and Pepsi MAX — that each generates more than $1 billion in annual retail sales.

An increasingly evolving middle class, higher disposable incomes and changing lifestyles are key factors that will fuel the growth of this company in the beverage industry. PEP offers constantly growing dividends with stable price appreciation. The company also backed its return with a solid financial position.

PEP has always been well-run and is known to create shareholder returns. The emerging markets pose good opportunities for this beverage giant, where it has more room to grow.

(Source: Company’s Website)