Pepsico Analysis 1
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Running head: PEPSICO ANALYSIS 1 PepsiCo Analysis Lynn University PEPSICO ANALYSIS 2 PepsiCo Analysis Short description of the company background. Pepsi-Cola was founded in the late 1890s by Caleb Bradham, and Frito-Company was created in 1932 by Elmer Doolin. In 1961, Frito Company merged with Lay Company. Pepsi was established in 1965 when Frito-Lays and Pepsi-Cola merged (PepsiCo. 2018). In 1964 Diet Pepsi was created and in 1974 Pepsi was the first American product to be sold in the Soviet Union (PepsiCo. 2018). In 1985 Pepsi was available in over one-hundred and fifty countries and had become the largest company in the soft beverage industry (PepsiCo. 2018). In the early nineties, Pepsi partners with Starbucks and Unilever to develop teas and coffee drinks. In the early two- thousands, South Beach Beverage Co. is acquired by Pepsi, and Sierra Mist is launched (PepsiCo. 2018). Pepsi becomes one of the first companies to incorporate Corporate Social Responsibility by introducing an initiative of independence between society and large corporations (PepsiCo. 2018). A performance with purpose focuses on delivering long-term growth while helping the environment and society. This program saved over six-hundred million people and had helped gear the company towards a healthier product line by cutting down sugars and improving the nutrition. Today, Pepsi is the second largest competitor in the soft drink industry, and their products are sold in over two-hundred countries. Industry analysis on the Strength / Weakness / Opportunities / Threats of the company. Strengths: Massive portfolio: PepsiCo manages a big portfolio of more than a hundred different brands. The company manages the beverage industry food, and snacks. PEPSICO ANALYSIS 3 Brand recognition: PepsiCo is a globally recognized brand in which each brand is worth millions of dollars. Endorsements and sponsorships: PepsiCo are strongly tied to sporting events and music concerts as well as using music idols in their publicity. This helps PepsiCo to attract a younger audience which also is their target market. Weaknesses: Coca Cola rivalry: Coca Cola has always been the main rival for PepsiCo. Because of this reason it is difficult for other companies to enter the market due to not having enough funds and sources as Coca Cola and PepsiCo. The health crowds: PepsiCo faces problems with the health industry due to the products offered with high sugars and calories. Sodas are connected to the growing obesity rates and health problems like diabetes. Also, people are starting to go green and trying to reach a healthier life style. Even dough PepsiCo has incorporated healthier products like diet Pepsi they continue to sell their unhealthy food to the public. In only one industry: Even dough PepsiCo has a hundred brand of products they are all in the food industry. If for example Coca Cola decide to expand their industry in to another markets, PepsiCo will be left behind. Failed products: Even dough it is normal to fail with some products along the way, it is not a good thing when this product harm the brand image. This was the case for PepsiCo with the Crystal Pepsi product. Opportunities: Health product diversity: PepsiCo can start offering healthier products, by doing this they can diversify in the beverage and food industry. PEPSICO ANALYSIS 4 Move into other industries: PepsiCo has everything the need to expand into another industries, and it is a huge opportunity to do it before other brands like Coca cola decide to do it first. Lack of drink flavors: PepsiCo can focus more in adding new flavors to their drinks. Even dough they have worked on flavors like Pepsi Cherry or Pepsi Blue they can add drinks like mango or strawberries. Threats: Nestle as a competitor: Off course every brand main threat is their main competitors, in this case for PepsiCo is Coca Cola and Nestle. In 2017 Nestle they beat PepsiCo’s earnings. Not enough health alternatives: As said before if PepsiCo continue to sell drinks with high content of sugar and calories, they will continue to see a decrease in their sales. Bad economy: Economy will always be a thread to PepsiCo and any industry since when the economy is bad people tend to save their dollars. When this happens most of PepsiCo products fall into the no necessary products list. Strengths Massive portfolio, brand recognition, endorsements and sponsorships. Weaknesses Coca Cola rivalry, the health crowd, one industry, failed products. Opportunities Health product diversity, move into other industries, lack of drink flavors. Threats Nestle as a competitor, a bad economy, not enough health alternatives. Overview of the company financials PepsiCo’s financial statements have shown that it is a large sized company with revenues in the range of $60 and $65 million dollars in the past five years. The company’s profits since 2014 have been fluctuating, but they did very well in the past 2018 when they showed an outstanding increase to $12 million; which was approximately a 19% margin. By the other hand, PepsiCo’s free PEPSICO ANALYSIS 5 cash flow had a less fluctuating performance than profits. FCFs for the past five years were found in the same range between the $6 and $7 million brackets. In the past five years, PepsiCo’s stock prices remained at an increasing trend. Despite a slight decrease in the 2015 closing price, the upcoming years it showed a positive change of $70.85 from 2014 to the end of 2018, meaning that the company’s earnings per share and dividends paid also increased. Thus, it can be seen that the stock of the company performed well in the past 5 years. 2014-12 2015-12 2016-12 2017-12 2018-12 Total assets 70,509.00 69,667.00 74,129.00 79,804.00 77,648.00 Total liabilities 53,071.00 57,744.00 63,034.00 68,915.00 63,130.00 Total equity 17,438.00 11,923.00 11,095.00 10,889.00 14,518.00 Revenue 66,683.00 63,056.00 62,799.00 63,525.00 64,661.00 Net income 6,513.00 5,452.00 6,329.00 4,857.00 12,515.00 Free cash flow 7,647.00 7,822.00 7,364.00 7,025.00 6,133.00 Price 97.03 93.57 118.14 121.72 167.88 Total return -29.87 -9.2 -23.23 28.56 10.65 The company is of large size and is profitable. Its margins remained around 10% or more in the past 5 years. PepsiCo generate positive free cash flow to investors and the market return reflected a negative performance of the company compared to the rest of its industry; it might be because of diverse reasons outside of PepsiCo’s control. However, they increased that performance until it turned positive in 2017 and 2018, so it can be said that it was a regular performance with some fluctuations throughout the years. From owners’ perspective The company’s management has shown a correct utilization of PepsiCo’s assets by keeping the return on these in the positive side. As the last year (2018) showed, it can be PEPSICO ANALYSIS 6 expected a significant increase in such return on assets if they keep performing as well as they have in the previous years. The return on equity for PepsiCo has performed very well. They have shown a significant increase from 2014 until 2018 and have also left room for more growth. This also denotes a well management performance by making efficient practices to save money and repay debts with shareholders. 2014-12 2015-12 2016-12 2017-12 2018-12 Return on 9.24% 7.83% 8.54% 6.09% 16.12% Assets Return on 37.35% 45.73% 57.04% 44.6% 86.2% Equity The company has shown to be profitable in the past 5 years. Profitability has shown an increasing trend, and it may be due to several factors. The decreasing trend of short-term debt has allowed the company to increase their profits during this 5-year period. Cash flow analysis 2014-12 2015-12 2016-12 2017-12 2018-12 Cash flow from $10,506.00 $10,580.00 $10,404.00 $9,994.00 $9,415.00 operating Cash flow from $(4,937.00) $(3,569.00) $(7,148.00) $(4,403.00) $4,564.00 investing Cash flow from $(8,264.00) $(3,828.00) $(2,942.00) $(4,186.00) $(13,769.00) financing Net change in Cash $(3,241.00) $2,962.00 $62.00 $1,452.00 $112.00 CAPEX $(2,859.00) $(2,758.00) $(3,040.00) $(2,969.00) $(3,282.00) Free cash flow $7,647.00 $7,822.00 $7,364.00 $7,025.00 $6,133.00 The company’s cash from operations remain positive and thus, more bound to profitability. There is not really any financing need, but the company could do better in cash flow from investing. The management could try to change their strategy in order to have a more positive trend in this PEPSICO ANALYSIS 7 segment. The most significant investment expense in the companyis related to property, plant, and equipment.The company does provide positive cash flows, and it has done it for the past 5 years. The correlation between cash flows and stock prices is very close. There are slight flutuations but in the overall trend both have a similar performance. From Manager’s perspective DuPont Identity 2014-12 2015-12 2016-12 2017-12 2018-12 Net profit margin 9.77% 8.65% 10.08% 7.65% 19.35% Total asset turnover 0.95 0.91 0.85 0.80 0.83 Equity multiplier 4.04 5.84 6.68 7.33 5.35 Return on Equity 37.35% 45.73% 57.04% 44.60% 86.20% The profit margin of PepsiCo has maintained around 10%, which is outstanding regarding its industry average.