Running head: INVESTMENT ANALYSIS 1
BriefHistory of the company
PepsiCo is the second largest manufacturer of carbonated soft drinks afterCoca-Cola. The company was first instituted in the 1893 by Bradham as‘Brad’s Drink’ in his drug store at New Bern, Carolina UnitedStates. During the World War 1 saw the company faced adversefinancial losses and the company changed ownership and managementthrough reselling of its trademark and assets. It is also during thistime that, Coca-Cola was offered several opportunities to acquirePepsi Co but declined. In the subsequent years the company underwentgreat progressive strategies of marketing, trademark redesign andadvertising aimed at increasing the market share. In addition, thePepsi Co. has progressively enhanced its products, packaging cans andpromotion strategies as a way of delineating itself from Coca-Cola.The company operates currently in North America but has othersubsidiary divisional operational locations in other parts of Americaand other parts of the globe where its products are sold. The companyhas established numerous operations in emerging markets such asHungary, Czech, Poland, Russia and India (PepsiCo, 2013).
Product/ services and Major customers
PepsiCo. is a world leading business firm in beverages, snacks and foodsin particular, the company has twenty-two different brands ofcarbonated and non-carbonated drinks, savory, water and whole grainsnacks. Pepsi Co brands are present in 200 territories and countriesin the world. The product diversification has been its maincompetitive edge unlike its main competitors such as Coca-Cola andothers that rely on few key products. Its major consumers arewhole-sale distributors, food service, drug stores, grocery andauthorized stores.
LeadershipAnd Company Management
Thecompany is managed by an overall chief executive officer Indra K.Nooyi. In addition, the company has the president, the executive vicepresidents who are in charge of the communications, human resources,global supply chain management and chief executive officers forparticular regions such as Asia, the Americas and other regions inthe world. The company has an approximate 297, 000 employeesworldwide. The company developed a management system based on sharedvalues, respect, fairness, sensitivity and managing differences amongits diverse network of employees. Managers and executive offers areexpected to enhance inclusiveness and create an environment thathelps workers balance their personal life and work. The company has awell-developed orientation and training programs for the unit leadersas a way of fostering organizational culture which is in turncascaded to the lower levels of the organization (PepsiCo, 2013).
Thecompany has been credited for its efficient use of water andconserved more than 12 billion of liters according to a 2009 baselinestudy. The firm is also accredited for efficient energy use achievinga sixteen percent energy cuts in its beverage plants and sevenpercent in its snacks plants as per 2009-2010 baseline reports.Another great achievement was the introduction of a compostable chipbag made from renewable materials (PepsiCo, 2013). In addition, thefirm has attained thirty percent leadership inclusiveness byincreasing executive positions held by women. Lastly, the firm hassignificantly reduced fats in their potato snack products. The firmhas overall been successful due to its well-developed services andproducts, high standards of performance and a distinctivecompetitiveness.
Theinternationalization method used by the company
Thecompany uses the strategy of a joint venture into new internationalmarkets. In this way, the company can exploit local networks andalready established distribution of the products and services. Forinstance, in 1989, Pepsi Co. used the joint venture method with theIndian government Punjab Agro Industrial Corporation (PAIC) and laterbought it. The joint venture strategy has enabled the firm swiftlygain entry in most international markets as its main competitive edge(PepsiCo, 2013).
Thecompany main strengths are its product diversity, extensivedistribution channel and its wide range of corporate socialresponsibility projects. The firm boasts of twenty-two product brandsthat earn the firm more than $ 1 billion per annum PepsiCo has readyto drink tea products, bottled water, cakes and cakes mixers amongother snacks. The company has an elaborate competitive edge throughmergers and acquisitions as its approach of gaining entry in newventures. In addition, Pepsi Co. has a competitive, successfulmarketing, branding and advertising that ensure its market share andsales remain sustainable (PepsiCo, 2013).
Mainweakness of Pepsi Co
Themain weakness of the firm is product similarity and weak brand imagecompared to its main competitor Coca-Cola. For instance, the DietCoke a product of Coca-Cola is more popular than Diet Pepsi coke.Ina addition, the diet Coke from Coca-Cola, tends to have morecompetitive brands compared to Pepsi diet coke. Overdependence onWal-Mart for its product distribution also proves challenging. Thefirm has a low pricing strategy that results in too low net profitmargin. The firm has been accused of bottling tap water and sellingit to clients while deceiving them it is mountain water (PepsiCo,2013).
Basedon the trend in growing trend in consumption of beverages in emergingmarkets Pepsi Co has a potential to increase its revenue and market.In addition, Pepsi Co products are in line with prescribed healthstandards that make the firms products in demand line for healthyfoods. The potential of PepsiCo growth is great due to its increasedmergers and acquisitions (PepsiCo, 2013).
Threatsto Pepsi Co
Majorthreats involve changing consumer tastes, health and competitionfrom Coca-Cola and Snyder Company that produce savory snacks similarto PepsiCo. Decreasing profit margin and a strong Dollar are posingas a great challenge to the firm. Water scarcity and concern for theenvironment are also major threats to the firm.
Analyzingthe stock trends of Pepsi Co
Accordingto records, Pepsi initial public offer was introduced in 1999 at $23per share. The current trend in stock prices for Pepsi Co has beenan upward trend making the financial analyst regards it as bullishperformance. In the past fifty-two weeks, PepsiCo stock price hasbeen rising steadily at 81% in an average of 200 days with a dailysales volume of 4.2 m shares. When calculated in fifty-day averagebasis, the PepsiCo shares were trading at $90.43 moving at 80% in thelast two months of trading. The positive performance of the PepsiCostocks is attributed to the profits made by the company (UnitedStates Securities and Exchange Commission, 2013).
Theshort-term trend of the stocks is regarded down the medium termtrend of the shares is up, moving at an average of 91.62 within 20days while the long-term trend of the firm shares is also on anupward trend moving at an average of 85.22 in 200 days. In year 2011,Pepsi shares were trading at $66.35 with a sales volume of $2.6 M.The stock market trend on PepsiCo shares indicates a rising trendeach year. For instance, in 2010 PepsiCo stocks were trading at $57per unit, in 2011, the price was $62 and in 2012 the stock priceswere $ 73. In addition towards, year 2013 the prices increased to $87while in the year 2014 the stocks were trading at $ 92 with highexpectations of the prices going up. The overall image is that Pepsistocks are rising as well as the divided shares (PepsiCo, 2013).
Financialanalysts observe that PepsiCo shares are more predictable because theshare trends in the past years indicate that the firm hasconsistently grown. In addition, the company is making decent profitin a consistent rate, and the overall firm is in a stable condition.
Therehas been a rise in competition from the beverage firms operating inemerging power markets such as Brazil, China, Russia and India. Thesefirms are threats to the profitability of Pepsi and its long-termgrowth objectives. Competitors from these areas have low productioncosts due to availability of cheap labor and raw materials. As such,in order to curb these competitions PepsiCo has adopted a strategy ofmerging and acquisition with international firms as a way of gainingentry in these emerging markets. In this respect, in 2011Pepsi hasacquired Lebedyansky and WimmBill-Dann in Russia, Mabel cookies andLucky snacks in Brazil, Dilexis from Argentina.
Emergingmarkets are essential to Pepsi as they have wider consumer base forthe American lifestyle products. In addition, increased standards ofliving in these markets trigger increased spending and consumptionwhich is a strategic opportunity for Pepsi Co. Recently in 2012, thefirm acquired Muller Quaker Dairy. These acquisitions have raised thefirms’ stock performance and overall profitability (United StatesSecurities and Exchange Commission, 2013). For instance, since 2009when the firm began major mergers and acquisitions, the firms’dividends and overall stock price performance has stabilized andincreased significantly.
Thecompany recorded a 5% decrease in operating profit and 0.6% decreasein operating margin. The decrease in profit was attributed toincreased operating costs such as higher advertising costs, commoditycosts, unfavorable foreign exchange, inflation and increase in othercorporate unallocated expenses. The financial statements alsoindicate that the net interest’s expenses increased while tax ratesdecreased by 1.6% compared to 2011. Net income in 2012 decreased to4% and net income from shares also decreased to % per share. Netrevenue in 2012 was $65,492 million while in 2011 net revenue was$66, 504 million (United States Securities and Exchange Commission,2013).
Thereported operating profits increased by 7% while the operating marginincreased by 0.7 percent. The growth in margins was due to effectivenet pricing and cost reductions especially the operating costs suchas advertising and marketing. However, high inflation in commodityprices led to decrease in profits. Nonetheless, net income increasedby 9% while net income from shares increased by 10%. Tax rate alsodecreased by 1.5 % compared to year 2012 due to favorable tax locallyand internationally. In 2013, net income was $66, 415 million (UnitedStates Securities and Exchange Commission, 2013).
OverallAnalysis of Pepsi
Thebusiness strategy and model adopted by Pepsi is a clear indication ofthe firms’ ability to grow and expand exponentially. In particular,PepsiCo range of products is an important competitive aspect thatwill enhance business sustainability and capacity to make profits inall seasons. Secondly, the firm has an elaborate potential for growthand expansion from its continued mergers and acquisitions across theglobe. Currently, the firm is strategizing on how to gain entry inemerging markets like China and Africa (United States Securities andExchange Commission, 2013). The financial performance of the firm isabove board, and the indication is that the firm is making promisingfinancial growth in the market. The stock trend performance indicatesthat the firm is experiencing good business the share prices arestable and rising. In addition, PepsiCo has been offering competitivedividends to its shareholders an indication of a stable andprofitable firm.
TheCoca-Cola Company was established in 1944 by John Pemberton.
Companyproducts, competitors and customers
Thecompany has a license to market and produce more than five hundredbrands of beverages such as water, juices, ready to drink tea,coffee, energy drinks and other sports drinks. The company mainproducts are carbonated and non-carbonated drinks such as Diet Coke,caffeine free Coca-Cola, Coca-Cola vanilla, lime, lemon and coffee.Coke products are present in 200 countries and territories. Thecompany has made numerous attempts to change its ingredients for thesoft drinks to avoid product similarities with those of Pepsi Cobeverages (Coca-Cola Global, 2013).
However,Coca-Cola brand is one of the most distinguishable in the worldcompared to those of its main competitor Pepsi. Other competitors areRC Cola and Pepper Snapple Group. Major customers are food stores,groceries, authorized distributors and bottlers across the globe,local large scale and retail outlets (Coca-Cola Global, 2013).
Leadershipand management at Coca-Cola Company
Thefirm is managed by a chief executive officer and the board ofdirectors. The directors oversee the running of all companyoperations. In addition, the firm has a candor of senior operationsleaderships assigned in different geographical regions across theglobe. Other management staffs are functional leaders based on aspecialized area of operation such as Human resources, financeadministrators, marketing and distribution among others. The overallleadership and management at all levels in Coca-Cola Company can beregarded as laissez-faire style, hands off management practice wheretasks are delegated to staffs with minimal supervision. Thislaissez-faire management style has enhanced employee motivation,teamwork and efficient service delivery (Coca-Cola Global, 2013).
Coca-Colais the largest beverage company and has been in business for over onecentury. The company pays out occasional dividends of $ 0.255 with anon-volatile stock. In addition, the firm has extensive market ingrowing regions which enable the firm get stable funds and market(Coca-Cola Global, 2013).
Coca-Colais experiencing great competitions from emerging beverages companiesas well as existing ones. In addition, some products from Coca-Colahave been labeled as unhealthy leading to nostalgia among customers.
Coca-Colahas acquired and merged with several organizations that haveincreased its distribution network and competitiveness in thechallenging markets.
Thecompany main threat is increased competition from Pepsi Co. In somecountries where the firm sells its drinks, taxes have been imposed onthe sale of soft drinks leading to low profits. Lastly, currencyfluctuation and inflation is a great challenge to the firm profitmargins.
Currentevents Mergers and Acquisitions
Coca-ColaCompany has had an extensive history of mergers and acquisitions as away of boosting its market share and profits. In recent acquisitions,the company acquired the North American Coca-Cola enterprise Inc.(CCE) as a way of boosting its production, sales and distributionsin Canada, Britain and other European markets. In addition, thecompany signed a distribution license with Dr. Pepper SnappleGroup, Inc. ("DPS"). In the late 2011, the companyacquired the Great Plains Coca Bottling Company (Plain Bottlers). OnNovember last year, Coca-Cola Company acquired Zico beverages. Earlythis year 2014, Coca-Cola Company acquired the Green Mountain CoffeeRoasters Inc., the Water Health International Inc. The ripplingeffect is that these mergers and acquisitions have increased thecompany distribution networks, profits and stock price acceleration.Currently, Coca-Cola Company has a pending acquisition deal withMonster Beverage Corp (Coca-Cola Global, 2013).
Analyzingthe stock trends of Coca-Cola
Inthe year 2011, Coca-Cola stock prices were trading at $35.08 pershare with a sales volume of 8,740,000. In 2012, Coca-Cola shareswere trading at $35.97 with a sales volume of 14, 058,000. In 2013,the shares rose to $40.66 with a sales volume of 6, 762, 200 and inthe year 2014 Coca-Cola stock prices rose to $ 41.30 with a salesvolume of 7, 666, 700. In this stock trend analysis, there is asignificant rise in the stock prices in the subsequent years. Thiscould be attributed to increased mergers and acquisitions that haveoccurred recently. However, the low trend in stock prices rise couldbe attributed to low profits, increased competitions and lack ofproduct diversity as it is the case with major competitors.
Inthis year, Coca-Cola made net revenue of $46, 542 million, and$10,154 million as operating income. The net income after tax was $8,572 million, and the earning per share was $1.84 million.
Inthis year, Coca-Cola Company made revenue worth $ 48, 017 million,and the operating income was $10,779 million and the net income aftertaxes was $9, 019 million. The financial profits indicate thatCoca-Cola had an overall improvement in profits albeit to a smallpercentage compared to profits recorded in 2011.
Inthis year, the total revenue collected was $ 46, 854 million whilethe operating income was $10, 2228 million and the Net income aftertax was $8,584 million. Earnings per share were $ 1.9 million, adecline from the previous years earning per share that was $1.97million. There was a slight drop in total revenue collected comparedto revenue and the operating income collected in the financial year2012. In the same note, the net income for year 2013 decreasedsignificantly compared to that of year 2012 and 2011 respectively.
OverallAnalysis of Coca-Cola
Althoughthe Coca-Cola Company has an extensive distribution network as wellas competitive brand image for the corporate and products, themultinational corporation performance is dismal as indicated bylow-profit margins from the sales revenues as well as from the stockmarket.
Analysiscomparison between PepsiCo and Coca-Cola
AlthoughCoca-Cola Company is dubbed as the largest giant in the beveragemarket, the overall performance compared to PepsiCo indicates thatlow performance. First, PepsiCo had increased its products diversityto include foods, snacks and drinks while Coca-Cola only deals withvast brands of beverages. The effects of increased product diversityat Pepsi are more sales and managing seasonal sales risks which arealso important in enhancing stock prices stability. Another,difference is that the business model adopted by Pepsi through itsincreased mergers and acquisitions are more and strategic compared tothose of Coca-Cola. Pepsi mergers target major emerging multinationalcompanies while Coca-Cola acquisitions is on small beverage firms.International acquisitions such as those pursued by PepsiCo have ahigher chance of increasing distribution and market networks comparedto those of small firms as well as enhancing stock prices stability.The effect is that, PepsiCo has more opportunities for growth,expansion, market and increased sales volume compared to Coca-Cola.
Furthermore,the strategy of acquiring other international firms by Pepsi hasenhanced its easy entry in emerging markets compared to Coca-Cola.When net revenue comparison is made between Pepsi and Coca-Cola in2011-213 financial years, PepsiCo financial revenue and profitsexceed that of Coca-Cola. For instance, in 2012 Pepsi made netrevenue of $65,492 million while Coca-Cola net revenue was $ 48, 017million. The net income difference between the two beverage firmsshow a widening margin Pepsi net income across the globe exceedsthat of Coca-Cola. While Coca-Cola has also experienced a significantrise in profit margin for the years 2011-2013, the margin differenceis much lower compared to that of Pepsi. A closer analysis of thefinancial performance between Coca-Cola and PepsiCo shows thatPepsiCo is faring well compared to Coca-Cola (Coca-Cola, 2013).
Onanother front, although PepsiCo shares are overpriced, the pricetrend indicates a healthy and profitable firm compared to Coca-Cola.For instance, the stock prices of Pepsi have been rising each yearwith approximately $ 10 margin. In 2010 PepsiCo stocks were tradingat $57 per unit, in 2011, the price rose to $62, in 2012 the stockprices rose to $ 73, in the year 2013, the prices increased to $87and in 2014, the stocks were trading at $ 92 with high expectationsof the prices going up. The overall image is that Pepsi stocks arerising as well as the divided shares at $ 0.3 per share. The scenariois totally different in Coca-Cola, in the year 2011 Coca-Cola stockprices were trading at $35.08 per share and in year 2012 at $35.97,in year 2013 the shares rose to $40.66 and in 2014, the shares are at$ 41.66 (Coca-Cola, 2013). The impression is that, although Coca-Colastocks are also rising significantly the margin is small compared tothat of PepsiCo. The investor should consider investing at PepsiCobased on the company profitability, potential for growth and moremarket that will ensure the sustainability of the firm. In the sameline, an investor should consider investing at PepsiCo based on thestable stock prices trend over the past three years (2011-2013).
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