PepsiCo (NYSE:PEP) is the world’s second largest carbonated soft drink manufacturer and the largest packaged foods product manufacturer. PepsiCo’s beverage division competes with Coca-Cola (NYSE: KO) in virtually all sub-segments of the beverage market.
Pepsi reported strong fourth quarter and full year results last month. During the course of last year, it acquired Wimm-Bill-Dann, one of Russia’s leading food and beverages company. It also set up its Global Nutition Group to penetrate the market for health foods. In addition to this it acquired and integrated two bottlers, from which it expects synergies of more than $550 million through 2012.
We estimate that Pepsi brand operations constitute about 11% of the company’s stock value, while Frito Lay products actually generate a more substantial 42%. Our price estimate for PepsiCo stock is $65.56, roughly 5% ahead of market price. The company’s healthy food products or its nutrition business, which includes our Gatorade, Tropicana, and Quaker Foods divisions together constitute around 31% of our price estimate.
Pepsi Full Year Results
For the full year, company-wide net revenues increased 34%. Net revenues from the Americas region increased by around 36%, while those from Europe increased 38%. For Asia, Middle East & Africa, net revenues increased 19%. Going forward, the company expects further increases in commodity costs and a tough economic environment in developed markets. On the emerging market front, Pepsi plans to continue to make strategic investments to build the brand. [1]
Carbonated Beverage Market Share Struggles
Although Pepsi’s Frito Lay products have been doing well, the company has been losing significant market share in carbonated soft drinks, most notably its flagship Pepsi brand. According to Beverage Digest, Pepsi fell behind Diet Coke in U.S. market share for the first time last year. [2] One possible reason for this could be the decline in marketing spend on cola brands as a result of heightened focus on healthy food initiatives. [3]
Pepsi’s U.S. Carbonated Soft Drink Market Share -
Looking Back to Move Forward
As part of a new initiative to revive sales of its carbonated soft drinks, Pepsi is banking on nostalgia. For its Pepsi and Mountain Dew cans, it plans to introduce designs from a few decades back, and slightly change the taste so that they more closely resemble previous versions.
This strategy highlights a growing trend among teens for simplicity and authenticity. According to experts, this strategy has a two-fold advantage in that it also attracts the 40-plus demographic. [4]
See our full analysis and $65.56 price estimate for Pepsi stock
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