The company is selling more snacks than sodas
As more Americans turn to water and other beverages instead of soda, the soda companies are struggling to figure out what to do. Now, in light of PepsiCo's most recent earnings, it seems PepsiCo is holding steady with snacks instead of soda sales.
The Associated Press reports that PepsiCo, the owner of Frito-Lay, Tropicana, and Quaker Oats, had earnings that beat Wall Street expectations, thanks to the sales of its snacks. Reports the AP: "Despite its better-than-expected results, PepsiCo stood by its forecast that core profit would grow 7 percent, noting that the global economy remains volatile and that it could opt to reinvest any savings. For the quarter, the company earned $1.08 billion, or 69 cents per share. That's down from $1.13 billion, or 71 cents per share, a year earlier."
The foods that sold particularly well: Sabras hummus and Stacy's Pita Chips, as well as Doritos (obviously). But soda sales flatlined, surprising no one. Newsday quoted CEO Indra Nooyi in a conference call as saying, "The cola category continues to be a challenge."
No wonder both Coca-Cola and PepsiCo are trying to figure out how to get people to keep buying soda, or as Nooyi put it, "reinventing cola." Despite its numerous beverage brands, though, like Lipton teas or Aquafina bottled water, soda is still what sells the most. Maybe it's Beyoncé and Sofia Vergara that are convincing people to buy.
PepsiCo Diversity of Products, Growth Potential Make It a Good Buy
PepsiCo&aposs (PEP) - Get Report third quarter earning impressed investors and analysts alike. Shares rose nearly 2% Thursday morning following the company&aposs announcement that it had beaten Wall Street expectations. The stock fell back but finished slightly up for the day.
The big takeaway was the company&aposs profits, which clocked in at $1.40 per share, soundly beating the analyst forecast of $1.32 per share. And the company has lifted its full-year guidance as well, proving that its portfolio of brands is almost immune to the current soda slump.
PepsiCo is a good addition to a portfolio because of the diversity of its products and ability to stay on top of consumer trends.
The "end of soda," which doctors and analysts have been predicting, has finally arrived. Americans, on average, are becoming increasingly focused on become what they consider "health conscious," caring more about the ingredients they put into their bodies.
As we all know, the definition of "healthy" changes from year to year. "Diet" sodas, made with artificial sweeteners such as aspartame, used to be considered a healthy alternative because they cut calories. Then the trend shifted, with Americans shunning artificial sweeteners and even high-fructose corn syrup in favor of full-calorie sodas made with "natural" cane sugar. (This has led even fast-food giant McDonald&aposs to revamp recipes to cut high fructose corn syrup from its baked goods.)
Soda companies -- Pepsi, Coca-Cola, and Dr. Pepper Snapple (DPS) chief among them -- have responded by designing "craft brew" sodas with natural and organic ingredients.
But soda sales as a whole are on the decline, and that&aposs why PepsiCo stands out. The company not only owns the Pepsi brand, but also some of the country&aposs most popular snack brands, including Frito-Lay (maker of Lay&aposs, Fritos, and Doritos chips). And even though Americans are staying away from soda, they still get the munchies. In addition, PepsiCo makes Sabra hummus and guacamole dips and popular Quaker oatmeal.
Plus, the Pepsi portfolio contains soda alternatives, such as Gatorade sports drinks, which recently announced an organic version, and Naked juices and smoothies. This is a well-diversified company that keeps pleasing its investors.
In fact, CEO Indra Nooyi highlighted this point earlier in the year, when she revealed that Pepsi achieves less than 25% of its revenue from soda. In contrast, Coca-Cola depends on soda for almost 75% of its revenue.
That&aposs not to say Pepsi hasn&apost been feeling the industry-wide burn in revenue. Revenue declined from $16.333 billion to $16.03 billion for the quarter. However, much of the problem here was due to foreign currency fluctuations. And it still smashed Wall Street&aposs forecast of $15.89 billion!
The company has revised its full-fiscal-year earnings outlook from $4.71 per share to $4.78 per share, versus analysts&apos projections of $4.76 per share. It&aposs going to continue to be a great year for PepsiCo, with its excellent portfolio of brands. Pick up more shares of this sweet stock on any dips in price.
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PepsiCo Mid-Year Earnings: What To Expect?
PepsiCo will announce its mid-year results on July 9, and much of our attention will be on the growth in beverages and in emerging markets, which could be a letdown due to a continual decline in soda sales and tough macroeconomic conditions in some countries. But, for a company which has looked to reduce the sugar and salt content in its packaged foods and drinks, and launch more nutritional and healthier products, ‘junk’ food is one of the main growth drivers for the manufacturer. The fact that beverages such as sodas and juices, might continue to decline again this quarter, could add more fuel to the argument made by investors to spin-off the ailing drinks business, and let the foods division function as a separate company. Being the leader in salty snacks in most markets, and considering how more than half the net revenues are contributed by snacks, PepsiCo’s core foods business is expected to drive growth in the top line, as well as profits, yet again this quarter. And this is what we will focus on.
We estimate a $98 price for PepsiCo, which is above the current market price.
PepsiCo’s strong organic growth of 4.4% in Q1 came on the back of a continued strong showing by the snacks division, which forms approximately 64% of the company’s valuation, according to our estimates. The key takeaway from PepsiCo’s Q1 results was that while organic volume for beverages declined 1%, volume for snacks grew 2%. Snacks continue to grow in the U.S., which might seem odd considering the continual push for a healthier lifestyle in the country, which has seen the carbonated soft drinks market decline for ten consecutive years now. The U.S. snack food market, worth $35 billion, grew at a CAGR of 4.2% between 2009-2014, and continues to grow on the back of innovations and increasing price per unit, and also as the core salty snacks category continues to grow because of the large snacking habit that Americans have.
PepsiCo, which holds around 25.4% volume share in the U.S. liquid refreshment beverage market, second behind Coca-Cola’s 33.6% share, dominates the savory snacks market in the country with a 36.4% market share. The next biggest manufacturers in this sector are Kellogg’s and Mondelez with much smaller 6.8% and 5.3% shares, respectively. According to research by Nielsen, 63% of North Americans said that they ate chips/crisps as a snack in the last 30 days, a segment which is dominated by PepsiCo’s brands such as Lays, Doritos, and Cheetos. While Americans continue to ditch sugary sodas such as Pepsi and even Diet Pepsi, salty snacks continue to attract customers.
Following a 3% top line growth in 2014, PepsiCo’s Frito-Lay North America reported 3% revenue growth in Q1 as well, on 3% growth in organic volume. This division alone constitutes 36.8% of PepsiCo’s valuation by our estimates, compared to only 15% constituted by the entire CSD portfolio, which forms roughly 25% of the company’s top line. This is because of continual sales growth for Frito-Lay North America, which is also PepsiCo’s most profitable division, with 27.7% operating margins in the last quarter, compared to 16.6% for the overall company. We believe that with growth in snacks yet again this quarter, especially in the U.S. (which accounts for more than half the net sales), both the top line and bottom line should get a boost.
The other thing to focus on this quarter will be the impact of negative currency translations. Considering that markets outside the U.S. formed 49% of PepsiCo’s revenues in 2014, with over 22% of the net revenues coming from Russia, Mexico, Canada, the U.K., and Brazil, the impact of the strengthening U.S. dollar will be significant on the top line in Q2. The company’s organic sales in emerging countries grew 9% year-over-year last year, however, net revenues fell 1% over 2013 levels on massive negative currency translations. The top line declined 3% last quarter, hurt by more than a 7-percentage-point unfavorable impact of foreign currency depreciation, which is expected to drag down full-year net sales and core EPS by 10 to 11 percentage points.
Here’s a chart comparing the impact of currency translations on the net sales for some of the major beverage makers in the last quarter.
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PepsiCo Commits to 100% Recycled Plastic Beverage Bottles for its Pepsi Brand in 9 EU Markets By 2022
[2 December 2020] PepsiCo is committing to eliminate all virgin plastic from its Pepsi brand beverage bottles sold in nine European Union markets by 2022. The company will package the entire range of beverages under that brand with plastics recycled from post- consumer packaging (recycled polyethylene terephthalate, or &lsquorPET&rsquo). PepsiCo will also continue its progress towards growing reuse and refill systems such as SodaStream.
The company estimates that the move to 100% rPET for these beverage bottles will eliminate over 70,000 tonnes of virgin, fossil-fuel based plastic per year, and will lower carbon emissions per bottle by approximately 40%. In 2018, the company had announced that it would get to 50% rPET usage across the EU by 2030 and has already reached 30%. This announcement marks significant acceleration toward reaching this goal.
Technological innovations in the use of recycled plastics in carbonated drink bottles, improvements in the appearance of recycled plastic, and greater availability of recycled materials on the market have made it possible for the company to accelerate its progress.
Germany, Poland, Romania, Greece and Spain will switch to 100% rPET in 2021, while France, Great Britain, Belgium and Luxembourg will be at 100% rPET in 2022. The move applies to both company-owned and franchise bottlers in the relevant markets.
In France, Great Britain, Germany, Belgium and Luxembourg the commitment goes beyond Pepsi brands, to include all soft drinks, for instance 7Up, Mountain Dew and Lipton Ice Tea. Poland and Romania will also use 100% rPET in Mirinda.
Silviu Popovici, CEO, PepsiCo Europe said: &ldquoWe are committed to immediate action to address the plastic waste challenge. Starting with these nine markets, we are working to incorporate 100% recycled plastic into our beverage bottles so we can minimise our use of virgin, fossil-fuel based packaging. We will also look to go further and faster in other European markets where the conditions allow.
&ldquoCollaboration between all stakeholders across the EU is central to this issue. We need to design packaging to be recyclable, reduce the amount of packaging we use, and make it easy for consumers to recycle. Working with policy makers and waste management systems, we need to collect more bottles so that plastic needs never become waste. Everyone can and should play a part in developing a circular economy for plastic.&rdquo
This new PepsiCo commitment supports the European Commission&rsquos recycled plastics pledging campaign that seeks to ensure that ten million tonnes of recycled plastics are used to make new products in the EU market by 2025.
- 100% rPET for Pepsi
- 9 European countries
- Significantly less virgin plastic used
- 40% average reduction in carbon emissions per bottle
Over the past two years, PepsiCo has made solid progress in the journey to rPET inclusion. As well as doubling its use of rPET in the EU to 30% in two years, it has launched three brands (Tropicana, Naked Smoothies and Lipton Iced Tea) in 100% rPET bottles across a number of EU markets.
A critical part of increasing the availability of recycled plastics suitable for re-use in food packaging is ensuring that bottles are easily recyclable and recycled. Almost 90% of PepsiCo&rsquos packaging portfolio is already recyclable, compostable or biodegradable.
The company is working to increase that percentage further through design improvements such as moving to clear bottles. The company is also committed to consumer education to ensure that more of its packaging is placed in the recycling system rather than in the environment.
While recycling is an important part of tackling plastic waste, PepsiCo recognises it is just part of the solution. Its three-pillar approach also looks to reduce the amount of packaging it uses and reinvent its packaging through innovations. This includes exploring new materials such as the world&rsquos first fully recyclable paper bottle through the Pulpex consortium, and investing in reusable models such as SodaStream, which aims through growth, to avoid 67 billion single-use plastic bottles globally by 2025.
PepsiCo is committed to working with multiple stakeholders to take collective action that will accelerate progress towards a circular economy. Most recently, PepsiCo became part of the Holy Grail digital watermarks consortium to trial smart packaging which will ensure it is easier to sort waste so more is recycled. The company is also a member of several partnerships including the New Plastics Economy, an Ellen MacArthur Foundation initiative, the Global Commitment, led by the Ellen MacArthur Foundation and UNEP, the EU Circular Plastics Alliance and the Alliance to End Plastic Waste.
PepsiCo also participates in Extended Producer Responsibility (EPR) schemes across the EU to improve collection and recycling rates and is supportive of deposit return schemes where kerbside collections are insufficient to meet the EU target of 90% collection by 2029.
For more information on our sustainable packaging vision go to www.pepsico.com/sustainability/focus-areas/packaging or follow us on Twitter @PepsicoEU
Notes to editors
For press enquiries, please contact:
PepsiCo products are enjoyed by consumers more than one billion times a day in more than 200 countries and territories around the world. PepsiCo generated more than $67 billion in net revenue in 2019, driven by a complementary food and beverage portfolio that includes Frito-Lay, Gatorade, Pepsi-Cola, Quaker and Tropicana. PepsiCo's product portfolio includes a wide range of enjoyable foods and beverages, including 23 brands that generate more than $1 billion each in estimated annual retail sales.
Guiding PepsiCo is our vision to Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose. "Winning with Purpose" reflects our ambition to win sustainably in the marketplace and embed purpose into all aspects of the business. For more information, visit www.pepsico.com.
Statements in this release that are "forward-looking statements" are based on currently available information, operating plans and projections about future events and trends. Forward-looking statements inherently involve risks and uncertainties. For information on certain factors that could cause actual events or results to differ materially from our expectations, please see PepsiCo's filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made. PepsiCo undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
 Includes Pepsi MAX, Pepsi MAX Lima, Pepsi MAX without caffeine, Pepsi Light, Pepsi Light without caffeine and regular Pepsi.
 Doubling from a baseline of 13% rPET usage in 2018 in the EU. Source: PepsiCo
PepsiCo Earnings Review: Snacks And Beverages Make A Good Marriage?
PepsiCo announced better than expected half-yearly results on July 9, but most of our attention was drawn to the announcement of the combination of the Latin America beverages and snacks businesses. The company has remained committed to deriving synergies between its drinks and foods divisions, while activist investors have pushed the company to spin off the ailing drinks division. Just as with Europe and Asia, Middle East and Africa, Latin America will now also be trimmed into one separate operating unit, comprising both drinks and snacks. A segregation of the foods and drinks divisions might be in the cards some time later, but it seems that PepsiCo is heading into the future all intact, for now.
Well, in taking a look at PepsiCo’s recent results, the answer might just be yes.
We estimate a $98 price for PepsiCo, which is above the current market price.
PepsiCo managed to achieve a 5.1% year-over-year growth in organic revenues in Q2, and raised its full-year core constant currency EPS growth outlook to 8%, from the previously estimated growth rate of 7%. Beverage volume remained flat, while snack volume rose 1% in the quarter. The foods division constitutes roughly half of PepsiCo’s net revenues, but forms 64.3% of the company’s valuation by our estimates. Investors have pushed for a segregation of the company mainly due to the latent potential of the snacks division, which, it is assumed, is being let down by the not-so-prospering drinks division. Snacks continued to outgrow beverages this quarter as well organic revenues for snacks rose 8%, while organic revenues for beverages rose only 2%. While the world continues to cut back on its sugary soda and juice consumption, savory snacks have consistently seen growth — which is why the foods division is a larger contributor to PepsiCo’s valuation according to our numbers.
However, while the fact that snacks are consistently outperforming beverages remains true, beverages have also shown promising growth in the recent past–not only in developing economies but also developed markets such as the U.S., and the synergies cannot be ignored. For example, according to PepsiCo, a significant part of growing the snacks business includes penetrating all retail outlets that beverages are already in, because the company’s presence in beverage retail outlets is much higher than in snacks. Apart from leveraging PepsiCo’s higher beverage reach to grow snacks too, what the company stands to gain from keeping the two businesses together are synergies.
PepsiCo remains on course to derive productivity savings of $1 billion this year and through 2019, following a similarly aggressive three-year $3 billion program that was concluded last year. Now that the Latin America foods and beverages businesses are being combined, the company aims to cut more additional costs, and derive synergies–especially in a bid to achieve growth in a region which is struggling economically at present. PepsiCo had earlier said how the synergies between the foods and drinks businesses range between $800 million and $1 billion annually, and operating a leaner unit in Latin America might allow the company to more optimally invest the sales generated there for the purpose of future growth.
A boost for the beverages division was growth in North America this quarter, which is important, especially as the U.S. contributes roughly half of the company’s net sales, and slowing drink sales in developed markets has for long plagued sales of beverage manufacturers. Organic volume sales for PepsiCo Americas Beverages rose 1% year-over-year in Q2, and effective pricing increased 4%. The company was able to increase retail sales of its carbonated soft drinks across measured channels due to its packaging and pricing initiatives, which somewhat offset the impact of lower volume sales in the quarter.
Although the U.S. CSD market declined for the tenth consecutive year in 2014, the rate of decline fell last year, on increased customer spending on perishable products, amid an improving economic environment in the country, reflecting that there might be some fight left in the CSD category. Why this category is particularly important is because approximately 41% of the industry-wide volumes in the U.S. liquid refreshment beverage market, which stood at 30.88 billion gallons last year, is constituted by CSDs alone, as per our estimates. While Americans continue to fall out of love with sugary sodas, PepsiCo achieved growth in this category through innovation such as the introduction of Mountain Dew Kickstart and DEWshine, and through pricing and packaging wins–by focusing on sales of smaller packs (which have a higher price-per-unit) and raising retail prices. The company is also looking to solve the falling-diet-soda-sales problem by removing aspartame from Diet Pepsi, and replacing it with sucralose, better known as splenda, which has a slightly better customer perception than aspartame.
PepsiCo’s better-than-expected performance in beverages in the U.S. could continue in the near term, bolstered by the introduction of new products, and supported by the ever-so-increasing research and development expenditure by the company. From 2011 to 2014 alone, the food and beverage giant’s investment in R&D has increased almost 40%.
It looks like PepsiCo’s beverage business is also picking up, although slightly, to complement the fast-growing snacks division. However, despite the strong organic growth, the company reported a 6% fall in its top line this quarter, due to a 10% negative effect of currency translations. Considering that markets outside the U.S. form
50% of PepsiCo’s top line, the continually strengthening U.S. dollar dented the reported earnings. The company’s organic sales in emerging countries grew 11% year-over-year in Q2, however, net revenues fell 13% over 2014 levels on massive negative currency translations. PepsiCo now expects currency translations to drag down full-year net sales and core EPS by 9 and 11 percentage points respectively.
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Why PepsiCo Doesn’t Need SodaStream
The beverage market really is a battle of two companies: PepsiCo (NASDAQ:PEP) and Coca-Cola (NYSE:KO) , the two largest beverage companies in the world. This battle is making its way into consumers' kitchens. Coca-Cola has inked a deal with Green Mountain Coffee Roasters (NASDAQ:GMCR.DL) , which has the potential to do for cold beverages what the Keurig has done for hot beverages.
Home beverages present a big opportunity
Shares of Green Mountain got a massive lift on the news, up more than 40% in a single day trading at levels that the company hasn't seen in more than three years. Meanwhile, because of the Coca-Cola and Green Mountain deal, there's new speculation that PepsiCo might make a deal with SodaStream. The question has now become what does this mean for PepsiCo?
PepsiCo investors are still focusing on a potential deal with SodaStream. This would help position PepsiCo in the home-beverage market and be an answer to the Coca-Cola and Green Mountain deal. When asked about potentially answering Coca-Cola's move into home beverages, PepsiCo CEO Indra Nooyi said, "Green Mountain is one option. Interestingly, there are multiple, multiple, multiple technologies out there." Is SodaStream one?
Even if it isn't, PepsiCo is a great investment
PepsiCo continues to be a best-in-breed consumer-goods stock. Billionaire and activist investor Nelson Peltz is still calling for the breakup of the beverage and snacks segments of PepsiCo. However, PepsiCo has reiterated that it plans on keeping the business intact.
It remains to be seen how the Peltz situation will shake out. But it's not only the snacks business that is appealing for investors it's also emerging markets. Investors also be encouraged by the fact that PepsiCo can grow the profitability in its North American beverage business by rationalizing its manufacturing and distribution processes, which comes as the company has significant extra capacity. Ultimately, the rightsizing of capacity should help boost margins.
PepsiCo still generates nearly half of its revenue from outside the U.S. and is investing in emerging markets. Over the last five years, PepsiCo has managed to triple its revenue from emerging markets. PepsiCo saw double-digit sales gains in Latin America and Asia last quarter. The ultimate goal is to increase emerging market revenue to account for more than two-thirds of revenue.
What to expect in 2014 and beyond
While PepsiCo is the No. 2 player in beverages globally, behind Coca-Cola, it is the global leader in salty snacks. Its key brands include Doritos, Cheetos, and Lay's. Its growing snacks business is helping to offset its sluggish beverages business. The plan is to shift its business mix to rely more on snacks. And going forward, the company expects two-thirds of its growth to come from snacks.
The other positive for PepsiCo is that it's growing its presence in nutrition businesses. This includes its nutrition brands Tropicana, Gatorade, and Quaker. This is a big positive as consumers shift toward good-for-you and health and wellness products.
Stacking up the shares
PepsiCo trades at 16.5 times next year's earnings estimates. Shares are up only 6% over the last year compared to the S&P 500 index's 22%. Meanwhile, Coca-Cola trades at 17 times next year's earnings. Investors remain attracted to shares of both Coca-Cola and PepsiCo for their dividends, yielding 2.9% and 2.8%, respectively. However, analysts expect PepsiCo to grow earnings a bit faster than Coca-Cola. Wall Street expects PepsiCo to grow earnings at an annualized 7.6% over the next five years meanwhile, Coca-Cola is expected to grow at an annualized 6.4%.
While Coca-Cola is the leader in the carbonated-beverage market, PepsiCo is a formidable competitor and compelling investment. Investors can get exposure to both the beverages and snacks markets by investing in PepsiCo. I look for PepsiCo to continue its shift toward snack foods and expansion into emerging markets, which should provide for multi-year market-beating returns.
Slowing Global Growth Could Mean A Fizzling Quarter For PepsiCo
PepsiCo reports second-quarter earnings Thursday and the soda and snacks giant's results may provide some insight into the condition of the shaky global economy.
Purchase, NY-based Pepsi gets about half of its revenue from international markets, with substantial business in Mexico, Russia, Canada and the U.K. The June 23 Brexit likely came too late in the quarter to have a massive impact on results -- Great Britain accounts for less than 4% of total revenues -- but investors will certainly be keen to hear if Pepsi has anything to say about the surprise vote to leave the European Union and the market turmoil that followed.
Analysts expect PepsiCo to report earnings of $1.29 per share on revenue of $15.4 billion, down from $1.34 EPS and $15.9 billion in sales in the prior year.
Mexico is the largest foreign market for PepsiCo, contributing about 6% to revenues, followed by Russia (4.4%), Canada (4.25%), UK (3.1%) and Brazil (2%). In a recent note on global growth, Morgan Stanley economists warned the Russian economy will stay in recession for another year, while Brazil is still reeling under economic uncertainty.
Investors will also be watching out for recession-torn Venezuela’s impact on results. PepsiCo de-consolidated their assets in the country last fall and took $1.4 billion impairment charge. The move is expected to knock off 3 cents from the earnings this quarter and 6 cents in the third quarter, said S&P Global Market Intelligence analyst Joseph Agnese.
Overall, the beverage and snack maker is expected to report 3.5% growth in the organic sales, driven by 4.5% sales growth in its North American Frito-Lay unit, 5.5% in Latin American region and about 7.55% in Middle East, Asia and North Africa market, noted Jefferies analyst Kevin Grundy in a research note to the clients.
In April, CEO Indira Nooyi announced a shift in the company's product lineup to better reflect a growing focus on healthier options. She said PepsiCo now gets less than 25% of its global sales from soda and 12% of global sales from its namesake brand. Bottled water and unsweetened drinks account for 25% of sales.
Soda still matters though, as shown by Pepsi's recent backtracking on last year's plan to change the formula for Diet Pepsi by replacing artificial sweetener aspartame in the recipe. With consumers balking and sales declining, the company announced in June it would bring the old recipe back as a 'Classic' brand.
I am a former market analyst. I believe ‘’Buy low, sell high’’ strategy is often quoted more than practiced. I currently help strategize content for Forbes investing…
Updated on June 19th, 2020 by Bob Ciura
Did you know PepsiCo (PEP) now generates more profit from its food brands than from its beverage brands? In 2019, food products represented 54% of PepsiCo’s total revenue. The biggest reason for PepsiCo’s emerging foods portfolio is the acquisition of Frito-Lay in 1965.
Since that time, the Frito-Lay brands have realized tremendous growth. PepsiCo’s strategy of building both drink and food brands has paid dividends for shareholders, literally and figuratively.
PepsiCo has increased its dividend payments for 48 consecutive years. This makes PepsiCo one of 66 Dividend Aristocrats – S&P 500 stocks with 25+ years of rising dividend payments each year.
You can download the full Dividend Aristocrats list (with important financial metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
The stock currently has an above-average dividend yield of 3.2%. PepsiCo has grown its revenue and earnings-per-share for decades, which has allowed it to continue increasing its dividend each year.
Of course, its brand portfolio is the reason for its long history of growth. The company now has 23 individual brands that each generate $1 billion or more in annual sales.
This article will take a closer look at each of PepsiCo’s billion-dollar brands.
Table of Contents
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PepsiCo’s 23 Billion-Dollar Brands
The image below shows PepsiCo’s 23 brands with over $1 billion in sales in the last 12 months:
PepsiCo has 16 billion-dollar beverage brands and 7 billion-dollar food brands. Of PepsiCo’s 16 billion dollar beverage brands, 10 are carbonated (called sparkling) and 6 are non-carbonated (called still).
* Lipton and Starbucks RTD Beverages are partnerships with Unilever (UL) and Starbucks (SBUX), respectively. Dr. Pepper/Snapple (DPS) owns the United States rights to 7 Up while PepsiCo owns the rights outside North America.
Despite PepsiCo’s name, the company sells much more than carbonated beverages. In fact, only 10 of the company’s 22 billion dollar brands are carbonated. PepsiCo long ago recognized the growth of still beverages over sparkling beverages. Even within the sparkling beverages category, PepsiCo has looked for growth outside soda, such as the $3.2 billion acquisition of SodaStream in 2015.
PepsiCo’s snacks portfolio is second-to-none. The company dominates the snacks category – especially in the United States. In addition to its 7 billion-dollar chip brands, PepsiCo also owns the Quaker food brand.
All 23 of PepsiCo’s billion dollar brands are analyzed in detail below. Still brands are analyzed first, followed by sparkling brands, and then the company’s food brands.
Gatorade was originally formulated in 1965 by a team of scientists led by Robert Cade at the University of Florida. In 1967, the University of Florida won the Orange Bowl which garnered publicity for Gatorade. Shortly after the Orange Bowl, Cade entered into an agreement with Stokley-Van Camp to manufacture and market Gatorade.
Quaker Oats purchased Stokley-Van Camp in 1983. In 2001, PepsiCo purchased Quaker Oats for $13.4 billion. Gatorade is the market leader in sports drinks by a wide margin. The brand has over 72% market share in the United States. The next closest competitor–Coca-Cola’s Powerade–holds just 16% market share in the United States.
The Gatorade brand has become so successful through advertising deals with large professional sports associations and players. Gatorade is the only beverage besides water that athletes can drink court-side at NBA games. PepsiCo is now the official food and beverage partner of the NBA.
Tropicana was founded in 1947 by Anthony Rossi. Rossi was an Italian immigrant to the United States. In 1954, Tropciana was one of the earliest adopters of flash pasteurization which allowed the company to sell not-from-concentrate, ready-to-drink orange juice.
Tropicana went public in 1969 and traded on the New York Stock Exchange. Beatrice Foods acquired Tropicana in 1978. The Seagram Company acquired the Tropicana brand from Beatrice Foods in 1988 for $1.2 billion. Seagram grew the Tropicana brand and expanded it internationally. PepsiCo acquired Tropicana in 1998 for $3.3 billion.
PepsiCo last released sales data for Tropicana in 2011. At that time, Tropicana generated about $6 billion a year in sales and was PepsiCo’s 5 th largest brand behind Gatorade, Mountain Dew, Lay’s, and Pepsi.
Today, Tropicana is the leader in the United States ready-to-drink orange juice market. The brand is losing ground to Coca-Cola’s Simply Orange brand, which is a billion dollar brand in its own right.
Both Tropicana and Gatorade were acquired by PepsiCo. Aquafina was developed in house. PepsiCo released Aquafina water in 1994 to compete in the bottled water market. PepsiCo had a 5-year head start on rival Coca-Cola’s Dasani brand which was released in 1999.
Aquafina water is municipal tap water that is filtered and purified using reverse osmosis, ultraviolet light, and ozone. PepsiCo has especially high margins on bottled water as it has very low input costs.
In 2014, Aquafina was the third-largest bottled water brand in the United States, behind Dasani and private-label brands. Aquafina is not sold only in the United States. It is an international brand with a global presence.
PepsiCo does not own the Lipton brand outright. The company distributes and sells Lipton’s ready-to-drink beverages in a partnership with Unilever. PepsiCo entered into an agreement with Unilever to sell ready to drink Lipton brands in the United States in 1991.
The two companies entered into more agreements in 2003, 2007, and 2014 to sell ready-to-drink Lipton beverages in many international markets.
By 2011, Lipton ready-to-drink beverages has annual sales of over $2 billion. Today, Lipton ready-to-drink beverages are sold in over 100 markets around the world.
Like the Lipton ready-to-drink beverages, the Brisk beverage band is a result of the PepsiCo-Unilever partnership. Brisk is a tea brand targeted toward younger consumers.
The brand reached over $1 billion in annual sales in 2012. Brisk increased the size of its cans and dropped its price to .99 to compete with Arizona Tea.
PepsiCo has 2 tea brands that generate $1 billion plus a year in sales. The tea industry is realizing solid growth as consumers slowly switch from sodas to ready-to-drink tea. The United States tea industry in particular grew from $2 billion in 1990 to $10 billion in 2014 – quadrupling in just under 25 years for a compound annual growth rate of 7%.
Starbucks RTD Beverages
PepsiCo has 6 billion dollar still beverage brands. Of those brands, 1 was developed in house (Aquafina), 2 were acquired (Tropicana and Gatorade), and 3 are the result of partnerships with other companies (Lipton, Brisk, and Starbucks RTD Beverages).
Starbucks and PepsiCo reached an agreement in 1994 to distribute ready-to-drink coffee drinks in North America. In 2007, the companies agreed to international distribution, starting with China. Starbucks also sells ready-to-drink beverages in South Korea, Japan, and Taiwan through an agreement not through PepsiCo.
When Starbucks and PepsiCo first partnered in 1994, the ready-to-drink coffee business generated just $60 million in the United States. Times have changed. By 2012, Starbucks RTD beverages were generating more than $1 billion a year in sales.
The Pepsi brand is PepsiCo’s namesake – it is also the company’s oldest brand.
Pepsi was first sold as ‘Brad’s Soda’ in 1893. The soda was developed by Caleb Bradham in New Bern, North Carolina. In 1898, he renamed his soda Pepsi Cola. Pepsi Cola gets its name from the digestive enzyme pepsin and the kola nut which was used in the recipe.
The Pepsi Cola Company grew until it began speculating on sugar prices. Sugar price speculation forced the company into bankruptcy in 1931.
The company’s brand and assets were purchased by Roy Megargel. Megargel was unsuccessful in reinvigorating the Pepsi brand. He sold to Charles Guth, the head of candy manufacturer Loft, Inc. Guth purchased Pepsi to sell in his stores instead of Coca Cola because Coca Cola would not give him a discount on syrup.
Guth grew the Pepsi brand, but Loft, Inc. struggled. Guth owned the Pepsi brand personally but had been using funds from Loft, Inc. to grow the brand. Loft, Inc. sued Guth for the Pepsi brand and eventually won.
Loft, Inc. changed its name to Pepsi-Cola company around 1940. From that time on, the Pepsi Company and Pepsi brand have realized tremendous growth. Today, Pepsi is PepsiCo’s most valuable brand. Pepsi is sold in over 200 countries and generates more than $20 billion a year in revenue.
Despite its success, Pepsi is only the third-most popular soda, behind Coca-Cola and Diet Coke.
Diet Pepsi was the first diet cola distributed nationally in the United States. Diet Pepsi was first released in 1964. For comparison, Coca-Cola did not release Diet Coke until 1982, 18 years later.
By 2011, Diet Pepsi was generating over $5 billion a year in annual sales. The Diet Pepsi brand is PepsiCo’s 6 th largest brand based on revenue.
Today, Diet Pepsi has the 7th-highest soda market share in the United States.
Pepsi Max is PepsiCo’s diet offering for men. The traditional diet soda drinker is female. The word diet does not appeal to male consumers as much as female consumers. Pepsi Max is a zero-calorie diet drink that is marketed directly toward a male audience.
Pepsi Max was released in 1993 in the United Kingdom and Italy. The brand quickly spread internationally. Unlike the traditional Pepsi brand, Pepsi Max was introduced outside the United States.
Mountain Dew is PepsiCo’s second most popular beverage brand, behind only Pepsi. In 2011 (the last year Pepsi gave brand-based sales data), Mountain Dew had sales of around $7 billion. Today, Mountain Dew has the 4 th highest market share in the United States soda market, behind only Coca-Cola, Pepsi, and Diet Coke.
Mountain Dew was created in Tennessee in 1940 by Barney and Ally Hartman. Mountain Dew is now sold in many countries around the world. In some countries, Mountain Dew has no caffeine, while in other countries it has a high level of caffeine for a soda. In the United States, Mountain Dew has 55mg of caffeine, versus 38mg of caffeine for Pepsi.
Diet Mountain Dew
Diet Mountain Dew was first released in 1986 as ‘”Sugar Free Mountain Dew”. The brand was renamed Diet Mountain Dew in 1988. Diet Mountain Dew reached $1 billion in annual sales in 2011.
Pepsi owns the international rights to 7 Up, not the rights to the company in the United States. 7 Up was invented by C.L. Grigg in 1929. Grigg worked for the Howdy Corporation, which also produced Howdy Orange drink. Interestingly, 7 Up contained the mood stabilizer Lithium Citrate until 1950.
The 7 Up brand has changed hands many times before being acquired by Pepsi. Westinghouse purchased the 7 Up brand in 1969. The brand was sold to cigarette giant Philip Morris in 1978.
Eight years later, Philip Morris sold the international rights to 7 Up to Pepsi for $246 million. Philip Morris sold the United States rights to 7 Up to an investment group. The United States/Canada rights are currently owned by Dr. Pepper/Snapple (DPS).
In 2011, Pepsi realized nearly $5 billion in annual sales from 7 Up. PepsiCo uses its excellent international distribution and marketing capabilities to sell 7 Up around the world.
Sierra Mist is PepsiCo’s answer to Sprite. Sierra Mist is a lemon-lime flavored soda. Since 2010, PepsiCo has opted to make Sierra Mist free of artificial sweeteners. The soda is sweetened with sugar and stevia.
The Sierra Mist name is oddly similar to the Mountain Dew name –with mist and dew having very similar meanings and Sierra being a mountain range.
Sierra Mist was introduced by PepsiCo in 1999. The Sierra Mist brand is one of PepsiCo’s ‘smaller’ billion dollar brands, generating a little over $1 billion a year in sales.
Mirinda is one of PepsiCo’s oldest beverage brands. The Mirinda brand was created in Spain in 1959. PepsiCo purchased Mirinda in 1970.
The Mirinida soda is available in a wide variety of fruit flavors. The most popular flavor by a wide margin is orange. Mirinda generates the bulk of its sales internationally. The brand is most popular in Europe and the Middle East.
The Mirinda brand’s closest competitor is Fanta. Fanta is owned by Coca-Cola and is also available in a wide variety of fruit flavors.
PepsiCo’s most recent addition to the billion-dollar brands list is SodaStream, which the company acquired in 2015 for $3.2 billion. The rationale for the acquisition is that PepsiCo is targeting the at-home sparkling beverage market, which is an emerging growth category.
SodaStream also represents PepsiCo’s attempt to generate growth from environmentally conscious consumers who may be concerned about the proliferation of plastic water bottles. According to the company, one SodaStream bottle is the equivalent of 3,070 disposable bottles.
According to PepsiCo’s 2019 annual report, SodaStream generated 20% net sales growth last year.
The Lay’s brand is PepsiCo’s second most valuable brand, behind only Pepsi cola. In 2017, Lay’s generated around $1.7 billion in annual sales, which amounted to just less than 30% of the potato chip market. The broader Frito-Lay segment accounted for approximately $16 billion in sales in 2017.
Lay’s was created in 1932 by salesman Herman Lay. Lay initially sold the chips out of the trunk of his car (presumably the FDA was not as harsh back then).
The Lay’s brand continued to grow over the next 3 decades. In 1961, Lay’s merged with Frito to create chip behemoth Frito-Lay. In 1965, PepsiCo and Frito-Lay merged to form PepsiCo.
The Walkers brand is simply Lay’s repurposed for consumers in Ireland and the United Kingdom. As of 2011, Walkers was PepsiCo’s smallest billion dollar brand, generating just over $1 billion in annual revenue.
The Doritos brand is PepsiCo’s second most valuable chip brand, behind only Lay’s. The Doritos brand got its start in an interesting location…
Doritos were invented at the Anaheim, California Disneyland. In 1964, The VP of marketing at Frito-Lay noticed how popular Doritos were at Disneyland. He made a deal with Disneyland’s food supplier, and the Doritos brand was taken outside of Disneyland.
The Doritos brand broke $1 billion in annual sales in the early 1990’s. The brand has grown its revenues at around 7.5% a year over the last 25 years.
Ruffles potato chips were first introduced in 1958. For many years, Ruffles slogan was “Ruffles have ridges”. The chips ridges help it to break less in bags, have a more satisfying crunch, and carry more dip.
The Ruffles brand generated about $2.5 billion in sales in 2011 (the last year sales data for individual brands was released by PepsiCo). The Ruffles brand is significantly smaller than PepsiCo’s flagship Lay’s potato chip brand.
Fritos are deep fried corn chips. The Fritos brand was created in 1932 by Charles Elmer Doolin. Doolin found a vendor in San Antonio selling deep fried corn snacks. He purchased the recipe from the vendor and then perfected it with the help of his mother in her kitchen.
The Frito brand grew rapidly over the next several decades. In 1961, Frito Corporation merged with Lays to create Frito-Lay. Today, the Frito brand generates over $1 billion a year in sales.
Fritos is not the only billion dollar brand Charles Elmer Doolin created. He also created Cheetos in 1948. Doolin’s company did not have the scale to do a national product launch of Cheetos, so he partered with Lay’s. The success of Cheetos in the following years is what lead to the merger between the Frito and Lay corporations.
Cheetos is sold around the world in a variety of flavors. PepsiCo tailors the product’s flavor to local tastes. In 2011, the Cheetos brand had sales of around $2.5 billion a year.
The Tostitos brand was released by PepsiCo in 1978. The Tostitos brand is a more authentic take on Mexican chips.
The Tostitos brand generates close to $2 billion a year in sales. Tostitos Scoops are a popular spin-off product of the brand. Tostitos Scoops are bowl-shaped chips that help to scoop more dip with each chip.
The Quaker brand is different from PepsiCo’s other billion dollar brands. PepsiCo’s other billion dollar food brands are all chips. Quaker, on the other hand, sells a variety of packaged food products.
Quaker Oats is PepsiCo’s second oldest brand – only behind Pepsi cola. Quaker Oats was formed in 1991 from the merger of 4 oat mills.
PepsiCo purchased Quaker Oats for $13.4 billion in 2001. PepsiCo’s rational for the purchase was to obtain the Gatorade brand, which Quaker Oats had acquired in 1983. The strategic rationale for keeping the Quaker brand is the brand’s ‘health conscious’ image which balances out the ‘not so healthy’ Frito-Lay snacks.
Based on our expected adjusted EPS of $5.64 per share in 2020, PepsiCo’s price-to-earnings ratio is hovering around 23 to 24, slightly above the S&P 500’s price-to-earnings ratio.
PepsiCo is likely trading above fair value, as its 10-year average P/E ratio is approximately 19. That said, premium businesses typically command premium valuations in the stock market, given the company’s portfolio of high quality brands and solid growth prospects.
PepsiCo generates a majority of revenue from its food brands. Despite being named after a soda, PepsiCo’s value comes more from its Frito-Lay products than its drink products.
PepsiCo’s Growth Prospects
PepsiCo continues to perform well on a fundamental basis. On 4/28/2020, PepsiCo reported earnings results for the first quarter. Adjusted earnings-per-share increased 10.3% to $1.07, .04 ahead of estimates. Revenue increased 7.7% to $13.9 billion, $680 million higher than expected. Organic growth was 7.9% for the quarter.
Every business segment and region had at least mid-single-digit organic growth. Food and snacks had 5.5% organic volume growth while beverages added 6%. PepsiCo Beverages North America was higher by 6%, the seventh consecutive quarter of growth for this segment. The impact of COVID-19 negatively impacted the away-from-home sales, but pantry stockpiling more than made up for this.
Frito-Lay North America reported a very solid 7% growth rate for the most recent quarter. Quaker Foods North America, which has been a headwind for PepsiCo over the past few years, also had 7% organic growth. This segment benefited from more consumption at home as consumers stayed home related to COVID-19. The company stated that organic growth was higher than expected due to consumers purchasing items ahead of stay-at-home orders.
PepsiCo grew earnings at a rate of 4.2% per year from 2010-2017. Due to company’s organic growth guidance, we have increased our expected earnings-per-share growth to 5.5% from 4% through 2025. PepsiCo‘s growth over this time period will accrue from sales growth and share repurchases.
PepsiCo is a favorite of dividend growth stocks, thanks to its solid dividend yield and long history of dividend raises. We consider PepsiCo to be one of the blue chip stocks list thanks to its better-than-average growth prospects, solid 3% dividend yield, and stability.
PepsiCo’s portfolio of high quality brands in the slow changing food and beverage industry makes the company extremely stable. PepsiCo’s size and advertising strength will very likely see the company add more billion dollar brands in the future.
How Important Is Frito-Lay For PepsiCo's Growth?
Frito-Lay North America has maintained its position as the fastest growing segment for PepsiCo (NASDAQ: PEP) over recent years. PepsiCo Revenues (shows PepsiCo’s key revenue components) have increased from $62.8 billion in 2016 to $64.7 in 2018, growing at a CAGR of 1.5%. During the same period, FLNA saw its revenues increase from $15.5 billion to $16.3 billion, at a CAGR of 2.5%.
A] Division Overview
- FLNA makes, markets, distributes, and sells branded snack foods, which include branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos corn chips, Lay’s potato chips, Ruffles potato chips, and Tostitos tortilla chips.
- FLNA’s branded products are sold to independent distributors and retailers.
- Frito-Lay targets people across demographic sections through its products.
- The segment faces intense competition from other snacks offerings from Procter & Gamble, Kraft Foods, Kellogg’s Company, and General Mills.
You can view the Trefis interactive dashboard – Frito-Lay North America: PepsiCo’s Primary Growth Driver – and alter the assumptions to arrive at your own estimate for the segment’s and company’s revenues and profitability. In addition, here is more Consumer Staples data.
B] Frito-Lay: Revenue Trend and Revenue Share
- FLNA has been able to add .8 billion to its revenues over the last 2 years, at a CAGR of 2.5%.
- Revenue growth has been driven by continuous innovation, new products, effective pricing strategies and volume growth.
- As per the latest PepsiCo Earnings, FLNA revenues increased by 4.5% (y-o-y) in Q2 2019.
- The segment is expected to grow at a healthy rate to add about $1.3 billion in revenues over the next two years, driven by growth in variety packs and its trademark Doritos.
- Frito-Lay contributes about a quarter of PepsiCo’s revenues, with its share continuously rising.
- We expect FLNA to continue to grow at a rate faster than PepsiCo as a whole, taking the segment contribution to 25.6% in 2020, from the current 25.3%.
C] Innovation and Strategies
- Over the recent years, Frito-Lay has been successfully able to expand its reach to cater to different categories of consumers.
- Frito-Lay was traditionally a dominant player only in the mid-tier snack segment. It did not have a significant presence in the premium or the bottom end of the snacks market.
- However, Frito-Lay made its premium products available in high-end stores (such as Citarella) and the deli sections of grocery chains in order to create the right perception of these products.
- In the bottom end of the segment, Frito-Lay has Cracker Jack as a brand offering high value for money. Similarly, Taqueros was made available in dollar stores and other retail outlets that typically attract value-seeking consumers.
- Additionally, conscious of a consumer shift toward health snacks, the segment has come up with offerings such as Stacy’s Pita Chips and Sabra, which offers packaged Mediterranean dips such as hummus.
D] Most Profitable Segment
- Frito-Lay is the most profitable division of PepsiCo, with its operating profit margin being almost 2x PepsiCo’s total operating margin.
- We expect the segment to improve its margins from the current level of 30.6% to 31.8% by the end of 2020.
- Improved profitability is expected to be driven by healthy revenue growth along with productivity savings.
- The recently announced 2019 Productivity Plan, under which PepsiCo will leverage new technology and business models to further simplify, harmonize, and automate processes, and in addition optimize its manufacturing and supply chain footprint, is likely to provide a further boost to the profitability of its already high-margin Frito-Lay segment.
Trefis estimates PepsiCo to add close to $4 billion in revenues over the next two years, out of which $1.3 billion (over 31%) is expected to come from Frito-Lay. As per PepsiCo Valuation (shows valuation analysis) by Trefis, we have a price estimate of $128 per share for PEP’s stock. Thus, the primary factor for the company to report a healthy revenue growth rate, improved profitability, enhanced shareholder returns, and elevated stock price, is a solid and sustained performance in the Frito-Lay division.
What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs
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PepsiCo's Earnings: 3 Key Things to Watch
PepsiCo (NASDAQ:PEP) is a global food and beverage manufacturer, most commonly known for its namesake beverage, that competes with Coca-Cola (NYSE:KO) and Dr Pepper Snapple Group. The company is hoping that healthier products and its diversified business offerings will help it buck the slump in North American soda sales.
PepsiCo's first-quarter 2014 earnings are on tap this Thursday. Here are three key things to watch.
Plans for real-sugar Pepsi
My favorite part of actually listening in to an earnings call is that you can hear about business strategy beyond bottom-line numbers. PepsiCo recently announced it would be offering Pepsi made with real sugar, instead of high-fructose corn syrup, starting this summer, and I think the move has a chance to be a major win for the company.
Coca-Cola has a dominant and expanding market share over Pepsi in carbonated beverages, and Dr Pepper Snapple relies on carbonated beverage sales for over 73% of its revenue. Meanwhile, PepsiCo suffered a 2% organic sales decline in its most recent quarter.
Carbonated beverage sales in North America are in systematic decline, so this isn't a Hail Mary, and PesiCo doesn't need sodas to grow. My hope is that this is not a gimmick, that real sugar will stick, and that this helps soda sales stay flat so PepsiCo's other business units can shine.
For this quarter, let's look to hear more about this rollout and what management's sales expectations for real-sugar Pepsi are.
Continued growth in food businesses
Some investors are unaware that PepsiCo doesn't really rely on Pepsi that much these days. The various foods businesses (snacks and Quaker products) account for 61.1% of revenues at PepsiCo. Compare that to Coca-Cola, which has an entire business operation based on beverages (although it does have many healthier beverage offerings than its namesake soda now).
So with another quarter approaching, it's possibly more important for the foods business to perform well than beverages. Last quarter PepsiCo's Frito-Lay unit showed organic revenue growth of 4%, Latin American Foods grew 13%, but Quaker declined 1.5% on a poor product mix.
This quarter, we need to see a Quaker turnaround and continued growth for Frito-Lay. Quaker needs to do a better job of marketing its products to consumers, and it needs to manufacture better products that customers actually want. Look for management to advise on plans to energize that brand.
Should PepsiCo split up?
Recently, investor Nelson Peltz of Trian Fund Management made a push for PepsiCo to spin off its food business from the beverage unit. Some investors feel a separated company would unlock value at both units, and allow Pepsi's beverage unit to operate more nimbly, possibly pulling off strategic partnerships to reinvigorate the brand (a la Coca-Cola and Keurig).
PepsiCo has pushed back by stating that the soda business is profitable, as is the company overall, and that calls to split the company are overblown. Even Warren Buffett has added his two cents to the matter, saying that such splits are usually focused on short-term goals.
Still, with health trends flying in opposition of the soda business, the calls for a PepsiCo split have never been louder. I'm looking forward to hearing what management has to say on the matter.
Foolish conclusion: A call worth listening to
PepsiCo has a unique opportunity, because management has done everything it can to reposition the company toward a more health-conscious consumer. That said, the company's soda business is facing health headwinds regardless.
This quarterly call will be worth listening to, as we'll get to see how that transition is coming. Listen in for these three points they will be the keys to PepsiCo's success.