PepsiCo Inc. (PEP): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Summary:

Pepsi has a superb 2014, beating the Zacks Consensus Estimate for both earnings and revenues in all the quarters of the year. Fourth quarter earnings of $1.12 per share increased 6% year over year on strong organic revenues, lower taxes, better execution and productivity gains. Organic revenues increased 5% driven by increased product pricing and better volumes. Overall, we are encouraged by the company's strong brand portfolio, product and geographic diversity, improved productivity, increased brand building investment and market execution, efforts to innovate and solid cash flow generation. Also, the company's plan to substantially increase shareholders return and extend productivity initiatives are encouraging. However, challenging consumer spending environment, currency headwinds, and continued sluggish CSD volumes keeps us on the sidelines.

Overview:

Headquartered in Purchase, NY, PepsiCo, Inc. is the leading global food and beverage company marketing hundreds of brands in more than 200 countries. Its principal businesses include: Frito-Lay snacks, Pepsi-Cola beverages, Gatorade sports drinks, Tropicana juices and Quaker foods.

The company is organized into six reportable segments that include

Frito-Lay North America (FLNA) (21% of 2013 sales) produces and sells snack foods in the U.S., including Lay's potato chips, Doritos tortilla chips, Tostitos tortilla chips, branded dips, Cheetos cheese-flavored snacks, Ruffles potato chips and Fritos corn chips, among others.

Quaker Foods North America (QFNA) (4%) manufactures and sells cereals, rice, pasta, dairy and other branded products and includes some popular names like Quaker oatmeal, Aunt Jemima mixes and syrups, Quaker grits, Cap'n Crunch cereal, Life cereal, among others.

Latin America Foods (LAF) (12%) manufactures markets and sells a number of snack brands, including Marias Gamesa, Doritos, Cheetos, Ruffles, Sabritas as well as many Quaker-brand cereals and snacks in Latin America.

PepsiCo Americas Beverages (PAB) (32%): The segment includes all North American and Latin American beverage businesses. The segment manufactures, markets and sells beverage concentrates, fountain syrups and many carbonated beverages (carbonated soft drinks or CSD) and non-carbonated beverages under Pepsi, Mountain Dew, Diet Pepsi, Diet Mountain Dew, 7UP, Gatorade, Tropicana, Sierra Mist, Aquafina and Mirinda brands. The segment also sells ready-to-drink tea and coffee products through joint ventures with Unilever and Starbucks. It also sells brands like Crush and Dr Pepper under a license agreement with Dr Pepper Snapple Group and certain juice brands licensed from Dole Food Company and Ocean Spray Cranberries.

PepsiCo Europe (21%): The segment includes all beverage, food and snack businesses in Europe, including South Africa (SA). Snack brands include Lay's, Walkers, Doritos, Ruffles, Cheetos as well as many Quaker-brand cereals and snacks while beverage brands include Pepsi, Pepsi Max, 7UP, Diet Pepsi and Tropicana. The division also sells ready-to-drink tea products through an international joint venture with Unilever (under the Lipton brand name) and some leading dairy products including Domik v Derevne, Chudo and Agusha.

PepsiCo Asia, Middle East and Africa (AMEA) (11%): The segment includes all beverage, food and snack businesses in AMEA excluding SA. Snack brands include Lay's, Doritos, Cheetos, Kurkure, Smith's and Chispy as well as many Quaker-brand cereals and snacks. Beverage brands include Pepsi, Mirinda, 7UP, Mountain Dew, Aquafina and Tropicana and also include ready-to-drink tea products under the joint venture with Unilever.

PepsiCo was founded in 1965 through the merger of Pepsi-Cola and Frito-Lay. Tropicana was acquired in 1998 and PepsiCo merged with the Quaker Oats Company in Aug 2001.

PepsiCo's long-term targets include mid single-digit constant currency net revenue growth, 30 50 basis points (bps) expansion in core operating margins and high single-digit core constant currency earnings growth.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.