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... lived victory in the cola wars (until the splashy return of Coca-Cola classic). The rivalry was extended to ready-to-drink tea in 1991 when, in response to Coca-Cola's Nested venture with Next& execute; , PepsiCo teamed up with Lipton (they now lead the market). Between 1991 and 1996 PepsiCo aggressively expanded its overseas bottling operations. However, its efforts contrasted markedly with Coca-Cola's well-oiled international distribution machine. The firm then shifted its attention to the organization of its overseas network.
In 1997 PepsiCo spun off its $ 10 billion fast-food unit as TRICON Global Restaurants, putting itself in a better position to sell its soft drinks at other restaurants. Also in 1997 it bought Borden's Cracker Jack snack and Smith's snacks from the UK's United Biscuits. In 1998 it bought Seagram's market-leading Tropicana juices (rival of Coca-Cola's Minute Maid) for $ 3. 3 billion and rolled out one-calorie cola Pepsi One (which targets men and regular-cola drinkers). The firm sold a 65 % stake in its new Pepsi Bottling Group to the public in 1999. In January 2001 PepsiCo bought a majority of South Beach Beverage Co. , maker of SoBe drinks (fruit blends, energy drinks, teas, sports drinks). PepsiCo later inked deals in Saudi Arabia and Egypt to expand the global reach of its snack foods operations.
In May the company named president and COO Steve Reinemund as chairman and CEO; Enrico was named VC (where he will remain through 2002), and CFO Indra Noon was named president. In August PepsiCo purchased The Quaker Oats Company (Gatorade, Cap'n Crunch) for more than $ 13 billion. Afterward, the company reiterated its decision to sell its All-Sport brand, a sports drink that competes (barely) with Gatorade, to Atlanta-based Monarch Co. Financial Analysis To succeed in today's comprehensive and global markets and to sustain credibility with customers and shareholders, companies must have strong financial position. Profitability: In 2001, Pepsi Cos was able to grow its net revenues by 6 percent, while achieving 9. 88 % net profits (increased by 5 % compared to year 2000).
The company was able to maintain its Gross Profit and Operating Profit margins at the same levels. Pepsi Cos Return on Asset stayed at the same level as well, however, its Return on Equity decreased by 2. 6 %. In addition, PepsiCo was able to increase its interest coverage ratio to 19. 4 times in 2001, which was increase on 4. 6 times when compared to 2000 (14. 8). The company outperformed the market and industry in all areas. See table for more details: Year 2001 2000 Gross Profit Margin 60. 1 % 59. 9 % Operating Profit Margin 14. 9 % 15. 0 % Net Profit Margin 9. 9 % 10. 0 % Return on Asset 12. 3 % 12. 3 % Return on Equity 30. 8 % 33. 4 % Int Coverage 19. 4 14. 8 Liquidity and Capital Resources PepsiCo has a strong cash-generating capability and its financial condition give the company ready access to capital markets throughout the world. Pepsi Cos principle source of liquidity is operating cash flows of $ 4. 2 billion derived from net sales of $ 27 billion.
Moody's and Standard & Poor have given PepsiCo a debt rating of A 1 and A, respectively, thus the firm has global accessibility to global capital markets. The company has favorable liquidity ratios. Liquidity ratios include the current ratio, quick ratio, and net working capital and they measure companys ability to pay its short-term debts. See table below for ratio details: Year 2001 2000 Current 1. 17 1. 17 Quick 0. 91 0. 92 Networking Capital $ 855 $ 822 Activity Ratio Activity ratios measure the operating characteristics of the firm. Activity ratios include the inventory turnover rate, receivable collection period, fixed asset turnover ratio, and total asset turnover ratio.
Inventory Turnover Ratio: This ratio reveals how well inventory is being managed. It is important because the more times inventory can be turned in a given operating cycle, the greater the profit. Pepsi Cos inventory turnover in 2001 was 8. 2, which was a decline from 8. 9 in 2000. However, The company overall outperformed the industry and Sectors which were 7. 41 and 6. 68, respectively Accounts Receivable Turnover Ratio: This ratio indicates how well account receivables are being collected. If receivables are not collected reasonably in accordance with their terms, management should rethink its collection policy. If receivables are excessively slow in being converted to cash, liquidity could be severely impaired.
Pepsi Cos receivable turnover ratio in 2001 was 12. 57 indicating an increase from 11. 97 in 2000. Although it is a small increase, it still shows companys ability to better collect its receivable. The company performed at the same level as the Industry and Sector (11. 63 12. 84). Return on Assets Ratios: These measures how efficiently profits are being generated from the assets employed in the business when compared with the ratios of firms in a similar business.
A low ratio in comparison with industry averages indicates an inefficient use of business assets. PepsiCo was able to maintain its ratios at a favorable level and even increase it slightly. See table below: Year 2001 2000 Inventory Turnover 8. 2 8. 6 Acc Rec Turnover 12. 57 11. 97 Total Asset Turnover 1. 24 1. 23 Fixed Aset Turnover 3. 92 3. 89 Financial Leverage Ratios Two ratios analyzed in this area are debt ratio and debt-to-equity ratio. The higher this ratios, the greater the degree of outside financing by creditors or funds provided by owners. Pepsi Cos debt ratio for 2001 was 60 % and debt-to-equity ratio was 31 %.
Both ratios were decreased when compared to 2000, which have a positive affect on companys ability to raise more money if needed and being able to get favorable ratings from Moody's and S& P. Year 2001 2000 Total Debt to Asset 0. 60 0. 63 LTD to Equity 0. 31 0. 40 Mission Statement PepsiCo's overall mission is to increase the value of our shareholder's investment. We do this through sales growth, cost controls and wise investment of resources. We believe our commercial success depends upon offering quality and value to our consumers and customers; providing products that are safe, wholesome, economically efficient and environmentally sound; and providing a fair return to our investors while adhering to the highest standards of integrity. Current Strategies Pepsi Cos business strategy focuses on growth via product innovation, consumer base expansion, and mergers and acquisitions. It has an active research and development department, improving existing products as well as creating new products.
Recent trends have seen consumers seeking add-on supplements and all-natural ingredients. In the past, reduced fat and low sodium labels had been popular amongst consumers. Pepsi Cos R& D has been able to meet this market demand. Pepsi Cos marketing effort is amongst the most aggressive for any company.
Advertisements for Pepsi, Mountain Dew, and Doritos are aired on network and cable programming, including prime time and other premium air times. PepsiCo is noted for using high profile celebrities (Michael Jackson, Larry Bird, Brittney Spears) in ad campaigns. PepsiCo has been active in mergers and acquisitions activity to create operating synergies and increase firm value. As mentioned earlier, it has acquired such companies as Frito Lay, Tropicana, Quaker Oats, and all these acquisitions seem to be working as intended.
PepsiCo is one of the largest food and beverage companies. SWAT Analysis Strength - Brand Recognition: PepsiCo is famous for its Pepsi Cola drinks, however, all other brands have strong brand recognition as well (i. e. Frito Lay, Quaker Oats, etc). - Brand Loyalty: PepsiCo has loyal customer base for its products. - Brand Diversification: PepsiCo is not only involved in beverage industry. It recent year acquisitions include Frito Lay (largest chips makers), Quaker Oats (healthy food alternatives), other aforementioned brands. - Global Participation: PepsiCo brands are sold in more than 200 countries. - Strong Financial Position: PepsiCo has a strong cash-generating capability and financial condition (see financial analysis portion of this paper). Weakness - Competition with Coca-Cola: Coca-Cola has much stronger brand recognition that Pepsi Cos Pepsi-Cola drinks. - Not concentrating on core business: PepsiCo has been concentrating on other areas of its business (food and non-carbonated drinks).
Opportunities - Non-Carbonated Drinks: the US market appears to be shifting towards non carbonated drinks. - Healthy Food Alternatives: consumers are becoming more and more health conscious - Untouched Markets/Globalization: PepsiCo is a global company and it operates in about 200 countries. However, there are other markets that can be explored. - Acquisition and / or Merger: PepsiCo can gain access to other markets by using M& A. - Niche Marketing/Products: consumers buying and consumption habits change, thus PepsiCo should ensure that they meet the needs of all consumers. Threats - Competition: food & beverage industry is very competitive with such players as Coca-Cola, Cadbury Schweppes, and Kraft Foods. - Consumption and Demand: variation in the consumption patterns of beverages and snack foods adds a risk to PepsiCo - Commodity prices: rises in commodity prices would reduce operating profits for PepsiCo by increasing the cost of goods sold. - Foreign exchange risks: international operations constitute about one-fifth of companys annual business segment operating profit. - Interest rates: Pepsi Cos portfolio to deal with interest rates includes primarily cash equivalents and short-term marketable securities. Unfavorable interest rates may result in unfavorable interest expense on its income statement.
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