Pepsico Case Study
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[pic 1]PepsiCo’s numbers show a significant decrease in profit in the 3rd quarter-ended 2015 when compared with the same period of the previous year, net revenue decreased by 5% from $17.218 billion to $16.331 billion, gross profit decreased by 3% from $9.223 billion to $8.963 billon, and a major drop of 73% in overall profits from $2.008 billion to $533 million to have an EPS of $0.36.PepsiCo has been hit by uncontrollable economic factors that caused such huge drops in revenue and profits, mainly the crisis in Venezuela which attributed to a $1.34 billion impairment charge along with the pressure of the weakening foreign currencies against the US dollar which resulted in a 12 percentage point impact on net revenue as explained by PepsiCo.Regardless of this massive decline in profits, analysts have feared the numbers to be much worse than this, but the results were somewhat better than expected and thus keeping PepsiCo on the safe side. Those results were due to stronger sales growth in the US market where gas prices have been dropping, producing a 7% increase in sales revenue in gas and convenient stores, with prices being higher in such stores rather than in supermarkets.Furthermore, PepsiCo’s organic revenue is still strong and showing growth of 7.4%, its core gross margin expanded 120 basis points, and a core EPS of $1.35. These figures reflect their attention and effort on managing those things that are under their control in an environment of economic crisis specifically innovation, brand building, marketplace execution, and productivity. PepsiCo’s 5 year plan: PepsiCo, Inc. (NYSE: PEP) announced a new 5-year, $5 billion productivity program (2015-2019). The savings are expected to come from accelerating investment in manufacturing automation, further optimizing the companys global manufacturing footprint, including closing of certain manufacturing facilities, re-engineering go-to-market systems in developed markets, expanding shared services and implementing simplified organization structures to drive efficiency. As a result of these actions, it expects to sustain approximately $1 billion in annual productivity savings through 2019.PepsiCo emphasizes that productivity continues to feed their investments and fund their business to contribute for margin development. PepsiCo explained that even with the challenging environment, they remain on track with their 5 year 5 billion dollar productivity saving target plan. Info on Venezuela crisis: References:
In all cases, PepsiCo’s market structure is still considered to be an oligopoly due to the presence of many food and beverage firms in the market but only a few are considered to be of real competition to PepsiCo.PepsiCo’s main food competitors are General Mills, Kellogg, Kraft foods, Nestle, and Mondelez international.PepsiCo’s main beverage competitors are Coca Cola, Dr. Pepper, and Kraft foods.Note that even though some of the mentioned food companies do produce beverages, they do not compete with PepsiCo’s beverage but only in the food manufacturing.Direct Competitor Comparison PEPKODPSMDLZIndustryMarket Cap:136.84B180.48B16.84B64.06B1.67BEmployees:271,000129,20019,000104,0002.10KQtrly Rev Growth (yoy):-0.05-0.050.03-0.180.14Revenue (ttm):64.42B45.17B6.24B31.10B677.54MGross Margin (ttm):0.540.610.590.380.43EBITDA (ttm):12.10B12.37B1.44B4.84B154.66MOperating Margin (ttm):0.150.230.200.130.10Net Income (ttm):5.04B6.88B729.00M8.50BN/AEPS (ttm):3.371.573.775.130.85P/E (ttm):27.8726.4723.677.8626.99PEG (5 yr expected):3.497.323.082.573.27P/S (ttm):2.174.032.732.111.84
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