PepsiCo, Inc. Financial Report

Introduction

PepsiCo Inc., based in North Carolina, is a leading company in the beverages, food and snacks industry. Its main soft drink products include Pepsi Cola, Mountain Dew, Diet 7Up, and Tropicana, while its food and snacks business, includes Frito-Lays snacks like Cheetos, Doritos tortilla, Quaker oatmeal, Quaker grits, Life Cereal, Naked, Elma chips, and other products. The contribution of PepsiCo’s revenue by international operations is as follows; Middle East and Africa (AMEA) 10 percent, Latin America Foods 12 percent, PepsiCo Americas Beverage 32 percent, Frito-Lay in North America 21 percent, Quaker four percent, and PepsiCo Europe contributes 20 percent. Sales are done though warehouses, distributor networks, and direct store delivery. Most ingredients are natural foodstuff, while packaging is mostly in plastic containers and bottles. Market prices for row foodstuff fluctuate over the seasons (PepsiCo, 2015). Besides consumer patterns are high demand for drinks in warm summers, demand for foods in cooler months. The company has patented many products, as well as rented some of its brand names to other companies.

Beverages Market Trends

Recently, the soft drinks market has been declining because consumers are switching to juices as a healthier drink. The main competitor to Pepsi is Coca Cola which concentrates on beverages. Like Coca Cola, PepsiCo relies heavily on international operations for its revenues and has created many brands in Asia, AMEA, North America, Europe, Russia, South Africa, and Latin America. PepsiCo’s strengths lie in having well-known brands, a global presence, diversification into food and snack products, and recent launch of new brands which accounted for nine percent of revenues in 2014. Opportunities for the company exist in further automation, savings of one billion dollars through restructuring, and promotion of sugar-free brands. On the weaknesses, the market is not responding well to marketing campaigns. Threats are coming from stiff challenge by juices and other healthier beverages (Google Finance, 2015). In response PepsiCo has diversified into sugar-free soda, juices, foods and snacks, where in US alone, PepsiCo accounts for 36 percent of snacks against Private Label at 10 percent. The food and snack business currently accounts for 53 percent of PepsiCo’s sales, while also taking 24 percent of soda against Coca Cola’s share of 21 percent (PepsiCo, 2015). The company places great importance on research and development, especially on nutrition, natural food products and technologies. The company undertakes measures to conserve the environment in which it works, ensure safety for workers, comply with trade laws and tax liabilities.

Ranking of PepsiCo and its Competitors.

According to a leading authority in company and financial analysis, Fortune 500 magazine, the major companies by rank that are also competitors in the soft drinks industry are Coca Cola at rank 63, Pepsi Cola at rank 44, Dr. Pepper at rank 437, Monster Beverages at rank 875, and National Beverages and Suntory are ranked beyond 1000 (Google Finance, 2015). Therefore, the ordered rankings within the soft drinks industry are PepsiCo at number one, Coca Cola at number two, Dr. Pepper at number three, Monster Beverages at number four, National Beverages at number five, and Suntory at number six. The ranking of companies by fortune 500 is based on the criteria; revenue, profit, stock equity, market value, shares, employee numbers, and dividend yield. PepsiCo’s revenue for the last quarter of 2014 was $19.9 billion, and in 2015 it was $16.3 billion in the first quarter, $15.9 billion in the second quarter, and $12.2 billion in the third quarter. Compared to its closest competitor, Coca Cola’s revenues in 2014 was $44 billion, while PepsiCo’s was 66.4 billion. Coca Cola’s profit before tax was $7.6 billion while PepsiCo’s was $14.6 billion (Google Finance, 2015). The graphic comparisons of share value shown below are for PepsiCo (PEP), National Beverages (FIZZ), Suntory Beverages (STBFF), Dr. Pepper-Snapple (DPS), and Coca Cola (KO).

There are a number of factors that contribute to PepsiCo’s success and eventual high ranking. The company is almost 100 years old since the original PepsiCo was registered in 1919. The company values ethics so much so that it has been named by Ethisphere as the Most Ethical Company for the last eight years, and the first award by Large Cap Company in Governance, Compliance and Risk Leadership (PepsiCo, 2015). An ethical company attracts consumer confidence. The company has adopted the digital media for its marketing campaigns. There is a shift in consumer preferences, which has adversely affetced  PepsiCo’s trditional markets. Such shift challenges the company to seek safer food and drinks brands (PepsiCo, 2015).

Financial Statements

The financial statements extracted from google finance and quoted in the New York Securities Exchange, are shown in appendix 1, 2 and 3 below. Explanations to the financial statements are as follows:

i. Balance Sheet (appendix 1)

Generally the year 2014 saw reduced income from 2013, according to Google Finance,  cash and short term investments dropped from $9.7 billion $8.7 billion, attributed to reorganization of brands. Net total receivables dropped from $6.9 billion to $6.7 billion due to lower overall sales. Total inventory reduced by $35 million, again owing to lower sales. Total current assetts reduced by nearly seven percent from $22.2 billion to $20.7 billion. Minor increases were recorded in total current assetts, net goodwill and long term investments. However the company’s liabilities, debts and tax decreased. Outstanding shares reduced from $1.53 billion to $1.48 billion. Although cash equivalents grew in the last four years, they dropped by 35% from $9.4 billion in 2013 to $6.1 billion in 2014. The balance sheet for 2014 was worse off in 2014 compared to 2013 (Google Finance, 2015).  

ii. Income Statement (appendix 2)

The company’s revenue increased marginally since 2011, and the revenue for 2014 rose from $66.4 billion to $66.7 billion. The cost of revenue dropped slightly after restructuring and automation of the company, conseqiuently gross profit rose by two percent or $0.6 billion. Total operating expenses rose from $56.6 billion to $57.1 billion mainly because of higher research and unusual expenses. Income before and after tax dropped slightly. The earnings per share also fell slightly by four cents (Google Finance, 2015). The drop in income was attributed to lower business sales.

iii. Cash Flow (appendix 3)

Net income dropped from $6.8 billion to $6.6 billion. Cash from operating activities increased by nearly $1 billion, mostly because of a much lower deffered tax of -$19 million compared to -$1.1 billion in 2013. The company spent more money in 2014 on capital expenditure, other investing cash flow items, cash from investing activities, dividend payouts, and issuance of stock. Financing activities cost the company $8.3 billion up from $3.8 billion. The net change in cash was -$3.2 billion down from $3.0 billion in 2013.  Interest and tax payment were lower owing to a poorer financial position in 2014 (Google Finance, 2015). Overall the cash flow for Pepsi was worse off in 2014 than in 2013.

Works Cited

Google Finance. (2015). Financial Statements for PepsiCo, Inc. – Google Finance. Google.com. Retrieved 28 November 2015, from https://www.google.com/finance?q=NYSE:PEP&fstype=ii

PepsiCo. (2015). Twitter: Experience 50 years of PepsiCo People, Products and Performance. #PepsiCo50. Pepsico.com. Retrieved 28 November 2015, from http://www.pepsico.com/

Appendix

1. Appendix 1: Balance Sheet

(Google Finance, 2015)

1. Appendix 2: Inciome Statement

(Google Finance, 2015)

1. Appendix 3: Cash Flow

(Google Finance, 2015)