Aquafina, Dole Juices, Gatorade, Lipton Iced Tea, Mountain Dew, Doritos, Lays, Quaker, Fritos, Tostitos, Mug Root Beer, Pepsi, Diet Pepsi, and Pepsi (in it’s 7 other flavors), Propel Water, Sierra Mist, SoBe Life Water, Starbucks Frappacino, Tropicana….these are some of the brand names owned by Pepsico [[PEP]] that occupy shelf space at your local Wal-Mart, supermarket, grocery and convenience stores.
After visiting with “Mike”, a 35-year veteran with Pepsi in soft-drink distribution, I came away from our meeting impressed by the company and the brand name.
For one thing, PEP is aggressively expanding into high growth international markets like Argentina, Brazil, China, Mexico, Russia and India with ads like this….[youtube:http://www.youtube.com/watch?v=LCUZ_MZECaQ 450 300]
….and this….[youtube:http://www.youtube.com/watch?v=SVgbwQXhCx0 450 300]
Make sense? Didn’t think so.
PEP is, however, maintaining it’s focus on healthier products, mainly the non-carbonated soft drink (CSD) products like bottled water, fruit juices and energy drinks . In recent years, the industry has seen a marked shift away from CSD’s.
Bottom line, [[PEP]], currently at $67.51 is a potential BUY with a 12-month target price of $85. Keep the stock on your watchlist and use the recent pullback in the shares as a potential buying opportunity down the road. I wouldn’t buy it just yet though, as evidenced by excess supply in the stock, shown as a double bottom breakdown on the PnF chart. The bullish support line at 62 would be a better entry.
PEP recently reported strong first-quarter results, from solid growth in international operations and the PepsiCo Americas Foods segment.First-quarter net sales increased 13.4% to $8.3 billion, reflecting volume growth of 4%, and revenue growth across all segments.EPS estimates could come in around $3.74 for 2008 and $4.22 for 2009.
PEP currently pays an annual dividend of $1.50 per share, which is about a 2.2% yield. Dividend estimates are $1.74 for 2008 and $2.14 for 2009.
PEP has raised its commodity inflation guidance by 300 basis points from 6% to 9%, factoring in the increased input costs grain, cooking oil and energy. However, the company has maintained its 2008 earnings guidance, as it expects to offset these commodity cost increases through pricing and productivity initiatives. Thecompany has some forward purchases/hedges in place through the balance of 2008, and will take additional price hikes to help offset the cost increases.
One thing that Mike had indicated was that the CSD market was a much tougher market now with a lot less pricing power. It remains to be seen whether the market will accept price increases. The productivity initiatives would included charging distributors higher fees for less productive routes and vending machines.
PepsiCo’s beverage segment has been hurt by the slowdown in consumer spending in the U.S. However, most of the weakness in the beverage category has come from the foodservice industry, where Pepsi has limited exposure.
International growth is what looks most promising and that is where the company is focusing financial and human capital.
The Latin America Foods segment reported strong growth in the first quarter. Excluding M&A and currency effects, volumes increased 5% year-over-year, with revenue up 11% and operating
profit up 15%. Both Sabritas and Gamesa delivered strong volume growth, while operating profit benefited from price hikes and strong revenue. The Brazilian operations experienced capacity
constraints in the first quarter due to a fire at one facility. The company is in the process of restructuring its Brazilian operations, and believes it will benefit from the integration of the Lucky snack business.