PepsiCo (PEP) Ready to...Pop - Barron's (PBG, PAS, ATVI)
Barron's urges you to not write off PepsiCo (NYSE: PEP) quite yet. Although many customers have been turning to more generic brands or tap water to quench their thirst, the company has a solid snack food division which includes Doritos, Ruffles, Lay's, Fritos, and more.
Snack foods account for about 67% of sales and 60% of profits, and beverages account for about 37% and 40%. Profits fell 10% to $7.4 billion for the first nine months of the year and operating profit dropped 11% to $1.7 billion. North American margins are reported to by at 25% for their snack foods division.
The sales of carbonated soft drinks has fallen off 3.2% over the last year compounding an industry-wide decline over the past several years. Water (bottled) and sports drinks also experienced a decline, the first experienced over the past decade.
Pepsi's CFO Rich Goldman sees domestic beverages growing 1 - 2% over the next year, allowing for Pepsi to enjoy some price increases.
The CFO says that Pepsi needs to be leaner in order to realize some of the gains from potential growth. To do this, Pepsi will need to see about $300 million in cost-cutting which could translate into about $0.15 tacked-on to their EPS. Much of the savings could be the result of consolidating three publicly traded companies into one (the three companies being PepsiCo, Pepsi Bottling Group (NYSE: PBG), and PepsiAmericas (NYSE: PAS)).
Side Note:
Not mentioned in the article is the strong connection that Doritos and Mountain Dew have with the gaming industry. With sales of Activision's (NASDAQ: ATVI) Call of Duty Modern Warfare 2 at about 55 million units, keep your eyes peeled for a solid quarter put up by PepsiCo. as gamers enjoy hours of fun and mountains of the Dew and Doritos.
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