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Category: Stock Market and PepsiCo
Date: 3 October 2019 Stock Price: $139.52 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Pepsico, the owner of soft drink Pepsi and Lays Chips amongst others and long time rival of the Coca-Cola company.
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About PepsiCo
In 1965, Donald Kendall, the CEO of Pepsi-Cola, and Herman Lay, the CEO of Frito-Lay, recognized what they called “a marriage made in heaven,” a single company delivering perfectly-salty snacks served alongside the best cola on earth. Their vision led to what quickly became one of the world's leading food and beverage companies: PepsiCo.
For more than 50 years, as tastes, trends and lifestyles have changed, PepsiCo has evolved with them. Our willingness to adapt and grow has transformed our snack and soda company into a collection of global brands including Pepsi and Quaker, Gatorade and Tropicana, Frito-Lay and beyond. Today, PepsiCo is one of the world’s most-respected companies with products sold in more than 200 countries and territories and 22 brands that generate more than $1 billion each in estimated annual retail sales.
PepsiCo is also celebrated for its commitment to doing business the right way, integrating Purpose into our business strategy. In 2019, we adopted a new vision: to Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose. Winning with Purpose is the next chapter in our purpose agenda and conveys our belief that sustainability can be an even greater contributor to our success in the marketplace.
Our company is made up of six divisions: PepsiCo Beverages North America; Frito-Lay North America; Quaker Foods North America; Latin America; Europe Sub-Saharan Africa; and Asia, Middle East and North Africa. Each of these divisions has its own unique history and way of doing business.
The roots of PepsiCo Beverages North America (PBNA) go back to 1898, when Caleb Bradham, an entrepreneur from New Bern, North Carolina created Pepsi-Cola and began offering it to his pharmacy customers.
For more than 50 years, as tastes, trends and lifestyles have changed, PepsiCo has evolved with them. Our willingness to adapt and grow has transformed our snack and soda company into a collection of global brands including Pepsi and Quaker, Gatorade and Tropicana, Frito-Lay and beyond. Today, PepsiCo is one of the world’s most-respected companies with products sold in more than 200 countries and territories and 22 brands that generate more than $1 billion each in estimated annual retail sales.
PepsiCo is also celebrated for its commitment to doing business the right way, integrating Purpose into our business strategy. In 2019, we adopted a new vision: to Be the Global Leader in Convenient Foods and Beverages by Winning with Purpose. Winning with Purpose is the next chapter in our purpose agenda and conveys our belief that sustainability can be an even greater contributor to our success in the marketplace.
Our company is made up of six divisions: PepsiCo Beverages North America; Frito-Lay North America; Quaker Foods North America; Latin America; Europe Sub-Saharan Africa; and Asia, Middle East and North Africa. Each of these divisions has its own unique history and way of doing business.
- PepsiCo Beverages North America (PBNA)
- Frito-Lay North America (FLNA)
- Quaker Foods North America (QFNA)
- Latin America
- Europe and Sub-Saharan Africa (ESSA)
- Asia, Middle East, North Africa (AMENA)
The roots of PepsiCo Beverages North America (PBNA) go back to 1898, when Caleb Bradham, an entrepreneur from New Bern, North Carolina created Pepsi-Cola and began offering it to his pharmacy customers.
Overview of PepsiCo' latest earnings report
- Net sales: $17.188 billion (up from $16.485 billion for the same quarter of the previous year)
- Net sales increased by 4.26% over the last 12 months
- Cost of sales: $7.694 billion (up from $7.572 billion for the same quarter of the previous year)
- Cost of sales increased by 1.61% over the last 12 months
- Net income: $2.1 billion (down from $2.498 billion profit for the same quarter of the previous year)
- Diluted earnings per share: $1.49 (down from $1.75 per share for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 1.405 billion (down from 1.424 billion for the same quarter of the previous year)
- Cash and cash equivalents: $5.495 billion
- Cash and cash equivalents per share: $3.91
- Cash and cash equivalents makes up 2.8% of PepsiCo market capital
- Cash and cash equivalents makes up 7.1% of PepsiCo's total assets
- Accounts receivable: $8.735 billion
- Accounts receivable makes up 11.27% of PepsiCo's total assets
- Inventories: $3.667 billion
- Inventories makes up 4.73% of PepsiCo's total assets
- Goodwill: $15.338 billion
- Goodwill makes up 19.8% of PepsiCo's total assets. We are always nervous about goodwill making up such a large chunk of a company's assets. Basically goodwill is the estimated value of the name and reputation of the brands they hold. So if they were to sell Lays for example the group will attach a value of goodwill to Lays and tell the buyer this is how much goodwill is in the brand name. Such valuations are usually very subjective and its easy to manipulate or overinflate if you want to overstate the value of your company's assets.
- Goodwill amounts to $10.91 a PepsiCo stock
- Stockholders equity of PepsiCo's: $14.224 billion
- Stockholders equity per share for PepsiCo : $10.12
- So PepsiCo is trading at 13.8 times it stockholders equity per share which is well outside the expected range of between 2 and 4 times most companies tend to trade at.
- Cash generated by operations :$5.063 billion
- Cash generated by operations per share: $3.60
PepsiCo' management commentary on the results and earnings guidance
PURCHASE, N.Y. - October 3, 2019 - PepsiCo, Inc. (NASDAQ: PEP) today reported results for the third quarter 2019.
“We are pleased with our results for the third quarter,” said Chairman and CEO Ramon Laguarta. “While adverse foreign exchange translation negatively impacted reported net revenue performance, organic revenue growth was 4.3% in the quarter.” Laguarta continued, “We are making good progress against our strategic priorities and our businesses are performing well as we continue to make the necessary investments in our capabilities, brands, manufacturing and go-to-market capacity to propel our future growth. Given our performance year-to-date, we now expect to meet or exceed our full-year organic revenue growth target of 4%.”
2019 Guidance and Outlook
The Company provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange translation and mark to-market impacts. The Company now expects to meet or exceed its full-year organic revenue growth target of 4 percent.
Consistent with its previous guidance for 2019, the Company continues to expect:
• A core effective tax rate of approximately 21 percent.
• A decline in core constant currency EPS of approximately 1 percent, which incorporates lapping a number of 2018 strategic asset-sale and refranchising gains, the expected increased core effective tax rate, and expected 2019 incremental investments to strengthen the business.
• Approximately $9 billion in cash from operating activities and free cash flow of approximately $5 billion, which assumes net capital spending of approximately $4.5 billion.
• Total cash returns to shareholders of approximately $8 billion, comprised of dividends of approximately $5 billion and share repurchases of approximately $3 billion.
Applying current market consensus rates implies a 2-percentage-point foreign exchange translation headwind to both reported net revenue and EPS performance. This assumption and the guidance above implies 2019 core earnings per share of $5.50, a 3 percent decrease compared to 2018 core earnings per share of $5.66.
“We are pleased with our results for the third quarter,” said Chairman and CEO Ramon Laguarta. “While adverse foreign exchange translation negatively impacted reported net revenue performance, organic revenue growth was 4.3% in the quarter.” Laguarta continued, “We are making good progress against our strategic priorities and our businesses are performing well as we continue to make the necessary investments in our capabilities, brands, manufacturing and go-to-market capacity to propel our future growth. Given our performance year-to-date, we now expect to meet or exceed our full-year organic revenue growth target of 4%.”
2019 Guidance and Outlook
The Company provides guidance on a non-GAAP basis as the Company cannot predict certain elements which are included in reported GAAP results, including the impact of foreign exchange translation and mark to-market impacts. The Company now expects to meet or exceed its full-year organic revenue growth target of 4 percent.
Consistent with its previous guidance for 2019, the Company continues to expect:
• A core effective tax rate of approximately 21 percent.
• A decline in core constant currency EPS of approximately 1 percent, which incorporates lapping a number of 2018 strategic asset-sale and refranchising gains, the expected increased core effective tax rate, and expected 2019 incremental investments to strengthen the business.
• Approximately $9 billion in cash from operating activities and free cash flow of approximately $5 billion, which assumes net capital spending of approximately $4.5 billion.
• Total cash returns to shareholders of approximately $8 billion, comprised of dividends of approximately $5 billion and share repurchases of approximately $3 billion.
Applying current market consensus rates implies a 2-percentage-point foreign exchange translation headwind to both reported net revenue and EPS performance. This assumption and the guidance above implies 2019 core earnings per share of $5.50, a 3 percent decrease compared to 2018 core earnings per share of $5.66.
PepsiCo (NASDAQ: PEP) stock price history
The image below, obtained from Google, shows the stock price history of PepsiCo (NASDAQ: PEP) for the last 5 years. And it's been a good time for PepsiCo stockholders. 5 years ago the stock was trading at around $93.50 a stock and its currently trading at $139.52 a stock. That's a decent return of 49.2% provided by PepsiCo over the last 5 years. The stock of PepsiCo is trading at a lot closer to its 52 week high of $139.75 than it is to its 52 week low of $104.53 which to us is a clear indication that the short term sentiment and momentum of PepsiCo stock is very positive.
Recent coverage of PepsiCo
The extract below shows some of the latest coverage on PepsiCo as obtained from TheStreet.com
While the market searches for direction, PepsiCo (PEP - Get Report) certainly isn't lost. The stock is up 3.7% to $139.89 in Thursday morning trading and hit new all-time highs in the process. PepsiCo's performance is one reason it's Real Money's Stock of the Day. Driving the stock to these record prices is the company's most recent quarterly results. Given the uncertain market we're in, it's hard to bet against PepsiCo stock as it pushes higher in a tough tape. But why does PepsiCo stock deserve to go higher, even if its valuation is stretched vs. its historical average?
The same reason Jim Cramer made the case that investors can still buy McCormick (MKC - Get Report) . The company also reported earnings this week and hit new highs despite just an OK dividend yield and a stretched valuation. These consistent staple stocks can continue to do solid business even if the economy turns lower. So when the markets are uncertain -- like they are now -- these certain stocks tend to do well. Let's look at the charts to get a better idea about the stock
Read the full article here
While the market searches for direction, PepsiCo (PEP - Get Report) certainly isn't lost. The stock is up 3.7% to $139.89 in Thursday morning trading and hit new all-time highs in the process. PepsiCo's performance is one reason it's Real Money's Stock of the Day. Driving the stock to these record prices is the company's most recent quarterly results. Given the uncertain market we're in, it's hard to bet against PepsiCo stock as it pushes higher in a tough tape. But why does PepsiCo stock deserve to go higher, even if its valuation is stretched vs. its historical average?
The same reason Jim Cramer made the case that investors can still buy McCormick (MKC - Get Report) . The company also reported earnings this week and hit new highs despite just an OK dividend yield and a stretched valuation. These consistent staple stocks can continue to do solid business even if the economy turns lower. So when the markets are uncertain -- like they are now -- these certain stocks tend to do well. Let's look at the charts to get a better idea about the stock
Read the full article here
PepsiCo (NASDAQ: PEP) latest stock valuation
So what is PepsiCo (NASDAQ: PEP) stock worth based on the release of their latest earnings report and fiscal guidance provide? Based on their earnings report and the guidance provided our valuation models provide a target (full value) price for PepsiCo of $155 a stock. We therefore believe that the stock is undervalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $155. So a good entry point into PepsiCo stock would be at $139.50 or below. Since its currently at or around this price we rate PepsiCo stock as a buy
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $155. So a good entry point into PepsiCo stock would be at $139.50 or below. Since its currently at or around this price we rate PepsiCo stock as a buy