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Category: Stock Market and PepsiCo (PEP)
Date: 2 October 2020 Stock Price of PepsiCo: $140.80 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Pepsico, the owner of soft drink brand, Pepsi and Lays Chips amongst others and long time rival of the Coca-Cola company (KO). The group's net revenue increased by 5.2% and they reported net earnings for the quarter of $2.3 billion
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Despite the ongoing volatility and complexity on our operating environment, I believe our third quarter performance reinforces the diversification of our portfolio, the resilience and agility of our teams across every continent and demonstrates our ability to support our customers and communities during their time of need while also delivering good results for our shareholders said PepsiCo Chairman and CEO, Ramon Laguarta "
About PepsiCo (PEP)
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' 3rd quarter 2020 earnings report
- Net sales: $18.091 billion (up from $17.188 billion for the same quarter of the previous year)
- Net sales increased by 5.2% over the last 12 months
- Cost of sales: $8.156 billion (up from $7.694 billion for the same quarter of the previous year)
- Cost of sales increased by 6% over the last 12 months
- Some margin squeeze on PepsiCo as their cost of sales increased at a faster rate than their net sales
- Net income: $2.307 billion (up from $2.110 billion profit for the same quarter of the previous year)
- Diluted earnings per share: $1.65 (up from $1.49 per share for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 1.393 billion (down from 1.405 billion for the same quarter of the previous year)
- Cash and cash equivalents: $9.094 billion
- Cash and cash equivalents per share: $6.52
- Cash and cash equivalents makes up 4.6% of PepsiCo market capital
- Cash and cash equivalents makes up 9.8% of PepsiCo's total assets
- Accounts receivable: $9.295 billion
- Accounts receivable makes up 10% of PepsiCo's total assets
- Inventories: $4.135 billion
- Inventories makes up 4.5% of PepsiCo's total assets
- Goodwill: $18.6 billion
- Goodwill makes up 20.2% 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 $13.40 a PepsiCo stock
- Stockholders equity of PepsiCo's: $13.595 billion
- Stockholders equity per share for PepsiCo : $9.75
- So PepsiCo is trading at 14.4 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.
- For some perspective the average price to book value of firms in the S&P 500 is 3.7
- Cash generated by operations for the 9 months of fiscal 2020 :$6.123 billion
- Cash generated by operations per share for the 9 months of fiscal 2020: $4.39
PepsiCo' management commentary on their 3rd quarter 2020 earnings report
"Despite the ongoing volatility and complexity on our operating environment, I believe our third quarter performance reinforces the diversification of our portfolio, the resilience and agility of our teams across every continent and demonstrates our ability to support our customers and communities during their time of need while also delivering good results for our shareholders" said chairman Ramon Laguarta
Outlook
Based on the year-to-date performance and evolving business conditions, the company updated its guidance for 2020. It predicts organic revenue growth of 4% for the year with core earnings of $5.50 per share. It reported core earnings per share of $5.53 in 2019.
Further, it expects to maintain a strong balance sheet, increased cash generation and ample liquidity to invest in its business and reward its shareholders. It anticipates generating $10 million of cash from operations and about $6 million of free cash flow. Capital expenditure for 2020 is estimated to be nearly $4 million.
For 2020, the company plans to return $7.5 billion of cash to its shareholders, comprising $5.5 billion of dividends and $2 billion of share repurchases. It expects core effective tax rate of 21%.However, the company expects currency headwinds to hurt its revenues and core earnings per share (EPS) by 2 percentage points in 2020, based on the current rates.
Based on the year-to-date performance and evolving business conditions, the company updated its guidance for 2020. It predicts organic revenue growth of 4% for the year with core earnings of $5.50 per share. It reported core earnings per share of $5.53 in 2019.
Further, it expects to maintain a strong balance sheet, increased cash generation and ample liquidity to invest in its business and reward its shareholders. It anticipates generating $10 million of cash from operations and about $6 million of free cash flow. Capital expenditure for 2020 is estimated to be nearly $4 million.
For 2020, the company plans to return $7.5 billion of cash to its shareholders, comprising $5.5 billion of dividends and $2 billion of share repurchases. It expects core effective tax rate of 21%.However, the company expects currency headwinds to hurt its revenues and core earnings per share (EPS) by 2 percentage points in 2020, based on the current rates.
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 $97.00 a stock and its currently trading at $134.46 a stock.
That's a decent return of 38.6% provided by PepsiCo over the last 5 years. The stock of PepsiCo is trading at a lot closer to its 52 week high of $147.20 than it is to its 52 week low of $101.42 which to us is a clear indication that the short term sentiment and momentum of PepsiCo stock is very positive.
That's a decent return of 38.6% provided by PepsiCo over the last 5 years. The stock of PepsiCo is trading at a lot closer to its 52 week high of $147.20 than it is to its 52 week low of $101.42 which to us is a clear indication that the short term sentiment and momentum of PepsiCo stock is very positive.
PepsiCo (PEP) stock vs Coca-Cola (KO) stock over the last 2 years
The image below shows the stock price performance of PepsiCo (PEP) an Coca-Cola over the last 2 years. Both these firms are primarily active in the non -alcoholic beverages sector. While the stock price trends are fairly similar over the last 2 years the returns provided by the two non-alcoholic beverages heavy weights the story is a little different. The summary below shows the stock price returns of these two stocks over the last two years:
The stock of PepsiCo has easily outperformed that of Coca-Cola over the last 2 years.
- PepsiCo: 33.7%
- Coca-Cola: 10%
The stock of PepsiCo has easily outperformed that of Coca-Cola over the last 2 years.
Recent coverage of PepsiCo
The extract below shows some of the latest coverage on PepsiCo as obtained from CNBC.com
PepsiCo on Thursday reported its quarterly sales grew by more than 5% as consumers bought more of its Tostitos and pancake mixes. The food and beverage giant also provided an outlook for its earnings and revenue for the first time since yanking its forecast in April, when coronavirus pandemic lockdowns hit sales.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
Pepsi reported fiscal third-quarter net income of $2.29 billion, or $1.65 per share, up from $2.1 billion, or $1.49 per share, a year earlier. The company spent $147 million this quarter on costs associated with the coronavirus pandemic, like more expensive labor and buying personal protective equipment.
Excluding items, the company earned $1.66 per share, beating the $1.49 per share expected by analysts surveyed by Refinitiv. Net sales rose 5.3% to $18.09 billion, topping expectations of $17.23 billion. Organic revenue, which strips out the impact of foreign currency, acquisitions and divestitures, grew 4.2% in the quarter.
Both its Frito-Lay and Quaker Foods businesses reported organic revenue growth of 6%, despite economies opening up and consumers feeling more comfortable leaving their homes. Frito-Lay saw higher sales in its Tostitos, Cheetos and Doritos, while Quaker Foods’ pasta and macaroni and cheese dishes reported double-digit sales growth. CFO Hugh Johnston said on CNBC’s “Squawk Box” that the company is struggling to keep up with demand for its new Cheetos macaroni and cheese. “We’re trying to get capacity as quickly as we can — that’s how popular this is,” he said
Read the full article here
PepsiCo on Thursday reported its quarterly sales grew by more than 5% as consumers bought more of its Tostitos and pancake mixes. The food and beverage giant also provided an outlook for its earnings and revenue for the first time since yanking its forecast in April, when coronavirus pandemic lockdowns hit sales.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $1.66, adjusted, vs. $1.49 expected
- Revenue: $18.09 billion vs. $17.23 billion expected
Pepsi reported fiscal third-quarter net income of $2.29 billion, or $1.65 per share, up from $2.1 billion, or $1.49 per share, a year earlier. The company spent $147 million this quarter on costs associated with the coronavirus pandemic, like more expensive labor and buying personal protective equipment.
Excluding items, the company earned $1.66 per share, beating the $1.49 per share expected by analysts surveyed by Refinitiv. Net sales rose 5.3% to $18.09 billion, topping expectations of $17.23 billion. Organic revenue, which strips out the impact of foreign currency, acquisitions and divestitures, grew 4.2% in the quarter.
Both its Frito-Lay and Quaker Foods businesses reported organic revenue growth of 6%, despite economies opening up and consumers feeling more comfortable leaving their homes. Frito-Lay saw higher sales in its Tostitos, Cheetos and Doritos, while Quaker Foods’ pasta and macaroni and cheese dishes reported double-digit sales growth. CFO Hugh Johnston said on CNBC’s “Squawk Box” that the company is struggling to keep up with demand for its new Cheetos macaroni and cheese. “We’re trying to get capacity as quickly as we can — that’s how popular this is,” he said
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 $139.90 a stock. We therefore believe that the stock is close to being fully valued.
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 $139.90. So a good entry point into PepsiCo stock would be at $125.90 or below. We therefore rate the stock of PepsiCo (PEP) as a hold.
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 $139.90. So a good entry point into PepsiCo stock would be at $125.90 or below. We therefore rate the stock of PepsiCo (PEP) as a hold.
Next earnings release of PepsiCo
It is expected that PepsiCo will release their 4th quarter 2020 earnings report in early January 2020