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PepsiCo Inc (PEP) Extended Graph Analysis

March 5th, 2020 Posted by Extended Analysis No Comment yet

Company Profile

PEP logo

PepsiCo is leading in the food and beverage multinational company, well known for its product diversification selling products in around 200 countries and territories. Their products caters to the tastes of their customers young and adults. They faced the challenge of providing their consumers nutritious food and beverages. Its main competitors is The Coca-Cola Company.

PepsiCo was founded by Caleb Bradham, headquartered in Purchase, Harrison, New York, United States. It is a public company registered under NASDAQ with ticker symbol PEP.

 

PepsiCo (PEP) Extended Graph Analysis

 

1. PEP CASH FLOW

PEP CASH FLOW

2015 2016 2017 2018 2019 TTM
Net cash flow provided by operating activites 10,580,000,000 10,404,000,000 9,994,000,000 9,415,000,000 9,649,000,000 9,649,000,000
Net cash used for investing activities -3,569,000,000 -7,148,000,000 -4,403,000,000 4,564,000,000 -6,437,000,000 -6,437,000,000
Net cash provided by (used for) financing activities -3,828,000,000 -2,942,000,000 -4,186,000,000 -13,769,000,000 -8,489,000,000 -8,489,000,000
Capital expenditure -2,758,000,000 -3,040,000,000 -2,969,000,000 -3,282,000,000 -4,232,000,000 -4,232,000,000
Free cash flow 7,822,000,000 7,364,000,000 7,025,000,000 6,133,000,000 5,417,000,000 5,417,000,000
Working Capital 5,453,000,000 5,954,000,000 10,525,000,000 -245,000,000 -2,816,000,000 -2,816,000,000

Facts:

  • Cash from operating activities was $9.649 billion in the trailing twelve months.
  • Cash used for investing activities was -$6.437 billion in the trailing twelve months.
  • Net cash from financing activities was -$8.489 billion in the trailing twelve months.
  • Capital expenditure was -$4.232 billion in the trailing twelve months.
  • Free cash flow was $5.417 billion in the trailing twelve months.
  • Working capital was -$2.816 billion in the trailing twelve months.

Explanation:

  • Cash from operating increased 2.49% from 2018 to trailing twelve months.
  • Investing activities were purchase of property, plant and equipment and acquisitions.
  • Financing activities were debt repayment, common stock repurchased and dividend payments.
  • Capital expenditure was investment in property, plant and equipment.
  • Free cash flow decreased 12 percent from 2018.
  • Working capital was negative from 2018, current liabilities were higher than the current assets.

Interpretation

The company was able to provide cash from its operating activities in the last five years. PEP had a number of business acquisitions in recent years as one of their strategic moves.

 

2. PEP BALANCE SHEET

PEP BALANCE SHEET

2015 2016 2017 2018 2019
Total cash 12,009,000,000 16,125,000,000 19,510,000,000 8,993,000,000 5,738,000,000
Current Assets 23,031,000,000 27,089,000,000 31,027,000,000 21,893,000,000 17,645,000,000
Net property, plant and equipment 16,317,000,000 16,591,000,000 17,240,000,000 17,589,000,000 20,853,000,000
Total non-current assets 46,636,000,000 47,040,000,000 48,777,000,000 55,755,000,000 60,902,000,000
Total assets 69,667,000,000 74,129,000,000 79,804,000,000 77,648,000,000 78,547,000,000
Current liabilities 17,578,000,000 21,135,000,000 20,502,000,000 22,138,000,000 20,461,000,000
Non-current liabilities 40,166,000,000 41,899,000,000 48,413,000,000 40,992,000,000 43,300,000,000
Total liabilities 57,744,000,000 63,034,000,000 68,915,000,000 63,130,000,000 63,761,000,000
Retained earnings 50,472,000,000 52,518,000,000 52,839,000,000 59,947,000,000 61,946,000,000
Stockholders equity 11,923,000,000 11,095,000,000 10,889,000,000 14,518,000,000 14,786,000,000

Facts:

  • Total cash was $5.738 billion in 2019.
  • Current assets were $17.645 billion in 2019.
  • Net property, plant and equipment was $20.853 in 2019.
  • Total non-current assets were $60.902 billion in 2019.
  • Total assets were $78.547 billion in 2019.
  • Current liabilities were $20.641 billion in 2019.
  • Non-current liabilities were $43.300 in 2019.
  • Total liabilities were $63.761 in 2019.
  • Retained earnings were $61.946 in 2019.
  • Stockholders equity was $14.786 in 2019

Explanation:

  • Total cash represents 7.31% of total assets.
  • Current assets represent 22.46% of total assets.
  • Net property, plant and equipment represents 26.55% of total assets.
  • Total non-current assets represent 77.54% of total assets.
  • Total assets grew 13% in five years.
  • Current liabilities represent 32% of total liabilities.
  • Non-current liabilities represent 68% of total liabilities.
  • Total liabilities represents 81% to total liabilities and equity.
  • Stockholder equity represents 19% of total liabilities and equity.

Interpretation

The company is highly leveraged, using four-fifth of creditors money in its business operation, nearly 20% of investors money is utilized in the operation. In other words, the creditors have more stake than the investors. 

 

3. PEP INCOME AND MARKET

PEP INCOME AND MARKET

2015 2016 2017 2018 2019 2020
Revenue 63,056,000,000 62,799,000,000 63,525,000,000 64,661,000,000 67,161,000,000 67,161,000,000
EBIT 9,712,000,000 9,785,000,000 10,509,000,000 10,110,000,000 10,291,000,000 10,291,000,000
Net Income 5,452,000,000 6,329,000,000 4,857,000,000 12,515,000,000 7,314,000,000 7,314,000,000
EBITDA 10,828,000,000 12,263,000,000 13,122,000,000 13,113,000,000 12,879,000,000 12,879,000,000
Market Capitalization 144,684,000,000 150,059,000,000 170,543,000,000 155,666,000,000 190,108,000,000 197,550,000,000
Intrinsic Value 209,836,396,353 745,025,154,189 839,073,420,473 2,631,653,205,144 4,029,094,790,996 4,718,747,139,220

Facts:

  • Revenue was $67.161 billion in trailing twelve months.
  • EBIT was $10.291 billion in the trailing twelve months.
  • Net income was $7.314 billion in the trailing twelve months.
  • EBITDA was $12.879 billion in the trailing twelve months.
  • The market capitalization was $197.550 billion.
  • Intrinsic value was $4.719 trillion in the trailing twelve months.

Explanation:

  • Revenue grew 7% in five years and from 2018 it grows 3.87%.
  • EBIT grew 6% in five years and shows an increase of 1.79% from 2018.
  • Net income grew 34% in five years. It has a negative growth of 41.56% from 2018.
  • EBITDA grew 19% in five years. It has a negative growth from 2018 at 1.78%.
  • Market capitalization was erratic in movement in the last five years and it increased 4% from 2019 to the last quarter.
  • The calculated intrinsic value shows a very high value at $4.719 trillion.

Interpretation

The company is investing heavily in advertising and marketing, the reason its sales, general and administrative expense was high at 72% of gross profit which impacted the net income.

 

4. PEP FINANCIAL RATIOS

PEP FINANCIAL RATIOS

2015 2016 2017 2018 2019 2020
Asset turnover (average) 0.90 0.87 0.83 0.82 0.86 0.86
Return on assets % 7.77 8.79 6.31 15.89 9.37 9.37
Return on equity % 37.20 55.14 44.32 98.66 49.92 49.92
Debt/Equity 2.46 2.72 3.12 1.95 1.97 1.97
Return on invested capital % 13.38 15.55 11.00 27.64 17.11 17.11
Interest coverage 8.67 7.37 9.34 7.03 9.20 9.20

Facts:

  • Asset turnover was 0.86 in the trailing twelve months.
  • Return on asset was 9.37% in the trailing twelve months.
  • Return on equity was 49.92% in the trailing twelve months.
  • Return on invested capital was 17.11% in the trailing twelve months.
  • Interest coverage was 9.20 in the trailing twelve months.

Explanation:

  • Asset turnover means that the company is generating $0.86 of sales for every $1 investment in assets.
  • Return on assets means for every $1 invested in assets the company generates 9.37 cents of net income.
  • Return on equity indicates that for every $1 of shareholders equity, PEP generated 49 or 50 cents in profit.
  • Return on invested capital indicates that the invested capital yielded 17.11 percent of return.
  • Interest coverage indicates that the company earns 9 times earnings than its current interest payment.

Interpretation

The company’s financial ratios show acceptable ratios. The company is liquid

 

5. PEP KEY EXECUTIVE COMPENSATION

PEP KEY EXECUTIVE COMPENSATION

Name/Title 2014 2015 2016 2017 2018
Key Executive Compensation 37,399,250 48,405,262 56,275,124 63,116,455 65,489,721
Indra K. Nooy/ Chairman of the Board and Chief Executive Officer 22,485,574 26,444,990 29,783,416 31,082,648 24,491,117
Ramon L Laquarta/Chairman of the Board and CEO 5,655,039 6,113,574 10,157,245 10,827,396
Albert P. Carey/CEO North America 7,712,149 7,744,388 10,071,299 10,160,310 7,868,118
Laxman Narasimhan/Global Chief Commercial Officer and CEO Latin America 7,009,990
Silviu Popovici/CEO Europe Sub Saharan Africa 6,151,034
Hugh F. Johnston/Vice Chairman, Executive Vice President and Chief Financial Officer 7,201,527 8,560,845 10,306,835 11,716,252 9,142,066

Facts:

  • The key executive compensation was $65,489,721 in 2018.
  • The CEO compensation was $24,491,117 in 2018.
  • Chairman of the Board and CEO compensation was $10,827,396 in 2018.
  • CEO North America compensation was $7,868,118 in 2018.
  • Chief Commercial Officer and CEO Latin America compensation was $7,009,990 in 2018.
  • CEO Europe Sub Saharan Africa compensation was 6,151,034 in 2018.
  • Vice Chairman, Executive Vice President and Chief Financial Officer compensation was $9,142,066 in 2018.

Explanation:

  • The total key executive compensation represents 0.90% of net income.
  • CEO compensation represents 37.40% of the total key executive compensation.
  • Chairman of the Board and CEO compensation represents 16.53% of the total key executive compensation.
  • CEO North America compensation represents 12% of the total key executive compensation.
  • Chief Commercial Officer and CEO Latin America compensation represents 11% of the total key executive compensation.
  • CEO Europe Sub Saharan Africa compensation represents 9.39% of the total key executive compensation.
  • Vice Chairman, Executive Vice President and Chief Financial Officer compensation represents 14% of the total key executive compensation.

Interpretation

The company’s key executive compensation represents 0.90% of the net income.

 

6. PEP LOBBYING AND CONTRIBUTIONS

PEP LOBBYING AND CONTRIBUTIONS

Period USD Period USD
1998 960,000 2009 9,373,000
1999 1,300,000 2010 6,874,800
2000 1,320,000 2011 3,260,000
2001 1,035,000 2012 3,330,000
2002 960,000 2013 3,720,000
2003 860,000 2014 3,510,000
2004 720,000 2015 4,470,000
2005 740,000 2016 3,140,000
2006 880,318 2017 2,880,000
2007 1,000,636 2018 3,470,000
2008 1,096,000 2019 3,490,000

Explanation:

PepsiCo has been spending annual lobbying and contributions since 1998. The amount varies annually. NOTE: Figures on this page are calculations by the Center for Responsive Politics based on data from the Senate Office of Public Records. Data for the most recent year was downloaded on January 23, 2020 and includes spending from January 1 – December 31. Prior years include spending from January through December.

Source: OpenSecret.org Center for Responsive Politics

 

6. PEP FINANCIAL STRENGTH

PEP FINANCIAL STRENGTH

DATA

Working capital -$2,816,000,000
Total assets $78,547,000,000
Sales $67,161,000,000
EBIT $10,291,000,000
Market value of equity $197,550,000,000
Book value of total liabilities $63,761,000,000
Retained earnings $61,946,000,000

 

CALCULATION

Ratio Score Result
A – Working Capital / Total Assets -0.0359 1.20 -0.04
B – Retained Earnings / Total Assets 0.79 1.40 1.10
C – EBIT / Total Assets 0.13 3.30 0.43
D – Market Value of Equity / Book Value of Total Liabilities 3.10 0.60 1.86
E – Sales / Total Assets 0.86 1.0 0.86
Z-Score 4.21

 

Formula: Z-Score = 1.2A + 1.4B + 3.3C + 0.6D + 1.0E

 

Explanation

Z-Score is a statistical measurement that compares data points from different sets of data to find correlations. This measurement by Dr. Edward Altman is a significant measure in determining the financial strength of the company because it relies on different weighted financial liquidity and profitability metrics to come up with the overall score. This measure indicates the probability of bankruptcy.

Interpretation

The overall Z-Score of PEP was 4.21, the grading scale for 3.00 and over according to Altman indicates that the company will not declare bankruptcy. This measurement is not calculated for the purpose of estimating the company will declare bankruptcy but it helps in comparing other companies that have become insolvent.

Conclusion

PepsiCo was liquid and has great potential for accelerating its revenue in the long run due to its diversification strategy. The company manufactures and sells a variety of food and beverages that caters to young people and adults. Although the company is highly leveraged, PEP is stable and has a strong financial strength.

CITATION

https://www.opensecrets.org/federal-lobbying/firms/summary?cycle=1998&id=D000000200

https://www.pepsico.com/about/about-the-company

https://www.morningstar.com/stocks/xnas/pep/quote

Researched and written by Criselda

Note:

Research Reports can be found under the company tab.