Financial Analysis of PepsiCo Inc.

PepsiCo, Inc.

PepsiCo, Inc. is a multinational snack, beverage, and food corporation in America. The company headquarter is located in Purchase, New York. Precisely, the interests of PepsiCo, Inc. is in the marketing, distribution, as well as manufacture of beverages, snack foods, and other products that are grain based. The merger of the Frito-Lay, Inc. and the Pepsi-Cola Company in 1965 resulted in the formation of PepsiCo. The namesake product Pepsi has since been expanded to PepsiCo, Inc. to a broader range of brands of beverage and food. In 1998 and 2001, the company acquired the Tropicana Products and the Quaker Oats Company respectively (Turner & Gianiodis, 2017). As a result, the Gatorade brand was added to its portfolio.

This paper researches on the financial analysis of PepsiCo, Inc. as well as comparing its performance with its major competitors such as Coca-Cola. Moreover, some of the external environmental threats that may adversely affect the company's performance are also discussed. Finally, the company's position and performance are also assessed in the marketplace, in addition to its prospects in the future.

Financial Analysis

PepsiCo

As of December 30, 2017, PepsiCo, Inc. managed to make a gross profit of $34,740,000 (Mokhov & Ryabukhin, 2018). The products of the company were distributed across more than two hundred countries. As a result, the total revenue was $63,525,000. Moreover, the cost of revenue was $28,785,000. Mathematically, profit or loss = Revenues – expenses. Also, the gross profit margin = (sales – the cost of the goods that are sold)/ sales. Finally, the net profit margin is given as the net income divided by the sales. In 2016, the company recorded a total revenue of $62,799,000. The cost of revenue for this year was $28,209,000. As a result, the gross profit was $62,799,000 - $28,209,000 = $34,590,000. In 2015, PepsiCo, Inc. made a total revenue of $63,056,000 (Turner & Gianiodis, 2017). At this time, the cost of revenue was $28,731,000. Therefore, the gross profit was $63,056,000 - $28,731,000 = $34,325,000.

The net income applicable to the common shareholders in the year 2017, 2016, and 2015 were $4,857,000, $6,329,000, and $5,452,000 respectively (Mokhov & Ryabukhin, 2018). Evidently, PepsiCo, Inc. has been making a gradual increase in their gross profit. PepsiCo, Inc. is the second largest beverage and food business in the world based on the net revenue. Within North America, the company is the largest business of food and beverage by net revenue. The beverage bottling and distribution of the company is conducted by PepsiCo, Inc. as well as by the bottlers who are licensed in certain regions.

Coca-Cola

Coca-Cola is the major competitor of PepsiCo, Inc. The concentrate is produced by Coca-Cola, which is then sold to its distributors globally. On occasion, other cola drinks have been introduced by the Coca-Cola Company under the name of Coke. Some of these drinks include Diet Coke, Vanilla, Cherry, and Caffeine-Free Coca-Cola. As at December 31, 2017, Coca-Cola recorded a total revenue of $35,410,000. The cost of revenue was $13,256,000, thus producing a gross profit of $35,410,000 - $13,256,000 = $22,154,000. In 2016, the company had a net operating revenue of $41,863,000 with a cost of revenue of $16,465,000. The gross profit was $41,863,000 - $16,465,000 = $25,398,000. Finally, in 2015, Coca-Cola made a total revenue of $44,294,000. The cost of revenue was $17,482,000, thus translating to a gross profit of $26,812,000. Clearly, the profit margin of the company has been reducing for years. The operating income of Coca-Cola has also been declining (Mokhov & Ryabukhin, 2018).

External Environmental Threats

Even though PepsiCo, Inc. performs well in the global market, the company is also faced with other external environmental threats. In particular, the major threats here include factors such as culture, competition, government, technology, demographics, economy and so on. These factors lie within the foreign, domestic, and international environment. For example, the products of PepsiCo, Inc. are subject to various federal laws which in some cases interfere with their smooth operation (Fishman, 2016). Since the company operates in almost all the countries in the world, the acquisition of land for the new factories sometimes becomes a problem. It is also challenging to find new opportunities in other countries. There have also been issues that regard the availability of labor. The government in various countries also focuses on stricter norms of water pollution, hence making the company consider introducing special plastic bottles and cans for the beverages and foods.

PepsiCo, Inc. also faces stiff competition from the Coca-Coal company. In the beverage market, Coca-Cola has been considered the primary competitor of the company. For example, in 2005, the Coca-Coal company was surpassed by PepsiCo, Inc. in the value of the market for the first time in 112 years since both companies began their competition (Turner & Gianiodis, 2017). However, in 2009, a higher market share was held by Coca-Cola Company in the sales of carbonated soft drinks within the United States. A higher market share of the refreshment beverage in the U.S was still maintained by PepsiCo, Inc. in the same year. The business of PepsiCo, Inc. has since shifted to include a broader base of products as a result of acquisitions, mergers, and partnerships that the PepsiCo pursued in the 2000s and 1990s. Some of the product bases of the company include snacks, foods, and beverages (Turner & Gianiodis, 2017).

The Company’s Position and Performance

Currently, PepsiCo, Inc. is the second largest firm in the worldwide beverage and food market basing on the ability of the company to wield its strengths for continuous growth. Even though there is an increase in the saturation of the market, PepsiCo, Inc. still continues to grow. Meaning that its future is promising. Probably, the growth of PepsiCo, Inc. is positioned to reach the top rank of the global beverage and food industry. In the future, this firm should consider tapping various opportunities and strengths for addressing its business threats and weaknesses. PepsiCo, Inc. must also address its external environmental threats for minimizing barriers to its global performance as a global company (Fishman, 2016). Such a procedure will make the company provide strong financial returns.

Conclusion

It has been shown that PepsiCo, Inc. is the second largest producer of food and beverages in the world. The company has also been making a gradual increase in their gross profit. However, it faces various external environmental threats. The company can find the use of its strengths and opportunities helpful for an effective response to such threats for it to continue providing strong financial returns. PepsiCo, Inc. should consider diversifying its business with the aim of minimizing the exposure to the risk of the market. Also, the company can attract more consumers by improving its product healthfulness.

References

Fishman, R. (2016). More uneven distributions overturn benefits of higher precipitation for crop yields. Environmental Research Letters, 11(2), 024004. http://dx.doi.org/10.1088/1748-9326/11/2/024004

Mokhov, V., " Ryabukhin, M. (2018). Sustainable development program «COCA-COLA HBC RUSSIA». Investment and Innovation Management Journal, (4), 68-72. http://dx.doi.org/10.14529/iimj170410

Turner, T., " Gianiodis, P. (2017). Entrepreneurship Unleashed: Understanding Entrepreneurial Education outside of the Business School. Journal of Small Business Management, 56(1), 131-149. http://dx.doi.org/10.1111/jsbm.12365