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PepsiCo Inc. (PEP - Free Report) is among those stocks that have stood out despite softness in the soft drinks industry. Consumers’ awareness on health and wellness, new taxes on sugar-sweetened beverages and rising regulatory pressure affecting CSD sales have been major killjoys for the industry. Despite these, PepsiCo has managed to make a mark on strong international performance, strength in snacking business and efforts to diversify and innovate.
Notably, shares of PepsiCo have risen 8.7% in the last three months, outperforming the industry’s growth of 3.6%. Moreover, this Zacks Rank #2 (Buy) company has an estimated long-term earnings growth rate of 7.5%, reflecting growth potential.
Factors Supporting the Stock
Snacking Business a Key Contributor
Investors are optimistic about strength in PepsiCo’s snacks segment, which generates more than half of its total sales. Notably, the company holds the numero uno position in global snacks market with brands like Doritos, Cheetos and Lay’s much in rage. The snacking business complements the company’s beverage portfolio, resulting in cost leverage, capability sharing, cross-category promotions and other commercial benefits.
Evidently, The Frito-Lay North American snacks business has been consistently strong over the last four years. The segment is expected to continue delivering strong sales and profits as demand for savory snacks is rising.
The U.S. salty snacks market is witnessing an uptrend and is expected to grow from $24 billion to $29 billion by 2022. Gaining significant share of this market, PepsiCo’s Frito-Lay North America business reported operating profit growth of 5% and revenue growth of 4% in the second quarter of 2018.
Strength in Developing and Emerging Markets
PepsiCo generates a significant part of its revenues outside the United States. Developing and emerging markets have significant growth potential due to their relatively low per-capita consumption. Another reason is the burgeoning middle-class population with rising income levels which has driven demand for convenient, on-trend, affordable food and beverages.
The company is expanding in developing/emerging markets like Russia, Mexico, China, India, Brazil and Africa through tailored distribution models as well as by offering locally relevant innovation and value-added products. In Mexico and India, PepsiCo has a massive expansion plan in place for the next five years. In the second quarter of 2018, the company registered 6% organic revenue growth in its developing and emerging markets as a group.
Robust Product Innovation Pipeline
PepsiCo regularly creates new flavors of existing products alongside maintaining a robust pipeline of new launches. Currently, a major portion of the company’s total net revenue comes from “Guilt-Free” products, over half of which comes from the “Everyday Nutrition” category. Most of the company’s latest line-up offers health benefits like reduced calorie beverages, non-carbonated beverages and healthier snacks.
The company is growing its nutrition brands like Quaker, Tropicana and Gatorade and expanding the portfolio of nutritious products in growing categories, such as dairy, hummus and other fresh dips, and baked grain snacks. The company is also working on offering more products with less sodium, sugar and saturated fat, to reap benefits from shifting consumer preference toward good-for-you and health and wellness products.
Over time, the company’s product profile has grown from fun-for-you to a more balanced offering of good-for-you, better-for-you and fun-for-you products. The options for better-for-you and good-for-you products have increased from 38% of revenues in 2006 to about 50% in 2017.
Moreover, PepsiCo has broadened its beverage portfolio to include more non-carbonated beverages and decrease the dependence on colas. The company has been growing its value share in a number of its fastest-growing categories, including tea, enhanced water and sparkling water.
The company’s latest move to enhance its sparkling water portfolio is evident from its agreement to buy SodaStream International Ltd. for a total cash outlay of $3.2 billion. The deal is a significant step in PepsiCo's Performance with Purpose vision, thus encouraging health and wellness via cost-effective and environmentally-friendly beverages.
Bottom Line
The above factors indicate that the company is well poised as a leader in the industry. However, we cannot ignore the industry-wide troubles arising from slowing CSD trends, which is hurting major soft drink makers like Coca-Cola (KO - Free Report) and Kuerig Dr. Pepper (KDP - Free Report) . Further, the recently imposed tariffs on steel and aluminum by the Trump administration has become a major concern for soda makers as it has increased the cost of producing cans for sodas. Higher freight costs are also a deterrent. These disruptive measures may hurt the companies’ top and bottom lines.
Nevertheless, we expect PepsiCo’s continued focus on innovation, international expansion, diversification and a strong snacking business, along with a healthy balance sheet, to help boost operational performance as well as position in the market.
Best Electric Car Stock? You'll Never Guess It.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
Image: Bigstock
PepsiCo Holds Ground Despite Tough Conditions, Stock Gains 9%
PepsiCo Inc. (PEP - Free Report) is among those stocks that have stood out despite softness in the soft drinks industry. Consumers’ awareness on health and wellness, new taxes on sugar-sweetened beverages and rising regulatory pressure affecting CSD sales have been major killjoys for the industry. Despite these, PepsiCo has managed to make a mark on strong international performance, strength in snacking business and efforts to diversify and innovate.
Notably, shares of PepsiCo have risen 8.7% in the last three months, outperforming the industry’s growth of 3.6%. Moreover, this Zacks Rank #2 (Buy) company has an estimated long-term earnings growth rate of 7.5%, reflecting growth potential.
Factors Supporting the Stock
Snacking Business a Key Contributor
Investors are optimistic about strength in PepsiCo’s snacks segment, which generates more than half of its total sales. Notably, the company holds the numero uno position in global snacks market with brands like Doritos, Cheetos and Lay’s much in rage. The snacking business complements the company’s beverage portfolio, resulting in cost leverage, capability sharing, cross-category promotions and other commercial benefits.
Evidently, The Frito-Lay North American snacks business has been consistently strong over the last four years. The segment is expected to continue delivering strong sales and profits as demand for savory snacks is rising.
The U.S. salty snacks market is witnessing an uptrend and is expected to grow from $24 billion to $29 billion by 2022. Gaining significant share of this market, PepsiCo’s Frito-Lay North America business reported operating profit growth of 5% and revenue growth of 4% in the second quarter of 2018.
Strength in Developing and Emerging Markets
PepsiCo generates a significant part of its revenues outside the United States. Developing and emerging markets have significant growth potential due to their relatively low per-capita consumption. Another reason is the burgeoning middle-class population with rising income levels which has driven demand for convenient, on-trend, affordable food and beverages.
The company is expanding in developing/emerging markets like Russia, Mexico, China, India, Brazil and Africa through tailored distribution models as well as by offering locally relevant innovation and value-added products. In Mexico and India, PepsiCo has a massive expansion plan in place for the next five years. In the second quarter of 2018, the company registered 6% organic revenue growth in its developing and emerging markets as a group.
Robust Product Innovation Pipeline
PepsiCo regularly creates new flavors of existing products alongside maintaining a robust pipeline of new launches. Currently, a major portion of the company’s total net revenue comes from “Guilt-Free” products, over half of which comes from the “Everyday Nutrition” category. Most of the company’s latest line-up offers health benefits like reduced calorie beverages, non-carbonated beverages and healthier snacks.
The company is growing its nutrition brands like Quaker, Tropicana and Gatorade and expanding the portfolio of nutritious products in growing categories, such as dairy, hummus and other fresh dips, and baked grain snacks. The company is also working on offering more products with less sodium, sugar and saturated fat, to reap benefits from shifting consumer preference toward good-for-you and health and wellness products.
Over time, the company’s product profile has grown from fun-for-you to a more balanced offering of good-for-you, better-for-you and fun-for-you products. The options for better-for-you and good-for-you products have increased from 38% of revenues in 2006 to about 50% in 2017.
Moreover, PepsiCo has broadened its beverage portfolio to include more non-carbonated beverages and decrease the dependence on colas. The company has been growing its value share in a number of its fastest-growing categories, including tea, enhanced water and sparkling water.
The company’s latest move to enhance its sparkling water portfolio is evident from its agreement to buy SodaStream International Ltd. for a total cash outlay of $3.2 billion. The deal is a significant step in PepsiCo's Performance with Purpose vision, thus encouraging health and wellness via cost-effective and environmentally-friendly beverages.
Bottom Line
The above factors indicate that the company is well poised as a leader in the industry. However, we cannot ignore the industry-wide troubles arising from slowing CSD trends, which is hurting major soft drink makers like Coca-Cola (KO - Free Report) and Kuerig Dr. Pepper (KDP - Free Report) . Further, the recently imposed tariffs on steel and aluminum by the Trump administration has become a major concern for soda makers as it has increased the cost of producing cans for sodas. Higher freight costs are also a deterrent. These disruptive measures may hurt the companies’ top and bottom lines.
Nevertheless, we expect PepsiCo’s continued focus on innovation, international expansion, diversification and a strong snacking business, along with a healthy balance sheet, to help boost operational performance as well as position in the market.
Best Electric Car Stock? You'll Never Guess It.
Zacks Research has released a report that may shock many investors. One stock stands out as the best way to invest in the surge to electric cars. And it's not the one you may think!
Much like petroleum 150 years ago, lithium battery power is set to shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge. With battery prices plummeting and charging stations set to multiply, revenues that were already at $31 billion in 2016 are expected to blast to over $67 billion by the end of 2022.
See Zacks Best EV Stock Free >>