Presented By: Aaron Czerkies

Jonathan Barki
Amin Rizwan
Chris Tsoulakas
Frank Damian
December 6, 2011

PepsiCo, Inc. NYSE:PEP

Introduction
• PepsiCo, Inc. is a global food, snack and beverage company
founded in 1919.

• The Company's brands include Quaker Oats, Tropicana,

Gatorade, Lay's, Pepsi, Walkers, Gamesa and Sabritas.

• Market capitalisation: $100.68bn

• Approximately around 294,000 employees worldwide.

• December 5th 2011 closing price: $64.40

• 52-week range: $58.50-$71.89

 (5 Year) Stock Market Performance

• Blue line – iShares S&P Global Consumer Staples (KXI)

• Red line – PepsiCo
• Green – S&P 500 index

Yahoo Finance
 Technical Analysis

20 and 200 day moving average over a 5-year time horizon

Yahoo Finance
 20 and 200 day moving average over a 2-year time horizon

Yahoo Finance
 Ownership
Holder Shares (millions) % Held

The Vanguard Group Inc. 66.24 4.39%

State Street Global Advisors 58.69 3.85%

BlackRock Fund Advisors 57.82 3.74%

Capital Research Global Investors 38.60 1.83%

Wellington Management Co. LLP 31.56 1.62%

Banc of America Securities LLC 24.92 1.61%

Northern Trust Investments 22.96 1.43%

T. Rowe Price Associates, Inc. 21.98 1.33%

Yacktman Asset Management Co., Inc 18.11 1.25%

Fidelity Management & Research Co. 15.34 1.22%

Above 10 holders comprise 22.27% of shareholders’ ownership.

Data as of 30th September, 2011, Financial Times

 Macroeconomic Analysis
Consumer spending:
• IBIS World estimates 2.6% compound growth in
consumer spending from 2011 to 2016

http://clients.ibisworld.com/bed/default.aspx?bedid=363 Image: http://clients.ibisworld.com/charts/bed/1_1_363_BEDScores.png

 Industry Analysis
Soda Production in the US:
• ~$17bn revenue, $2.5bn profit
Performance
• Industry has been suffering recently with an annual 7.1%
decline from 2006 to 2011
Outlook
• IBIS World project a negative annual growth rate of -2.0%
for 2011 to 2016
Major Players
The Coca-Cola Company - Market Share: 41.2%
PepsiCo Inc. - Market Share: 33.6%
Dr Pepper Snapple Group Inc. - Market Share: 15.4%
http://clients.ibisworld.com/industryus/default.aspx?indid=285
 Industry Analysis (cont.)
Snack Food Production in the US
• ~$28.4bn revenue, $5.9bn profit
Performance
• Steady growth with an annual rate of 4.2% from 2006 to
2011
Outlook
• IBIS World project an annual growth rate of 2.1% for 2011
to 2016
Major Players
Frito Lay North America - Market Share: 48.4%
Kraft Foods Inc. - Market Share: 5.2%
General Mills Inc. - Market Share: 5.1%
http://clients.ibisworld.com/industryus/default.aspx?indid=271
 Industry Analysis (cont.)
Juice Production in the US
• ~$27bn revenue, $6.1bn profit
Performance
• Recent performance has been strong with annual growth
rates of 10.4% from 2006 to 2011
Outlook
• IBIS World project an annual growth rate of 0.5% for 2011
to 2016
Major Players
PepsiCo Inc. - Market Share: 38.4%
The Coca-Cola Company - Market Share: 21.5%
Dr Pepper Snapple Group Inc. - Market Share: 6.1%
http://clients.ibisworld.com/industryus/default.aspx?indid=287
 Product Segments

Source: Barclays “BTS” Consumer Conference, Sep 2011

http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf
 2010 Revenue Breakdown

Source: Annual Report, Dec 2010

 Global Markets Exposure
• About $20 billion or 31% of Revenue from emerging markets in 2010

• Focus on growth in Central Asia and Eastern Europe

• 70% growth of sales in Russia over last 2 years

• Robust economic indicators, low debt ratios, good foreign exchange

reserves
• Wimm-Bill-Dann acquisition
 66% at $3.8 B total ownership to 77%
 15 Aug 2011, ‘squeeze-out demand’ for other 23%
 3,883.70 Russian rubles per share

Source: Q3 Earnings Release, Oct 2011

 Financial Performance
• 24% 5-year CAGR
• High operating margins and potential for growth
• 5-year Compounded Annual Growth Rates:
 12% in Net Revenue  9% EPS
 10% Operating Profit  8% Operating Cash Flow
• $29 B in Dividend and Share repurchases in the last 5 yrs
 Savory Snacks
 Frito Lay’s World’s largest Food Brand $9.4bn
 Doritos $4 B, Cheetos $3.1 B, Ruffles $2.6bn,
Tositos $1.7bn, Fritos $1.3bn

• Transnational expansion strategy

through balance between:
 Localization
 Maintaining consistent quality standards and
cooking processes
• 5-year CAGR:
 3% Volume
 8% Revenue
 8% NOPBT
Source: Q3 Earnings Release, Oct 2011
 Beverages

Source: Barclays “BTS” Consumer Conference, Sep 2011

http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf
 Carbonated Soft Drinks
• Sustain powerhouse brands
 Sierra Mist, +7% in volume
 Mountain Dew, +2.5% in volume
 Pepsi Max, +93% in volume

• Focused advertising & marketing campaigns

 Pepsi Max
 Diet Pepsi
 Pepsi
 Social media exposure
• Continue innovating products
 Pepsi Next
• Develop Occasion-based marketing
 On-the-Go Refreshment
 Special Occasion and Celebrations
 Meal-time and Snacking
Source: Q3 Earnings Release, Oct 2011
 Hydration & Nourishment
Gatorade Tropicana
• 11% Sales growth • About 50% Sales TTM
• 77.3% Sports Drink market share growth
• $150 MM

Source: Q3 Earnings Release, Oct 2011

Barclays “BTS” Consumer Conference, Sep 2011
http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf
 Nutrition
• Top 3 globally in Nutrition, aiming to be $30B business by 2020
• Huge growth potential, 5-year double-digit revenue CAGR
• Strong demographic and consumer interest in health and wellness
• Aging population seeking healthy and tasty foods
• On-the-Go consumers and their demand for convenience

Source: Q3 Earnings Release, Oct 2011

Barclays “BTS” Consumer Conference, Sep 2011
http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf
 Recent Challenges and Concerns
• 2012 Pricing Strategy
• Commodity inflation and Demand elasticity
• Margins & Cost cutting measures
• Currency exposure

• Investors appealing for a split of Snacks and Beverages

• Strong growth in snacks business
• Strong growth with Tropicana and Gatorade
• Weak CSD strategy and culture has impacted PepsiCo’s overall stock
performance
• While Coke has increased by about 50%
• Over-spending in marketing and advertising
• Kraft and Sara Lee example

Source: “Don’t Rule Out a Pepsi Breakup Yet”, Barron’s, 11/19/2011

Q3 Earnings Release, Oct 2011
 The Power of One
• Two powerful businesses worth $31B each
• Consumption:
 Planned together
 Bought together
 Consumed together

• Synergies unique to PepsiCo that lead to selling & service

advantages and efficient operations:
 Common Merchandising
 Convenience Store Channel
 Demographics
 Broad Price Points
 Prime-time Merchandising
 Distribution Networks
 New NFL 10 Year Deal

Source: Q3 Earnings Release, Oct 2011

Public Comparable Analysis
• Quaker/Nutrition
• SWX:NESN Nestlé S.A.
Business areas include Food and Beverage, Nestle Waters and Nestle
Nutrition.

• NYSE:KFT Kraft Foods Inc.

Manufactures and markets packaged food products, including biscuits,
confectionery, beverages, cheese, convenient meals and various packaged
grocery products.

• NYSE:BGS B&G Foods Inc.

B&G Foods, Inc. (B&G Foods) manufactures, sells and distributes a diverse
portfolio of branded shelf-stable food products.

• NYSE:GIS General Mills, Inc.

Global manufacturer and marketer of consumer foods. products categories in
the US include cereals, refrigerated yogurt, soups, shelf stable and frozen
vegetables, dough products, dessert and baking mixes, grain, fruit and savory
snacks, and a variety of organic products.
Public Comparable Analysis - Quaker
• Range: 66.49 to 73.73
• Median: 71.06
• Price: 8.36

RELATIVE VALUE
P/E 15.7x 2012E P/E * 4.67 2012E EPS $73.11
P/S 1.8x 2012E P/S * $68,533 122,299.77
Implied Share Price $68.58
EV/Revenue 2.1x EV / Revenue * $68,533 143,500.88
Implied Market Value 123,754.88
Implied Share Price $69.40
EV/EBITDA 10.2x EV / EBITDA * $13,620 138,500.76
Implied Market Value 118,754.76
Implied Share Price $66.59
Public Comparable Analysis (cont.)
• Soft Drinks
• NYSE:KO The Coca-Cola Company
Produce over 3,500 beverages. Notable brands include: Coca-
Cola, Powerade, Fanta, Sprite, Dasani and Vitamin Water

• NYSE:COT Cott Corporation

Products: Red Rooster, Blue Charge

• NYSE:DPS Dr Pepper Snapple Group, Inc.

Products: Dr Pepper, 7UP, Canada Dry, RC Cola Deja Blue

• NasdaqGS:FIZZ National Beverage Corp.

Products: Shasta, Faygo, Everfresh
Public Comparable Analysis – Soft Drinks
• Range: 5029 to 81.79
• Median: 56.40
• Price: 24.00

RELATIVE VALUE
P/E 13.4x 2012E P/E * 4.67 2012E EPS $62.44
P/S 1.3x 2012E P/S * $68,533 89,838.69
Implied Share Price $50.38
EV/Revenue 2.4x EV / Revenue * $68,533 165,634.77
Implied Market Value 145,888.77
Implied Share Price $81.81
EV/EBITDA 11.2x EV / EBITDA * $13,620 152,870.92
Implied Market Value 133,124.92
Implied Share Price $74.65
Public Comparable Analysis (cont.)
• Frito-Lay
• NasdaqGS:LNCE Snyder's-Lance, Inc.
Manufacturer and distributer of snack food products, including
pretzels, crackers, kettle chips, cookies, potato chips and tortilla chips.

• NasdaqGS:DMND Diamond Foods, Inc.

Products: Kettle Brand Potato Chips,

• NYSE:CAG ConAgra Foods, Inc.

Consumer Foods producer. Brands include Banquet, David Seeds,
Egg Beaters, Healthy Choice, Hebrew National, Pam and Snack Pack.

• NYSE:HSY Hershey Co.

Snacks
Public Comparable Analysis – Frito-Lay
• Range: 21.52 to 67.22
• Weight: 55.00
• Other multiples low so used closer to P/E
• Price: 15.17

RELATIVE VALUE
P/E 14.4x 2012E P/E * 4.67 2012E EPS $67.20
P/S 0.6x 2012E P/S * $68,533 38,373.02
Implied Share Price $21.52
EV/Revenue 1.0x EV / Revenue * $68,533 67,577.80
Implied Market Value 47,831.80
Implied Share Price $26.82
EV/EBITDA 5.6x EV / EBITDA * $13,620 76,093.10
Implied Market Value 56,347.10
Implied Share Price $31.60
Public Comparable Analysis (cont.)
• Tropicana
• NasdaqGS:HANS Hansen Natural Corporation
Develops, sells and distributes beverages. Brands include Monster
Energy, Peace Tea, Hansen's, Hansen's Natural Sodas, Junior
Juice, Blue Sky, X-Presso Monster, Vidration, Hubert's, Rumba,
Samba and Tango.

• NYSE:CQB Chiquita Brands International Inc.

Products: Chiquita Fruit juices
Public Comparable Analysis - Tropicana
• Range: 70.11 to 148.88
• Median: 109.49
• Price: 19.78

RELATIVE VALUE
P/E 16.9x 2012E P/E * 4.67 2012E EPS $78.76
P/S 1.8x 2012E P/S * $68,533 125,026.43
Implied Share Price $70.11
EV/Revenue 4.2x EV / Revenue * $68,533 285,242.71
Implied Market Value 265,496.71
Implied Share Price $148.88
EV/EBITDA 14.5x EV / EBITDA * $13,620 197,666.54
Implied Market Value 177,920.54
Implied Share Price $99.77
 Recommendation
• DCF value: $65.93
• Comps value: $67.31
• Current market price (12/06/2011): $64.40

• Current recommendation: Watch List, but would love to buy on a

pullback below $60