Question #4—Provide an overall financial analysis for each company that highlights the key characteristics for investment and how this may impact an investor’s decision.
Both PepsiCo and Coca-Cola have been in the business for a long time but are they competitive enough that financially one is doing better than the other. Coca Cola global products are 100% soft drinks and beverage, while PepsiCo global is both 48% snacks and 52% beverage corporation. Both companies have been operating from more than a century, but Coca-Cola is known worldwide and is also the largest producer of soft drink sales. The operations of each of these two companies are beyond normal competitive boundaries. Both market to the entire world and respond to new products by their competitor with fierce follow up strategies of their own new product. As for Pepsi, investors sent shares of Pepsi higher this week, after the company delivered fourth-quarter revenue and earnings that topped analysts' expectations. The soda giant's net revenue spiked 17% in the period, helped by strong sales in both its snacks and beverage businesses. Pepsi pulled in earnings of $1.09 a share, on revenue of $19.95 billion for the quarter. Good news continued with Pepsi announcing a 5.6% dividend hike, which began in June of this year. This should be welcome news to income investors, as it boosts the annual dividend payout to $2.27 a share. Last year the company planned to return $6.4 billion to shareholders through dividends and share repurchases. Clearly, it's a good time to be a PepsiCo stockholder (Rutter, 2013). The company's recent earnings release proves that Pepsi is on track with its turnaround strategy. Pepsi has successfully raised prices, added new products, and significantly increased its marketing budget, all since its fall from grace nearly a year ago. In fact, even Pepsi's struggling North American beverage business is making progress--growing 2.5% in the fourth quarter. Also, restaurant chain Buffalo Wild Wings switched drink-suppliers from Coke to Pepsi, in hopes of benefiting from Pepsi’s ties to the National Football League and Major League Baseball. With returns of nearly 19% by the end of 2013, PepsiCo’s returns were better than Coca-Cola’s 9% year-end totals. The difference in product mix is the reason founder of VeraCruz TJM, Steve Cortes thinks Pepsi outperformed Coke in 2013 and will do so in the future. He also states that consumers are also turning away from sugary drinks and coke is in a tougher spot because it relies too heavily on flavored beverages (Lewitinn, 2013).
In contrast, it seems the cola king can't catch a break these days. For its fourth quarter, Coca-Cola suffered net revenue and operating income declines of 4% on a year-over-year basis. For fiscal-year 2013, Coca-Cola's net revenue slid by 2% and operating income declined by 5%. Going forward, Coke should be able to boost growth in emerging markets such as India. In fact, the company plans to invest $5 billion in the region by 2020. Between its international growth opportunities and massive distribution network, Pepsi are both winning brands and strong competitors. While Pepsi is in favor this week, I think the slight dip in Coke's share price creates an opportunity for patient investors. In fact, there is absolutely no question that Coca-Cola has been great to long-term shareholders, but the company faces some new threats to its continued market dominance. Pepsi also has, according to Yahoo Finance, been upgraded more times than Coca-Cola during the last few months, signaling a favorable sentiment among investment banks (Lewitinn, 2013). In terms of guidance, both companies look to secure better procedures in the emerging markets with their products which should hurt earnings for a while but eventually boost them due to economies of scale. As of the most recent quarter analysis, Pepsi's debt to equity ratio is about 37 percent higher than Coke, 1.37 versus .99, which means investors