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WIKI ANALYSIS
PepsiAmericas, Inc. (NYSE: PAS) is the second largest bottler of Pepsi-Cola products, with 90% of its $4.5B in 2007 sales earned from Pepsico (PEP) products[1], and 75% of sales generated within the U.S.[2] It is licensed to produce PepsiCola carbonated and non-carbonated beverages, like Pepsi and Mountain Dew, as well as Cadbury-Schweppes Yoohoo. PepsiAmericas sales made up 20% of PepsiCo's total sales for 2007[3]. PAS also produces a number of other beverages under its own subsidiaries. PepsiAmericas operates in 15 countries around the world[4] , mainly Central and Eastern Europe and the Carribean, including 19 states throughout the U.S.
Carbonated beverage sales in PepsiAmericas' core North American market have been declining since 2005. PAS is in the midst of expanding its Central and Eastern Europe segment. In 2007, the company's Central and Eastern European revenues grew by 84%[5] due in part to acquisitions. Despite progress in this area, however, the company is still dependent on the U.S. and the Caribbean for a majority - 80% in 2007- of its sales[6]. PAS is also subject to increasing raw materials costs, which are the main factors to its overall business. For example, PAS uses aluminum for its soft-drink cans, as well as plastics for its soft-drink bottles.
On April 20, 2009, Pepsico (PEP) offered to acquire PepsiAmericas in a stock and cash deal. Under the terms of the offer, PepsiAmericas shareholders will receive $11.64 in cash and .223 Pepsico (PEP) shares per share of PAS.[7] Pepsico (PEP) already owns 43% of the bottler and hopes to streamline manufacturing and distribution through the acquisition.
Business Overview
PepsiAmericas Inc. is the second largest producer, seller, and distributor of PepsiCo beverages, behind Pepsi Bottling Group (PBG). It operates in three geographic segments: the U.S. (Midwest), Central and Eastern Europe (CEE), and the Caribbean. Its geographic coverage lets it serve close to 200 million customers[8]. Of its $4.5 B in sales, 76% was made in the U.S. and the rest (24%) from CEE and the Caribbean[9], with CEE sales increasing yearly. PepsiAmerica's U.S. sales make up approximately 19% of PepsiCo's 2007 U.S. sales[10]. PepsiCo has a 44% stake in PepsiAmericas[11].
| Annual income data, in millions | 2003 | 2004 | 2005 | 2006 | 2007 | |
|---|---|---|---|---|---|---|
| Net Sales[15] | $3,236.8 | $3,344.7 | $3,726.0 | $3,972.4 | $4,479.5 | |
| Gross Profit[16] | $1,360.2 | $1,422.5 | $1,562.5 | $1,608.1 | $1,823.3 | |
| Operating Income[17] | $316.3 | $339.7 | $393.4 | $356.0 | $436.1 | |
| Net Income[18] | $157.6 | $181.9 | $194.7 | $158.3 | $212.1 | |
| Employees[19] | 14,500 | 15,100 | 16,000 | 17,100 | 20,700 | |
Products
PepsiAmericas sells a variety of carbonated and non-carbonated beverages. Its main products are carbonated soft-drinks, as its top selling products are Pepsi, Diet Pepsi, and Mountain Dew.
- Eighty percent of PAS' U.S. sales are carbonated drinks[20], but its other products are becoming increasingly popular.
- Its Lipton Iced Teas had a 30% growth in sales over 2007 and PAS now has 50% of the domestic ready-to-drink-tea market[21].
- Its other popular beverage products include: Aquafina water, 7UP, Lipton Iced Teas, Malta Polar, Slice, and Desnoes and Geddes.
It also sells and distributes brands from other beverage companies (such as Cadbury Schweppes (CSG)), as well as some of its own brands (including acquired companies). It also distributes snack foods in parts of the Caribbean and CEE through an agreement with FritoLay, a PepsiCo subsidiary.
Trends and Forces
PAS Expands its European Operations
In the U.S., sales volume declined by 2%[23]. More specifically, carbonated drink sales fell 1% and single-serve sodas fell 4%[24]. In addition, overall carbonated soft-drink sales have been falling since at least 2005 (see graph). In an effort to combat declining domestic sales, PAS has decided to expand abroad to emerging European markets and has had success so far[25]. Its CEE branch had a year-over-year sales increase of 84%, and rapid growth is expected to continue[26]. Acquisitions of Sandora and QABCL were the driving factors in the enormous sales increase. The addition of these companies increased its CEE territory by about 8%[27], and the CEE region generates about 20% of sales, or $1B USD.[28]PAS now has 51 distribution facilities in CEE and its presence is growing.[29] Its affiliations and subsidiaries include:
- PepsiAmericas and PepsiCo jointly acquired Sandora, the leading juice company in Ukraine. Under the agreement, PAS owns 60% and PEP owns the remaining 40%.[30]
- PepsiAmericas also acquired Quadrant-Amroq Bottling Company Limited (QABCL), a PepsiCo producer/distributor/seller in Romania.[31]
- PAS owns a 20% interest of Agrima[32], another PepsiCo producer/distributor/seller in Bulgaria.
- Toma, a juice and water company, is popular with younger consumers[33] and operates throughout the CEE region.
Rising Commodity Costs
PepsiAmerica's reported a worldwide 3.9% increase (per unit) in cost of goods sold[37]. Cost of goods sold includes raw materials used for packaging and production and affects profit margins and unit costs. PAS has been able to maintain its margins through improvements in productivity and distribution[38]. PepsiAmericas buys its raw materials from a number of dealers, but it uses Pepsico (PEP) as an agent to purchase its materials[39]. The involvement of PepsiCo affects the prices of the raw materials because PepsiCo is a huge company and buys materials in enormous quantities. The following materials have the biggest impact on PAS' costs:
PepsiAmericas uses aluminum to make cans to package its beverages and represents a sizable proportion of its cost of goods sold. In 2006, average aluminum prices were up nearly 40% for the year.
Corn is used for high-fructose corn syrup as a sweetener for the majority of its non-diet drinks. Corn prices are at an all time high and were up almost 80% from 2005-2006.
PAS uses PET resin to make plastic bottles for packaging. In 2006, PET resin prices rose to a high of $0.88 per pound, but began to decline soon after.
Competition and Market Share
For the most part PAS doesn't compete directly with other bottlers.
Other companies that provide similar products and services are as follows.:
- Coca-Cola Company (KO) is the leading non-alcoholic beverage company in the U.S. with a 43% market share by volume and $30.1 B in sales for 2007[41] . Coca-Cola's three largest bottlers are Coca-Cola Enterprises (CCE) (the largest bottler in the world), Coca Cola Femsa S.A.B. de C.V. (KOF), and Coca-Cola Bottling Co. Consolidated (COKE).
- Cadbury Schweppes (CSG) is both a competitor and an ally because PAS has an agreement with Cadbury to manufacture some of its beverages, like Yoohoo. It has a small percentage of the U.S. non-alcoholic beverage market, as beverages are not its main operation (Cadbury is known for chocolate).
| Company | Revenue | Net Income | Profit Margin | Operating Margin |
| PepsiAmericas, Inc. | $2.3 B | $290 M | 6.6% | 13% |
| Coca-Cola Enterprises (CCE) [42] | $21.3B | $704M | 3.31% | 7.31% |
| Cadbury Schweppes (CSG) [43] | $14.88 | ($0.33) | 5.08% | 12.55% |
References
- ↑ | Google Finance, PepsiAmericas
- ↑ | PepsiAmericas, Inc 2007 Annual Report, "Business", p.3
- ↑ | Google Finance, PepsiAmericas
- ↑ | PepsiAmericas Investors, "Overview"
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 1
- ↑ | Pepsi Americas Inc. 2007 Annual Report, "Selected Financial Data, p. 22
- ↑ PepsiCo Makes ‘About-Face’ With $6 Billion Offer.
- ↑ | PepsiAmericas Inc. 2007 Annual Report, "Business", p. 4
- ↑ | PepsiAmericas Inc. 2007 Annual Report, "Business", p. 4
- ↑ | Google Finance: PAS
- ↑ | PepsiAmericas Inc. 2007 Annual Report, "Business", p.4"
- ↑ | Google Finance: PAS
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ | Google Finance: PAS, "Financial Statements"
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ | PepsiAmericas, Inc. 2007 Annual Report, "Selected Financial Data", p. 22
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 1
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 3
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 1
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 1
- ↑ PepsiAmericas Inc., 04/28/2008 Morningstar Analyst Report, "Mature Markets Crimp Pepsi Bottlers", p. 1
- ↑ | MSN Money: Brush, Michael, "Why Dr Pepper lost its fizz" (6/4/2008)
- ↑ | Blogging Stocks: Halpern, Steven, "CEO invests $10 million at PepsiAmericas (PAS)" (4/14/2008)
- ↑ | PepsiAmericas 2007 Annual Report, "Business", p. 26
- ↑ | PepsiAmericas 2007 Annual Report, "Business", p. 26
- ↑ | PepsiAmericas 2007 Annual Report, "Business", p. 16
- ↑ | Pepsi Americas 2007 Annual Report, "Business", p. 3
- ↑ | Pepsi Americas 2007 Annual Report, "Business", p. 3
- ↑ | Drinks Business Review: "PepsiAmericas invests in Agrima" (9/5/2007)
- ↑ | Elopak, "Press Releases: PEPSI GIVES TOMA JUICE A NEW SHAPE FOR A FRESH NEW LOOK" (6/12/2006)
- ↑ | www.wikinvest.com, Pepsi Bottling Group (PBG), Commodity Cost Inflation
- ↑ | www.wikinvest.com, Pepsi Bottling Group (PBG), Commodity Cost Inflation
- ↑ | www.wikinvest.com, Pepsi Bottling Group (PBG), Commodity Cost Inflation
- ↑ | PepsiAmericas Inc. 2007 Annual Report, "Management’s Discussion and Analysis of Financial Condition and Results of Operations", p. 26
- ↑ | Forbes.com: Thompson Financial News, "PepsiAmericas' ratings affirmed; outlook stable - Fitch" (5/20/08)
- ↑ | PepsiAmericas Inc. 2007 Annual Report, "Business", p.8
- ↑ | www.wikinvest.com, Pepsi Bottling Group (PBG), Competitors
- ↑ | Yahoo Finance: Coca-Cola Co., "Competitors"
- ↑ | Yahoo Finance: Coca-Cola Enterprises, Inc. 2008, "Key Statistics"
- ↑ | AOL Money & Finance: Cadbury Schweppes, "CSG Key Ratios"
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