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PepsiCo's Biggest Opportunity

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PepsiCo (NYSE: PEP  ) has satisfied consumers' bellies for more than a century. But recently, the company has left shareholders craving more. With its increased competition and loss of market share, many investors wonder if this global snack food and beverage giant is simply fizzling out. Are more bland results ahead for PepsiCo?

Below is an excerpt from our brand-new premium research report that highlights PepsiCo's biggest opportunities. It's just a taste of one section, but we hope you find it useful.

The opportunity
Last year, PepsiCo derived approximately 58% of its $66 billion in revenues from North America. This geographic segment made up an overwhelming 71% of operating profit. Currently, roughly half of global snack-food sales occur in the U.S., where PepsiCo's Frito-Lay is the dominant market share leader.

Here's a snapshot of PepsiCo's authority in the U.S. salty-snack market.

Company

Percent Retail Sales
of U.S. Salty Snacks

PepsiCo

38.3%

Other

25.1%

Kraft Foods (NASDAQ: KRFT  )

9.4%

Private label

9.4%

Kellogg (NYSE: K  )

4.6%

ConAgra (NYSE: CAG  )

3.5%

Snyder's

3.5%

Campbell (NYSE: CPB  )

2.5%

General Mills (NYSE: GIS  )

2%

Procter & Gamble (NYSE: PG  )

1.7%

Source: PepsiCo 2011 Annual Report. Figures as of Dec. 25, 2011.

Clearly the U.S. snack leader, PepsiCo is four times larger than closest rival Kraft Foods, eight times larger than Kellogg, and 19 times larger than General Mills.

Regardless of PepsiCo's dominance in the U.S., the domestic snack food market has been flat. However, there's still plenty of room for growth overseas. In developing nations China, Brazil, and Russia, combined snack food sales grew 15% in 2010 and 11% in 2011 to $17 billion. That's still only half the size of the U.S. market, but it's growing significantly: The global snack food market is expected to grow 7% per year through 2015. For PepsiCo, international business, namely in developing and emerging markets, is the key growth driver for the coming years.

Division

Percent of PepsiCo's Net Revenues in 2011

Percent Changes in Net Revenues From 2010

Frito-Lay North America

20%

6%

Quaker Foods North America

4%

0%

PepsiCo Americas Beverages

34%

10%

Latin America Foods

11%

13%

Europe

20%

41%

Asia/Middle East/Africa

11%

17%

Source: PepsiCo 2011 Annual Report.

In 2011, overseas divisions Latin America, Europe, and Asia/Middle East/Africa saw revenues grow 13%, 41%, and 17%, respectively. Of course, some of this top-line growth was a result of acquisitions, which included both a Russian food and beverage company and a Brazilian cookie and biscuit business. Specifically, growth drivers for the Latin American market are Brazil and Mexico, which each added double-digit growth in both the snack foods and beverage markets in 2010 and 2011. Both beverage and snack volumes grew in Europe, aided by increased sales in Turkey and Russia. Meanwhile, snacks are growing faster than beverages in India, China, and the Middle East. Expect continued aggressive future investments in emerging-market nations from PepsiCo and its salty-snack and beverage rivals.

Looking for more info?
That was just a small morsel of our new premium report on PepsiCo. If you're trying to figure out whether the company is a buy or a sell, this brand-new premium report is an indispensable resource for investors seeking more information. Also, the report comes with updated quarterly guidance so you'll stay in the know. To get started, simply click here.

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Nicole Seghetti
seghetti

Nicole is a contributing writer for The Motley Fool. She's worked as a financial advisor and planner for over a decade. Nicole holds an MBA from the University of the Pacific and a chemical engineering degree from Purdue University. She welcomes you to follow her on Twitter.

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