Here at The Motley Fool, we believe individual investors should have the same access to information that Wall Street has. In that spirit, we've listened in on some investment-bank conferences with major companies and are giving you the rundown. We call this feature "Fool on the Street."
Today, this Fool turned a curious ear to a presentation by John Compton, President of PepsiCo (NYSE:PEP) North America. He's responsible for the operation behind Frito-Lay snacks, Quaker health foods, and Pepsi beverages across this continent. At the recent Consumer Analyst Group of New York Conference, John broke down his entire operational field and presented his vision of the growth opportunities before him.
Going global
Compton crammed his presentation full of valuable little details about each brand of snacks and drinks in the Pepsi portfolio. It's beyond the scope of this summary to rehash all of that, so you might want to listen for yourself.
First, John held up his colleagues in the international division as paragons of virtue, noting Pepsi's strong international growth, including 20% higher operating profits year over year. He also observed that 63% of the company's revenues and 70% of profits are still generated within North America, and that there's no reason why that key market couldn't grow at a healthy clip, too.
Pepsi is becoming increasingly international. Two years ago, the world outside America brought in just 34% of Pepsi's sales and 25% of its profits, so there's a significant market shift in progress. Beverage rival and Motley Fool Inside Value selection Coca-Cola (NYSE:KO) gets more than 70% of its sales and profits from abroad, but snack food opponent Kraft Foods (NYSE:KFT) is somewhat less globally diversified with 77% in domestic revenues.
A healthy outlook
Pepsi North America plans to keep up with that swift international growth by widening its market. Remember when the company billed itself as the choice of a new generation? That, plus the edgy message behind Mountain Dew, established Pepsi as a preferred brand among the younger crowd. These days, the marketing message sounds a bit different.
Quaker Oats isn't exactly a teen sensation, and the Pepsi product portfolio is moving away from the youth message. Compton characterized 2007 as the start of "one healthy future" -- "healthy" referring to a bevy of new product offerings coming down the pipeline.
The entire Frito-Lay collection of deep-fried snacks now comes from a vat of hot sunflower oil, reducing the stress on snackers' hearts. Pepsi also has new products on the way, including fruit crisps and premium fruit juices, and even a healthier take on energy drinks, in the form of a diet cola with extra caffeine. Can it steal customers away from the likes of Red Bull and Hansen Natural's (NASDAQ:HANS) Monster Energy? Maybe so, thanks to Pepsi's strong market presence and well-established supermarket distribution network.
Local diversity
Pepsi's wealth of in-store expertise, born of decades of national experience, provides a key part of its growth strategy going forward. Asked whether he worried about items like Propel fitness water cannibalizing the Gatorade business, Compton explained that the two products will live in very different parts of the same store. He's aiming to reach some consumers in the snack food and soda aisles, while offering others who never visit those parts of the store new Pepsi goods in the deli aisle, or next to the fruits and vegetables, or maybe even in the organic health food section.
It sounds like a smart way to expand your market reach without leaving the stores in which the company is already a daily staple. The strategy also leverages current nationwide health-food trend. While that certainly could be a fad, perhaps America really is getting smarter about nutrition as the Greatest Generation ages into its retirement years, and people my own age start to worry about cellulite, uncontrollable nose-hair growth, and achy joints when the weather changes.
Compton is proud of his company's reputation for nutritional excellence, particularly in the Tropicana and Quaker brands, and intends to build on that strength for the next couple of years.
The Foolish bottom line
Perhaps the strongest lesson learned from this call was the extreme swing this company is making. It's transforming from the nearly pure beverage specialist of old to a diversified, sassy snacker. Frito-Lay and Quaker brands provide most of the domestic business, and both have stronger operational margins than the beverage segment or the combined international division.
With forward-looking health food initiatives and a redesigned marketing campaign on the way, the company seems well-positioned to take on the world in the near term. As a Coke shareholder, that makes me a bit nervous, but healthy competition creates healthy companies, so it's all good. Bring it on, Mr. Compton.
That wraps up our report from this presentation with Pepsi, but stay on the lookout for more "Fool on the Street" reports, bringing you juicy information that only the analysts are heeding.
Further Foolishness:
Kraft Foods is a Motley Fool Income Investor pick, and Coca-Cola is an Inside Value recommendation. Have a refreshing 30-day trial to either service -- it's totally free, and good for your portfolio.
Fool contributor Anders Bylund is a Coke and Hansen shareholder, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like. Foolish disclosure goes down smooth like buttah.
