Trading at $44.32 as of June 13, 2001
My dad was a health nut before it became fashionable to be one, for which I am thankful for many reasons. By "health nut," I don't mean that he never ate steak, ice cream, or many other indulgences. But he did have some nutritional idiosyncrasies. My father was a long-distance runner, and one of the mainstays of his nutritional regimen was wheat germ.
Yep, there were more times than I can remember opening the refrigerator door in the hopes of finding some after-school snack, only to find that my sister had already cleaned it out, leaving only Dad's forlorn jar of Kretschmer's wheat germ. Wheat germ, for those of you who didn't grow up with it, is chock-full of vitamin E, folic acid, zinc, thiamin, and magnesium. (You can explore the wonderful world of wheat germ at the Kretschmer website!)
In addition to wheat germ, my Dad was one of the first users of sports drinks I knew. As a track coach back in the '70s, he was big on Gatorade way before it became the mass market product that it is now. Gatorade had been originally developed at the University of Florida for use with the Gator football team to help replace fluids, minerals, and electrolytes lost in the hot Florida sun.
In the late '60s, Stokely-Van Kamp acquired the rights to Gatorade and began marketing the product. Back then, you had to buy it in powdered form, and Dad used to mix it up in a big thermos bottle. I seem to remember it tasting a lot different then -- like drinking a lemon-flavored bottle of sweat. Gatorade was acquired in 1983 by the Quaker Oat Company, which improved the taste and started marketing the heck out of it, turning Gatorade into the billion-dollar product we all know and love today.
As it turns out, both of Dad's dietary staples are owned by the same company: Quaker Oats
In addition to Gatorade and wheat germ, PepsiCo is the number-two soft drink maker, and its Frito-Lay division is the world's dominant producer of snack foods. Worldwide, Frito-Lay holds a 40% market share and is more than seven times the size of its next-largest competitor. Frito-Lay has a formidable lineup of consumer brands: Lay's, Doritos, Ruffles, Tostitos, Fritos, Cheetos, Cracker Jack, Rold Gold, Wow! Sunchips, Santitas, Smartfood, Sabritas, Walkers, and Smith's.
Pepsi's non-alcoholic beverage and juice brands include Pepsi-Cola, Diet Pepsi, Pepsi One, Pepsi Max, Mountain Dew, Slice, Mug, All-Sport, Aquafina, 7UP, Diet 7UP, Mirinda, Tropicana, Copella, Fruvita, and Looza. Pepsi One was the most successful new consumer product of the year in 2000, and the company will be introducing new products Pepsi Lemon Twist and Code Red in 2001. The company also strengthened its lineup in the "alternative" beverage category with the acquisition of new-age beverage maker SoBe. Tropicana, Pepsi's premium juice division, grew operating income a robust 30% in 2000, to $220 million.
The combination of Pepsi, Frito-Lay, and Quaker will result in a worldwide food and beverage powerhouse with strong growth prospects. Both companies expect double-digit earnings growth in 2001. The combined company sports a current market cap around $80 billion, with 2001 sales of over $25 billion and net income of about $2.5 billion. If both companies continue to grow operating earnings in the double digits and can realize any synergies over the next five years, the investment prospects for PepsiCo shareholders will be bright indeed.
Zeke Ashton (TMF Centaur) owns shares of PepsiCo in his own portfolio, which you can view. The author wishes to note that the sentimental tone of the article above should not be interpreted to mean that he will actually be giving his father shares of Pepsi for Father's Day. Nope, Dad would be disappointed if he received anything other than the usual assortment of ugly ties and baseball caps.
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