Is Pepsi A FinTech?
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Is Pepsi A FinTech? Can we define the great Pepsi as a FinTech company at this point? We have seen the case made for Starbucks’ entry!

Background of PepsiCo 

PepsiCo Inc. is part of the consumer staples sector and is in the beverage industry. It was  founded in 1965 as a result of a merger between Pepsi-Cola and Frito-Lay. PepsiCo products can  be found in more than 200 countries and territories around the world. In 2020, PepsiCo had more  than $70 billion in revenue, attributed to 23 of the brands that generate more than $1 billion each  year in retail sales.1 The Company’s portfolio includes a vast range of beverage and snack brands  and trademarks, including some of the more notable ones such as: Pepsi-Cola, Frito-Lay,  Gatorade, Quaker, and Tropicana. In 2020, PepsiCo acquired BFY Brands as its most recent  acquisition. In addition to acquiring brands and trademarks, PepsiCo also has joint partnerships  with Lipton and Starbucks giving them the right to develop and market the products. 

PepsiCo’s mission is to, “Create more smiles with every sip and every bite,” and its vision is to,  “Be the global leader in convenient foods and beverages by winning with purpose.”2 One way  the Company is achieving their vision of “winning with purpose,” is its focus on sustainability.3 Many of their plastic bottled beverages will now have an aluminum alternative and they have  transitioned to using 100% renewable energy to make their beverages and snacks.4 

Is Pepsi A FinTech? Competitors 

1 “About the Company.” PepsiCo. Accessed November 9, 2021. https://www.pepsico.com/about/about-the company. 

2 “Mission and Vision.” PepsiCo. Accessed November 10, 2021. https://www.pepsico.com/about/mission-and vision. 

3 “Mission and Vision.” 

4 “About the Company.”

PepsiCo’s top beverage competitor is The Coca-Cola Company (Coca-Cola).5 Coca-Cola is only  in the business of selling beverages, and thus PepsiCo has many other competitors, including  those that sell and produce snacks. Some of these competitors are Campbell Soup Company,  Kellogg Company, The Kraft Heinz Company, and Nestlé S.A. Being successful in this  competitive environment depends on marketing of existing products, reformulating existing  products and creating new products, increasing production efficiency, product packaging and  pricing, vending and dispensing equipment, and developing and protecting brand and trademark.6 PepsiCo has been working to compete in this environment through acquiring brands and  reformulating existing products to keep up with increasing consumer trends of healthier options.  The Company has also been focusing on it packaging and looking to make it more sustainable, as  well as more sustainable production of beverages and snacks.7 

COVID-19 Impact  

The COVID-19 pandemic has exposed PepsiCo to many risks and has affected all 200 countries  and territories where they operate. As a result of the pandemic, “travel bans, quarantines,  curfews, restrictions on public gatherings, shelter in place and safer-at-home orders, business  shutdowns and closures” continue and have impacted “customers, consumers, employees,  bottlers, contract manufacturers, distributors, joint venture partners, suppliers and other third  parties.”8 All of these repercussions of the pandemic have created uncertainty and resulted in  changes in demand for products, potential increases in operating costs as a result of supply chain  and employee costs, and changes in transportation of products.  

Analysis 

Ratio Analysis  

These ratios compare PepsiCo’s financial information from 2018 to 2020 and compare key ratios  to its main competitor, Coca-Cola, and to the beverage industry.910 Numbers varied in some  respects because PepsiCo also includes food products in its portfolio, thus leading to different  outcomes in certain cases. In addition, PepsiCo and Coca-Cola comprise the majority of the  beverage industry, so the industry averages include many smaller companies that are likely less  diversified and operate on a smaller scale. However, the best technique to measure PepsiCo’s  health and success was to find the main competitor in the industry and look at how it compares  overall with the industry averages. 

5 “Annual Report 2020.” PepsiCo. February 10, 2020. https://www.pepsico.com/docs/album/annual-reports/pepsico inc-2020-annual-report.pdf?sfvrsn=d25439e4_4. 

6 “Annual Report 2020.” 

7 “About the Company.” 

8 “Annual Report 2020.” 

9 “Annual Report – Form 10K.” The Coca-Cola Company. February 25, 2021. https://investors.coca colacompany.com/filings-reports/annual-filings-10-k. 

10 “Beverages: average industry financial ratios for U.S. listed companies.” ReadyRatios. Accessed November 2,  2021. https://www.readyratios.com/sec/industry/208/.

The current ratio is an important ratio that aims to see if a company’s total current assets can pay  off the total current liabilities. This measures a company’s ability to pay its short-term  obligations during a given year. PepsiCo’s current ratio dropped in 2019 but increased later in  2020. It’s current ratio for 2020 is 0.984, meaning it does not quite have enough current assets to  pay off its current liabilities for the year. In addition, the Company’s current ratio is less than  Coca-Cola which has a current ratio of 1.318 for 2020 and the industry average at 1.460.  However, Coca-Cola’s previous years were lower than Pepsi’s indicating it may not be a  permanent measure for Coca-Cola. It would be best for PepsiCo to increase its current ratio to at  least 1.00.  

The quick ratio is similar to the current ratio, except it uses more liquid current assets by  eliminating inventory and prepaid expenses from its calculation. The assets in this calculation are  readily convertible into cash, which makes them more able to quickly pay off current liabilities.  Pepsi’s quick ratio increased from 2019, but still has not reached as high as it was in 2018. In  2020 it was 0.768 and Coca-Cola’s was 0.963. The industry average was 0.780. Pepsi is  comparable with the industry, but still much lower than its main competitor.  

The cash ratio focuses on the most liquid assets, cash and cash equivalents, to pay off current  obligations. Pepsi’s cash ratio of 0.350 for 2020 is below Coca-Cola’s of 0.465, but similar to the  industry average of 0.380. Based on this assessment, Pepsi can pay off 35% of its liabilities with  cash and cash equivalents on hand.  

The total debt-to-equity ratio compares the Company’s total amount of debt to its total equity.  PepsiCo had a debt-to-equity ratio of 5.856 in 2020, up from the previous years, indicating they  have taken on more debt. This is also higher than Coca-Cola’s in 2020 which was at 3.101. The  industry average for 2020 was 0.750, indicating that both Pepsi and Coca-Cola are more  leveraged to run day-to-day operations than the industry.  

Inventory turnover is higher for PepsiCo, likely because their portfolio is diversified and includes  food and snack brands. PepsiCo’s inventory turnover for 2020 was 7.622, which was down  significantly from the prior years. This is likely due to the pandemic and the slowdown of the  supply chain. The lower inventory turnover also shows up in the Company’s common-sized  balance sheet where you see inventories increasing as a percent of its total assets (Appendix).  Coca-Cola’s inventory turnover was 4.113 times per year in 2020 and the industry average was  5.141 times per year.  

Return on Assets (ROA) indicates the profitability of a company based on the revenue its assets  generate. PepsiCo’s ROA was 7.66% in 2020, a significant drop from 10.89% and 19.35% in  2019 and 2018, respectively. Coca-Cola’s ROA was 8.87% in 2020, slightly above Pepsi’s, and  the industry average was 3.80%. Based on this assessment, Pepsi’s assets are relatively good at  generating profit for the company, especially in the years prior to 2020.  

In the DuPont Analysis, return on equity (ROE) is disaggregated into components of  profitability, productivity, and leverage. The Dupont Analysis focuses on three calculations,  profit margin, total asset turnover, and the equity multiplier to arrive at ROE. For PepsiCo, ROE  is 52.54% in 2020. ROE is 36.40% and 5.90% in 2020 for Coca-Cola and the beverage industry, 

respectively. A higher ROE is generally viewed positively by shareholders because it measures  net income generated from equity. In PepsiCo’s case their debt ratio is also higher than its peers  which creates some risk for the Company as it means they are using more debt to run operations. 

The common-sized balance sheet also shows long-term debt has increased to 43.45% of  liabilities and stockholders’ equity in 2020, up from 36.44% in 2018 (Appendix). 

PepsiCo Inc. The Coca-Cola Company Beverage Industry
2020 2019 2018 2020 2019 2018 2020 2019 2018
Current Ratio 0.984 0.862 0.989 Current Ratio 1.318 0.757 0.866 Current Ratio 1.460 1.420 1.450
Quick Ratio 0.768 0.663 0.807 Quick Ratio 0.963 0.562 0.688 Quick Ratio 0.780 0.790 0.900
Cash Ratio 0.350 0.269 0.394 Cash Ratio 0.465 0.240 0.315 Cash Ratio 0.380 0.290 0.340
Total Debt Ratio 0.854 0.811 0.812 Total Debt Ratio 0.756 0.756 0.771 Total Debt Ratio 0.530 0.540 0.680
Debt-Equity Ratio 5.856 4.283 4.318 Debt-Equity Ratio 3.101 3.094 3.366 Debt-Equity Ratio 0.750 1.050 0.410
Equity Multiplier 6.856 5.283 5.318 Equity Multiplier 4.101 4.094 4.366 Equity Multiplier 2.153 1.394 0.349
Inventory Turnover 7.622 9.027 9.393 Inventory Turnover 4.113 4.326 4.255 Inventory Turnover 5.141 5.000 2.645
Days Sales in Inventory  47.891 40.434 38.859 Days Sales in Inventory  88.743 84.365 85.782 Days Sales in Inventory  71.000 73.000 138.000
Total Asset Turnover 0.757 0.855 0.833 Total Asset Turnover 0.378 0.431 0.412 Total Asset Turnover 0.806 0.809 0.818
Profit Margin 10.12% 10.89% 19.35% Profit Margin 23.47% 23.94% 18.76% Profit Margin 3.40% 4.70% 4.20%
ROA 7.66% 9.31% 16.12% ROA 8.87% 10.33% 7.73% ROA 3.80% 2.50% 2.10%
ROE 52.54% 49.19% 85.71% ROE 36.40% 42.28% 33.76% ROE 5.90% 5.30% 1.20%

Growth Analysis  

The graphs below show the patterns in Net Revenue, Cost of Sales, Selling, General, & Administrative Expenses, Provision For/(Benefit From) Income Taxes, Net Income Attributable  to PepsiCo, and EPS for PepsiCo from 2018 to 2020.  

Net revenue has been steadily increasing over the past three years. From 2019 to 2020, net  revenue saw a 4.8% increase. This is somewhat surprising considering management’s discussion  & analysis (MD&A) mentioned concerns about consumers not leaving their houses as  frequently, thus changing the buying patterns, as well as consumers lower discretionary income  due to layoffs and business closures.11 

Cost of sales have also experienced an upward trend from 2018 to 2020, with the sharpest  increase occurring from 2019 to 2020, resulting in a 5.5% increase. This aligns with what  management disclosed, stating that due to the pandemic, producing goods could be more  costly.12 

Similarly, selling, general, & administrative (SG&A) expenses have also steadily increased from  2018 to 2020. From 2019 to 2020, SG&A increased 6.6% due to factors surrounding the  pandemic, including $1.0 billion increase in distribution costs. This also shows up in the  common-sized income statement where Selling, general and administrative expenses rose to  40.49% of the income statement in 2020, up from 38.93% in 2018 (Appendix). 

The provision for (benefit from) income taxes looked unusual in 2018. In 2018, PepsiCo  reorganized some of their international operations and completed an intercompany transfer of  intangible assets. This resulted in the recognition of a $4.3 billion tax benefit. The tax provision  in 2019 and 2020 are more representative of the usual tax provision. 

11 “Annual Report 2020.” 

12 “Annual Report 2020.”

Net income dropped sharply from 2018 to 2019 and continued to decline in 2020. This is likely  due to the sharp increase in expenses associated with the pandemic and due to the deferred taxes  in 2018 that created a one-time tax benefit.  

As a result of lower net income, earnings per share decreased significantly from 2018, where  they were $8.79 per share to $5.12 per share in 2020. 

Stock Price Comparison 

PepsiCo’s stock price tends to follow a similar trend as the S&P 500 as indicated in the figures  below.13 The overall trend of PepsiCo’s stock is upward; however, it is not at a consistent rate.  PepsiCo faced many fluctuations in price from March 2020 to November 2021. In March 2020,  the stock plummeted, similar to the S&P 500 as a result of the COVID-19 pandemic. The S&P  500 is more consistently upward sloping from March 2020 to November 2021 than PepsiCo. In  November 2021, PepsiCo Inc. stock closed at $162.69 per share. 

Beta 

Beta measures a stock’s volatility in relation to the market. The S&P 500 Index was used as the  market in comparing PepsiCo’s stock volatility. Pepsi’s beta varied significantly over the past  three years. On a composite basis, from 2018 to 2021, Pepsi’s beta was 0.80, indicating that  during this period the Company returned 80% as much as the S&P 500, which has a beta of 1.0.  Given this, PepsiCo’s stock is likely a less risky stock, which potentially means it will provide  less return than a stock with a higher beta.  

Conclusion 

Overall, the COVID-19 pandemic has appeared to alter many of PepsiCo’s financials over the  last two years. There has been much uncertainty in buying patterns as a result of restrictions  caused by the pandemic as well as issues with the supply chain. Given that PepsiCo operates in  over 200 countries and territories, many of them have faced restrictions that vary from one  another making it difficult to take action and make predictions. Many of PepsiCo’s ratios are  below Coca-Cola’s and the industry average, but PepsiCo’s portfolio also includes food  products, making it more diverse and compares differently. Revenue for PepsiCo was higher  than previous years, but expenses also have risen, ultimately causing the net income to be lower.  

13 Yahoo Finance. Accessed November 10, 2021. https://finance.yahoo.com/quote/PEP?p=PEP&.tsrc=fin-srch.

Stock prices for PepsiCo follow a similar pattern to the S&P 500 but return less than the S&P  500. However, they have recovered significantly from the beginning of the pandemic.  

One area where PepsiCo should continue to focus is on healthier alternatives. Although they are  growing their portfolio to include healthier beverages and food options, they should continue to  expand as that is a big concern for many consumers. I think this could benefit PepsiCo’s overall  performance and help them stand out against competitors and continue to be a leader in the  

industry. I would say investing in PepsiCo would be slightly risky right now because of the  effects the pandemic had on PepsiCo’s financials, but it is likely still a safe investment because  of the long history and diverse portfolio PepsiCo offers. In addition, the stock price proves to  have an upward slope throughout its lifetime. If PepsiCo continues to expand to healthier options  and implement its focus on sustainability, I believe they can continue to be leaders in the  consumer staple sector and in the beverage industry, and they will be able to continue for many  years to come. 

At this time, I would not purchase PepsiCo’s stock since the price is in excess of $160 per share.  Given the uncertainty associated with the pandemic and the supply chain I believe the  Company’s is still facing some risks. Additionally, since their historical beta is 0.80, I believe  there are better investment alternatives in the market. If PepsiCo’s stock price drops to their pre pandemic price of $130-$140, and I saw a continued focus on healthier food options, I would  probably invest. The Company has a long history of satisfying consumers desires and I believe at  the price range mentioned above it would be a solid investment to have in a portfolio.

Appendix 

Common-Sized Income Statement and Balance Sheet 

Common-Sized Income Statement 2018 2019 2020 2018 2019 2020 Change 2018-2019 Change 2019-2020
Net Revenue     64,661     67,161     70,372 100.00% 100.00% 100.00% 0.00% 0.00%
Cost of sales     29,381     30,132     31,797 45.44% 44.87% 45.18% -0.57% 0.32%
Gross profit     35,280     37,029     38,575 54.56% 55.13% 54.82% 0.57% -0.32%
Selling, general and administrative expenses     25,170     26,738     28,495 38.93% 39.81% 40.49% 0.89% 0.68%
Operating Profit     10,110     10,291     10,080 15.64% 15.32% 14.32% -0.31% -1.00%
Other pension and retiree medical benefits income/(expense)         298           (44)           117 0.46% -0.07% 0.17% -0.53% 0.23%
Net interest expense and other      (1,219)         (935)     (1,128) -1.89% -1.39% -1.60% 0.49% -0.21%
Income before income taxes       9,189       9,312       9,069 14.21% 13.87% 12.89% -0.35% -0.98%
Provision For/(Benefit From) Income Taxes       (3,370)       1,959       1,894 -5.21% 2.92% 2.69% 8.13% -0.23%
Net income     12,559       7,353       7,175 19.42% 10.95% 10.20% -8.47% -0.75%
Less: Net income attributable to noncontrolling interests             44             39             55 0.07% 0.06% 0.08% -0.01% 0.02%
Net Income Attributable to PepsiCo     12,515       7,314       7,120 19.35% 10.89% 10.12% -8.46% -0.77%
Common-Sized Balance Sheet 
ASSETS 2018 2019 2020 2018 2019 2020 Change 2018-2019 Change 2019-2020
Current Assets
Cash and cash equivalents               8,721               5,509               8,185 11.23% 7.01% 8.81% -4.22% 1.80%
Short-term investments               1,997                  229               1,366 2.57% 0.29% 1.47% -2.28% 1.18%
Accounts and notes receivable, net               7,142               7,822               8,404 9.20% 9.96% 9.04% 0.76% -0.91%
Inventories               3,128               3,338               4,172 4.03% 4.25% 4.49% 0.22% 0.24%
Prepaid expenses and other current assets                 633                 747                 874 0.82% 0.95% 0.94% 0.14% -0.01%
          Total Current Assets           21,893            17,645            23,001 28.20% 22.46% 24.75% -5.73% 2.29%
Property, Plant and Equipment, net           17,589           19,305           21,369 22.65% 24.58% 23.00% 1.93% -1.58%
Amortizable Intangible Assets, net               1,644               1,433               1,703 2.12% 1.82% 1.83% -0.29% 0.01%
Goodwill           14,808           15,501           18,757 19.07% 19.73% 20.19% 0.66% 0.45%
Other Indefinite-Lived Intangible Assets           14,181            14,610            17,612 18.26% 18.60% 18.95% 0.34% 0.35%
Investments in Noncontrolled Affiliates               2,409               2,683               2,792 3.10% 3.42% 3.00% 0.31% -0.41%
Deferred Income Taxes               4,364               4,359               4,372 5.62% 5.55% 4.71% -0.07% -0.84%
Other Assets                 760               3,011               3,312 0.98% 3.83% 3.56% 2.85% -0.27%
          Total Assets           77,648            78,547            92,918 100.00% 100.00% 100.00% 0.00% 0.00%
LIABILITIES AND EQUITY
Current Liabilities
Short-term debt obligations               4,026               2,920               3,780 5.18% 3.72% 4.07% -1.47% 0.35%
Accounts payable and other current liabilities           18,112           17,541           19,592 23.33% 22.33% 21.09% -0.99% -1.25%
          Total Current Liabilities           22,138            20,461            23,372 28.51% 26.05% 25.15% -2.46% -0.90%
Long-Term Debt Obligations           28,295           29,148           40,370 36.44% 37.11% 43.45% 0.67% 6.34%
Deferred Income Taxes               3,499               4,091               4,284 4.51% 5.21% 4.61% 0.70% -0.60%
Other Liabilities               9,114               9,979           11,340 11.74% 12.70% 12.20% 0.97% -0.50%
          Total Liabilities           63,046            63,679            79,366 81.19% 81.07% 85.42% -0.12% 4.34%
Commitments and contingencies
PepsiCo Common Shareholders’ Equity
Common stock                   23                    23                    23 0.03% 0.03% 0.02% 0.00% 0.00%
Capital in excess of par value               3,953               3,886               3,910 5.09% 4.95% 4.21% -0.14% -0.74%
Retained earnings           59,947            61,946            63,443 77.20% 78.86% 68.28% 1.66% -10.59%
Accumulated other comprehensive loss           (15,119)           (14,300)           (15,476) -19.47% -18.21% -16.66% 1.27% 1.55%
Repurchased common stock, in excess of par value (487 and 476 shares, respectively)           (34,286)           (36,769)           (38,446) -44.16% -46.81% -41.38% -2.66% 5.44%
Total PepsiCo Common Shareholders’ Equity           14,518           14,786           13,454 18.70% 18.82% 14.48% 0.13% -4.34%
Noncontrolling interests                   84                    82                    98 0.11% 0.10% 0.11% 0.00% 0.00%
          Total Equity           14,602           14,868           13,552 18.81% 18.93% 14.58% 0.12% -4.34%
Total Liabilities and Equity           77,648            78,547            92,918 100.00% 100.00% 100.00% 0.00% 0.00%

Is Pepsi A FinTech? References 

“About the Company.” PepsiCo. Accessed November 9, 2021.  

https://www.pepsico.com/about/about-the-company.

“Annual Report – Form 10K.” The Coca-Cola Company. February 25, 2021.  https://investors.coca-colacompany.com/filings-reports/annual-filings-10-k. 

“Annual Report 2020.” PepsiCo. February 10, 2020.  

https://www.pepsico.com/docs/album/annual-reports/pepsico-inc-2020-annual report.pdf?sfvrsn=d25439e4_4. 

“Beverages: average industry financial ratios for U.S. listed companies.” ReadyRatios. Accessed  November 2, 2021. https://www.readyratios.com/sec/industry/208/. 

“Mission and Vision.” PepsiCo. Accessed November 10, 2021.  

https://www.pepsico.com/about/mission-and-vision.

Yahoo Finance. Accessed November 10, 2021.  

https://finance.yahoo.com/quote/PEP?p=PEP&.tsrc=fin-srch.

Is Pepsi A FinTech?