Is Pepsi A FinTech?
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
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.
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|
|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%|
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 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.
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.
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%|
|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|
|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%|
|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%|
|Total Assets||77,648 78,547 92,918||100.00%||100.00%||100.00%||0.00%||0.00%|
|LIABILITIES AND EQUITY|
|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%|
|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 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.
“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.
“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.
Yahoo Finance. Accessed November 10, 2021.
Is Pepsi A FinTech?