PEPSICO INC. $87 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.5 billion; Market cap: $130.5 billion; Price-to-sales ratio: 2.0; Dividend yield: 3.0%; TSINetwork Rating: Above Average; www.pepsico.com) is the world’s second-largest soft drink maker after Coca-Cola. It also makes other products, such as Frito-Lay snack foods, Gatorade sports drinks, Tropicana fruit juices and Quaker Oats cereals.
Consumers are becoming increasingly concerned about the health effects of soft drinks, as well as potato chips and other snacks. The company continues to develop more nutritious alternatives in response.
For example, it owns the exclusive soft drink rights to a new type of sweetener called Sweetmyx, which lets food makers use less sugar in their products. At the same time, PepsiCo is cutting salt and fat from its foods.
In the three months ended March 22, 2014, PepsiCo’s overall sales rose just 0.3%, to $12.62 billion from $12.58 billion a year earlier.
However, the company gets half of its sales from outside the U.S., and the higher U.S. dollar hurt the contribution of its international operations. Excluding currency exchange rates, sales gained 4.0%.
In response to the weaker sales, PepsiCo aims to boost its profits with a new five-year plan that includes automating more bottling plants and closing inefficient facilities. The plan should cut its annual costs by $1 billion, starting this year.
Excluding costs related to this plan and other unusual items, PepsiCo’s earnings rose 5.4% in the latest quarter, to $1.3 billion from $1.2 billion a year ago. Earnings per share gained 7.8%, to $0.83 from $0.77, on fewer shares outstanding.
Savings from the plan will help the company buy back $5 billion worth of shares this year. It also recently raised its dividend by 15.4%. The new annual rate of $2.62 yields 3.0%.
The stock trades at 18.9 times the $4.54 a share that PepsiCo will likely earn in 2014. That’s a high p/e ratio in light of the company’s slowing sales.
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