Pepsi versus Coca Cola
Coca-Cola
Coca-Cola is a US multinational beverage company, manufacturer, marketer and retailer of alcoholic-free drinks. The company has it’s headquarter in Atlanta. A pharmacist known as John Stith Pemberton in 1886 invented the Coca-Cola drink. In 1889, Coca-Cola formula was bought by Asa Griggs Candler, who used it to found the Coca-Cola Company in 1892 (Bodden, 2009). Under Cander’s leadership, the company grew and increased its distribution beyond Atlanta. In 1894, due to high demand for the drink, the company, through Joseph Biedenharn, installed bottling machinery that enabled the bottling of the drink.
Large scale bottling of the Coca-Cola was realized five years later in 1899, when three executives Joseph Whitehead, Benjamin Thomas and John Lupton sought and acquired the right to bottle and sell the drink from the company. The three men developed what would later become a worldwide bottling system. Following constant imitations of the drink by competitors, the company decided to develop a distinctive bottle for a drink and in 1916, the company approved the contour bottle, which has become a trademark of the Coca-Cola Company (Bodden, 2009). Coca-Cola Company has realized a huge growth since its inception and it current sales its products in more than 200 countries in the world. The company also has a long acquisition history. For instance, in 1960, the company acquired Minute Maid. Thereafter other acquisitions include acquisition of Thumps Up in 1993, Barq’s in 1995, Odwalla in 2001, and Fuze Beverage in 2007.
Coca-Cola Company sells mainly beverages. The company has more than 500 brands of soft drinks and beverages. They include Coca-Cola, diet coke, thumbs up, sprite, Fanta, limca, maaza, minute maid and others. The company deals with direct selling through its numerous bottling operations. Its major customers, therefore, include outlets such as newsagents, service stations, leisure centers, supermarkets, cinemas, clubs and other retailers selling soft drinks. The company’s major are TCCC and Coca-Cola bottlers (Bodden, 2009). TCCC supplies concentrates and syrups to Coca-Cola Company, which are then use to manufacture the various products. Coca-Cola bottlers, on the other hand, supply bottling services to the company.
The company’s leadership comprises of board of directors, senior operations leadership and senior functional leadership. The board of directors includes Muhtar Kent, Herbert Allen, Ronald Allen, Ann Botin, Howard Buffet, Sam Nunn, James Robinson III, and Peter Uenberroth among others. The senior operations leadership comprises of Ahmet Bozer, who is the president of Coca-Cola international, Nathan Kalumbu. Who is also the president, Eurasia & Africa Group, James Quincey, the president Europe Group, Brian Smith, the president, Latin America Group, Atul Singh, the president Asia Operation Unit. Similarly, Tim Bret is the president to the Japan Business Unit, Bruno Filipi, the president South Pacific Business Unit, Alexander Douglas Jr, who is the president Coca-Cola North America and Irial Finam who is the president Bottling Investments Group (Bodden, 2009). The senior functional leadership comprise of Alexander Cummings.
He is the chief administrative officer, Alexander Douglas Jr, who is the global chief customer officer, Bernhard Goepelt, the general counsel, Ceree Eberly, the chief people officer, Clyde Tuggle, the chief public affairs and communications officer. Ed Steinike is the chief information officer, Kathy Waller, the chief financial officer. Guy Wollaert is the chief technical and innovation officer, Javier Goizueta, the President McDonald’s division, Jose Octavio Reyes, the vice chairperson Coca-Cola export corporation, Joseph Tripodi the chief marketing and commercial officer, and Lisa Borders the vice president, global community connections. All these categories of leaders are responsible for the implementation of the various functions in the company and the running of the various subsidiaries of the company. They are also responsible for the coordination of the company’s activities.
Synopsis of Coca-Cola Company
It is an American beverage company. It was founded in 1892 by Asa Candler after he bought the coca cola formula from John Stith Pemberton who had invented it in 1886. The company sells its products in more than 200 countries in the world and has more than 500 brands of its beverage products (Bodden, 2009). The company’s major customers include supermarkets, leisure centers, clubs, cinemas, newsagents and service stations while its major suppliers are Coca-Cola bottlers and TCCC. The company’s leadership comprises of board of directors, senior operations officers and senior functional officers who carry out the various functions in the company.Pepsi
PepsiCo is an American food and beverage company. It has its headquarters in Purchase, New York. The company was founded in 1965 when two companies, Pepsi-Cola and Frito-Lay merged. The company experienced expansion between late 1970s and mid 1990s through acquisitions. Most of these acquisitions were outside its core focus of beverages and packaged food. However, in 1997, the company abandoned most of these non-core businesses where it sold some and turned others into a new company that was named Tricon Global Restaurants (Smith, 2013). In 2010, the company completed the acquisition of two bottlers of its products Pepsi Americans and Bottling Group. In 2011, the company acquired Wimm-Bill-Dann Foods, a Russian food company.
The main products of PepsiCo are food and beverages. The main beverage brand of the company is Pepsi. However, the company has also many other brands. Some of them include Mountain Dew, Tropicana, 7 Up, Gatorade, Lipton Teas, Quaker, Aquafina and others. The company sells its products in many countries in all continents in the world. The company’s major customers include authorized bottlers, independent distributors and retailers. PepsiCo’s major suppliers include farmers in various countries in the world who supply it with the raw materials required for its various products. E2M is a company that supplies PepsiCo with various services that include packaging and consulting services on material handling and distribution, modeling, system analytics and manufacturing (Smith, 2013).
The company’s leadership comprises of the overall chief executive officer who is the chairperson of the company, presidents of the various subsidiaries of the company in various countries, vice presidents of the various subsidiaries and officers of various departments in the company. The CEO and the chairperson of the company are Indra Nooyi, the president is Zein Abdalla while Jon Banner is the executive vice president in the department of communications. Other officers in the company include Umran Beba, Rich Beck, and Albert Carey among others.
Synopsis PepsiCo company
PepsiCo was founded in 1965 after the merger of Pepsi cola and Frito-Lay companies. The company sells mainly foods and beverages. PepsiCo sells many brands of its products, which include Pepsi, Aquafina, and Tropicana (Smith, 2013). The company’s major customers include bottlers, independent distributors and retailers while its major suppliers are farmers and E2M. The company’s leaders comprise of the chief executive officer, presidents, vice presidents and heads of departments.
Figure 1: Coca-Cola stock price graph
Figure 2: PepsiCo stock price graph
News Events
Coca-Cola
A number of news events have occurred for the Coca-Cola Company. One of them is acquisitions. In 2013, the company engaged in a number of acquisitions. In January 2013, Coca-Cola acquired Sacramento Coca-Cola Bottling Company. On February 22nd 2013, the company acquired ownership interest in Fresh Trading limited. In November the same year, Coca-Cola acquired ownership interest in ZICO Beverages LLC. Another news event that occurred that had a direct impact on Coca-Cola Company was the release of a film by Olivia Mokiejewski, a journalist, which portrays Coca-Cola drinks as harmful to the human health. In this documentary, Olivia acquired shares from the company, which allowed her access to the annual general meeting. In the meeting, Olivia is filmed asking the CEO, Muhtar Kent why the company uses much sugar in its drinks, why it uses artificial-coloring agents and where it obtains its coca from. However, Kent was unable to provide satisfactory answers to the questions.
Lastly, another event touching on Coca-Cola Company that happened in 2013 was a class action lawsuit that was against the company by a group of consumers who claimed that the company sold harmful products. One of the products that the group used to accuse the company was Vitamin water, which they claimed promotes obesity, weight gain and heart disease. Although the acquisition had the ability to increase the stock prices, the negative events that painted the company in a bad light are likely to have negatively affected the stock prices. It is because this negative picture painted by the various groups about the company can scare investors who anticipate a reduction in sales and, therefore, shy away from buying the company’s shares (Wahlen, Bradshaw, Baginski & Stickney, 2010). It could explain the low stock price in 2013.
PepsiCo
News events
On 14th February 2013, the New York Times reported that PepsiCo had posted a 17% increase in profits. The newspaper reported, came after a lackluster performance in the preceding years. It showed that the company was improving and that its value was increasing. Another news event about PepsiCo was its acquisition of Lebedyansky JSC Company. In February 2014, the company acquired 75.53 percent interest in Lebedyansky JSC. This was in a bid to expand its operations. The increase in profits and the acquisitions have the potential of increasing the stock price in the company (Peterson & Fabozzi, 2012). It is because increase in profits can attract investors who would be more willing to buy the company’s shares because of the potential increase in dividends paid on shares.
Financial Analysis
Coca-Cola
As at 28th March 2014, Coca-Cola’s gross margin was 60.81%. The company’s return on assets at the same date was 7.72 percent while return on capital was 9.95 percent. The return on equity was 25.78 percent. The company’s current ratio was 1.0 while its quick ratio was 0.8. Total debt/equity ratio was 116.8 while the total liabilities/total assets ratio is 63.9. The gross margin of 60.81 percent indicates that in the financial period ended on 28th March 2014, Coca-Cola Company had made 60.81 percent of profit on its sales. This is a huge profit and indicates the financial health of the company. Such a huge profit also indicates the pricing strategy employed by the company. A return on assets of 7.72 percent implies that the company made a profit of 7.72 percent from the use of its assets that include invested capital.
A return on assets of 7.72 percent shows a high level of efficiency in the company’s management of assets. A return on capital of 9.95 percent shows the profit made on the investments from stockholders and bondholders. It shows that Coca-Cola is effective in turning capital into profits. A return on equity of 25.78 percent shows that the company made 25.78 percent profit on the shareholders’ investment. This is an indication of the high profitability and efficiency of the company in terms of its investment strategies (Peterson & Fabozzi, 2012). A current ratio of 1.0 indicates that the company’s current assets are equal to the company’s current liabilities implying that the company is in a position to settle all its current liabilities without having to sell some fixed assets.
This shows that the company is financially stable. A quick ratio of 0.8 shows that for every one dollar of current liability in the company, there is 0.8 dollars of cash to pay it. A quick ratio of 0.8 shows that the company has enough cash to settle most of its current liabilities; a total debt/equity ratio of 116.8 percent shows that the company is using debts more to finance its operations (Peterson & Fabozzi, 2012). Although such a move can lead to the generation of more profits in the company, it can also make the company become bankrupt especially if the debts are too high. However, for a large company like Coca-Cola, a debt/equity ratio of 116.8 percent is still within a safe range. A liability/asset ratio of 63.9 percent shows that the company has more assets than liabilities and therefore it is financially stable.
PepsiCo
As at 22nd March 2014, PepsiCo’s gross margin was 53.12%, return on assets was 8.27%, return on capital was 11.83%, and return on equity was 30.55%. The current ratio was 1.2; the quick ratio was 0.9, total debt/equity was 140.1 and total liabilities/total assets ratio was 70.5. The gross margin of 53.12 percent shows that the company is profitable. However, compared to Coca-Cola’s 60.81 percent, Coca-Cola is more profitable than PepsiCo. PepsiCo has a superior return on assets and returns on capital. This is the same case with the return on equity. The superior returns show that PepsiCo is more efficient with its investments and use of assets. This is the point of attraction especially for investors who are normally interested in making profits on their investments (Wahlen, Bradshaw, Baginski & Stickney, 2010). The company also has a superior current ratio showing that it is more capable of settling its debts than Coca-Cola. However, a debt/equity ratio of 140.1 shows that the company relies more on debts to fund its operations. This makes it to be at risk of running bankrupt. A liability/assets ratio of 70.5 shows that the company has more assets than liabilities; however, compared to that of Coca-Cola, it shows that Coca-Cola has more assets than liabilities.
The financial data provided by each company is accurate and reliable for making investment decision. This is because the data provided sufficient to determine the profitability and financial stability of the companies (Wahlen, Bradshaw, Baginski & Stickney, 2010). These are the two most important factors for any investor. From the financial analysis, the best option between the two companies is Coca-Cola because it has PepsiCo because it has a higher return on equity meaning that it is more efficient with investments from shareholders. This means that shareholders in PepsiCo are assured of higher dividends on their shares.
References
Bodden, V. (2009). The story of Coca-Cola. Mankato, MN: Creative Education.
Peterson, D. P., & Fabozzi, F. J. (2012). Analysis of financial statements. Hoboken: John Wiley & Sons
Smith, A. F. (2013). Drinking history: Fifteen turning points in the making of American beverages. New York: Columbia University Press.
Wahlen, J. M., Bradshaw, M., Baginski, S. P., & Stickney, C. P. (2010). Financial reporting, financial statement analysis and valuation. Mason, Ohio: South-Western.
