One of the biggest challenges that investors and analysts will face is making decisions about which company to purchase over another. In many situations, this can be particularly challenging as both firms could be competitors from the same industry. To have superior performance inside a portfolio requires selecting the strongest firm inside the sector. This means analyzing each corporation and then doing a comparison of them with their competitors. This is the point when actuaries can objectively determine the (which have the potential for above average growth). (Cramer, 2005)
In the case of Coca Cola and Pepsi Co, both firms have been aggressively trying to take market share from the other and they are looking for new ways to promote their different brands. To decide which company has the best strategy requires examining: each corporation, its stock performance, two news related events, analyzing each firm, looking at the reliability of the data and offering specific recommendations. Together, these elements will show which company is strongest inside the sector. (Cramer, 2005)
Analyze each company’s history, product / services, major customers, major suppliers, and leadership and provide a synopsis of each company.
Coca Cola was founded in 1886. The company is focused on the manufacturing, distribution and marketing of beverage related products. A few of the most notable include: Coca Cola, Diet Coke, Fanta, Sprite, Coca-Cola Zero, Vitamin Water, PowerAde, Minute Maid, Simply, Georgia, and Del Valle brands. They are primarily selling their merchandise to various retail customers throughout the globe. (“The Coca Cola Company,” 2012)
To achieve these objectives, they will form alliances with suppliers, whole sellers and independent distributors. This is a transformational leadership style that forms partnerships with these individuals and organizations. As a result, this basic strategy has enabled the company to become one of the most recognizable brands in the world and an American icon. (“The Coca Cola Company,” 2012)
Pepsi Co is concentrating on the manufacture, distribution and marketing of beverages, dairy products, snacks and non-carbonated drinks. A few of the most notable brands they own include: Pepsi, Lay’s, Walkers, Doritos, Chudo, Cheetos, Ruffles, Quaker cereals / snacks, Pepsi Max, 7UP, Diet Pepsi, Tropicana brands, Gatoraide, and Aquafina. The company was founded in 1898. (“Pepsi Co,” 2012)
They market their different merchandise to retail customers around the world. To effectively reach key benchmarks the firm will form alliances with suppliers, whole sellers and bottlers. This reduces their costs and it allows affiliates to generate a profit off of Pepsi related products inside a particular region. They are using a transformational leadership strategy when seeking out new brands and working with stakeholders. (“Pepsi Co,” 2012)
The combination of these factors has made Pepsi Co a strong competitor who can reach out to customers in different ways. This helps to increase their exposure and market share. For example, when someone is eating lunch; they choose to drink a Coke. However, at the same time, they are eating a bag of Lay’s potato chips. In this case, Pepsi Co is able to profit and have the same kind of exposure. This is despite the fact that they sold this person a snack product vs. A soft drink. (“Pepsi Co,” 2012)
Based on the stock price for the timeline listed below, present a graph that illustrates the stock price of each company. Indicate conclusions that can be drawn based on the trend: the day of its initial public offering; January 1, 2010; January 1, 2011 and January 1, 2012.
Coca Cola first started trading publically in 1919. Its IPO price was $40.00 per share. Since this time, the company has provided consistent dividends and growth to investors. The following graph is illustrating the performance of the stock (since its IPO) in contrast with other periods (i.e. January 1, 2010; January 1, 2011 and January 1, 2012). (“The Coca Cola Company,” 2012) (Bell, 2003)
This is illustrating that Coke is providing consistent returns to investors. However, the underlying rates of growth will occur over the course of many decades. This means that the company will deliver returns (which may not be exciting). Yet, they are continually growing and building upon each other. (“The Coca Cola Company,” 2012) (Bell, 2003)
As far as Pepsi Co is concerned, the company started trading publically in 1977. This is when the firm was focused on expanding into other food and beverage related products. During this time, the management concentrated on acquiring those brands which helped contribute to its growth in a number of sectors including: fast food, snacks and other soft drink manufacturers. The below graph is showing the performance of the stock from 1977 in contrast with select periods in time (i.e. January 1, 2010; January 1, 2011 and January 1, 2012). (“Pepsi Co,” 2012) (Stodard, 1997)
The above information is illustrating how Pepsi Co is offering greater returns to investors. This is because the company is aggressively focusing on entering other segments besides beverages and soft drinks. These areas help to improve the earnings and value of the firm. (“Pepsi Co,” 2012) (Stodard, 1997)
Research and summarize at least two (2) news events (this may include mergers, acquisitions, or political issues) that occurred from 2010 to the present day and the potential impact on the stock price of each company. Indicate how this influences your investment decision related to the company.
For Coca Cola, two news stories that are impacting the price of the stock are reports on maturing growth and the management’s inability to reach out to consumers. In the case of maturing growth, there are concerns that Coke is falling behind competitors. This is because the company has not made any kind of strategic acquisitions in years. At the same time, they are continuing to focus on the soft drink segment. This is hurting their ability to diversify the firm’s products and their sources of income. (Steinberg, 2013)
While the management’s inability to reach out to consumers, was illustrated during Christmas 2011. This occurred when executives decided to shift the coloring of the labels for Coke products from red to white. The basic idea was to use the new design as a way to promote the Coca Cola brand as a special holiday edition. However, within one month, the program was cancelled. This is because consumers were confusing Coke with competing products. (Esteral, 2011)
These stories are influencing all investment decisions, by showing how the firm has a mature business model. Moreover, it is also illustrating the way management is losing focus and has no new ideas to help the company innovate in the future. These are the keys for Coca Cola to maintain their dominance inside the marketplace.
As far as Pepsi Co is concerned, the two major news stories that have been impacting the firm include: taking a majority stake in Wimm Bill Dan Foods and the merging of their bottling groups together. The Wimm Bill Dan Foods merger is providing the company with access to the Russian market in the areas of milk, yogurt, dairy products and fruit juices. This is giving the firm access to new segments that are quickly growing. It is also helping Pepsi Co to control their wholesale and retail costs. (“Pepsi Co Concludes,” 2011)
The merging of the bottling groups occurred in 2010. It was designed to reduce any kind of redundancies and help the firm to streamline their bottling operations under one division. This decreased costs and allowed executives to use the new model to promote various products inside different markets. (Kaplan, 2010)
The two news stories are influencing all investment decisions by showing how the firm is adapting to changes in the marketplace. Moreover, it is demonstrating that executives are concentrating on diversifying their product mix and are expanding into growing markets. This allows Pepsi Co to reach out to a larger segment of customers and it enhances their dominance inside different regions. (“Pepsi Co Concludes,” 2011) (Kaplan, 2010)
Provide an overall financial analysis for each company that highlights the key characteristics for investment and how this may impact an investor’s decision
The analysis of Coca Cola reveals that the company is failing to understand and adapt with changes in the global marketplace. This has been occurring over the course of many years, as managers are concentrating on the beverage sector. In some cases, this has helped the firm to locate select brands that will increase their bottom line results. Yet, it is also hurting the company’s ability to evolve with new competitors and enter rapidly growing markets. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
To make matters worse, executives are running out of ideas to help promote the brand name to consumers. This means that other firms are slowly taking cliental from Coca Cola. In the majority of situations, this is happening with managers engaging in reckless decisions that are not carefully thought out. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
Furthermore, competitors are streamlining their bottling operations. The inability of the firm to follow similar practices is a sign that the management has lost its focus. In the future, this could result in some kind of major restructuring to deal with these issues. The problem is that these changes will occur when the company is facing greater challenges. This will hurt their competitive position, profit margins, stock performance and brand image. The above information will impact an investor’s decision, by making them more cautious about purchasing the company over the long-term. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
As far as Pepsi Co is concerned, the management has taken a continuing focus on expanding into new areas. This has resulted in the company owning different food, beverage and snack manufacturers. In these situations, the firm is concentrating on the impact that key acquisitions will have on Pepsi and its ability to enter new markets. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
This strategy has proven to be highly successful. As the company is able to reach out to consumers through the large variety of merchandise they are selling. This means that even if a customer selects a competitor’s product. The odds are high that they will also choose another brand that Pepsi owns (only in a different area such as: food, snacks or dairy). This helps the firm to increase its profit margins and continue to promote themselves. These facts will assist investors in making an informed choice about future levels of growth and the firm’s competitive position. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
Based on your review of the financial data for each company, indicate the accuracy and reliability of the data for making investment decision. Provide support for your conclusion.
All sources of information are accurate and reliable. This is because it was collected from data that is filed in accordance with the Securities and Exchange Act of 1934. This requires that all firms must submit information which has been certified through an independent auditor. (Dravis, 2007)
Moreover, the Sarbanes-Oxley Act of 2002 forces all CEOs / CFOs to certify that the data and statements are factually accurate. These laws are evidence of how the information on both firms is complete. Otherwise, anyone who knowingly misleads the public can be charged criminally under this statute. (Dravis, 2007)
Recommend which company you consider as the better investment for your client and how you will present your recommendation. Support your recommendation with data from your analysis.
The company that is the better investment is Pepsi Co. This is because the firm is diversified in a number of industries and markets. These factors are allowing the corporation to reach out to a larger demographic of consumers and adapt with any changes. Evidence of this can be seen by comparing the earnings results for Pepsi Co with Coca Cola during the last year. What makes Pepsi a compelling buy, is the fact that they have consistently increasing earnings and are always seeking to enhance these numbers. The below table is demonstrating this by contrasting the earnings per share of Pepsi and Coke for 2012. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
Pepsi Co vs. Coca Cola Earnings per Share
(“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
These figures are showing how Pepsi Co has greater earnings and more consistency in their numbers. This is directly related to the business model and strategies they are utilizing.
The results are highlighting how the firm is more diversified and is rapidly expanding into growing markets. In the future, this will contribute to above average growth rates and an increase the dividends received by investors. This is the point that their total returns will be higher by purchasing Pepsi Co over Coke. (“The Coca Cola Company,” 2012) (“Pepsi Co,” 2012)
The Coca Cola Company. (2012). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=KO+Profile
Pepsi Co. (2012). Yahoo Finance. Retrieved from: http://finance.yahoo.com/q/pr?s=PEP+Profile
Pepsi Co Concludes. (2011). Seeking Alpha. Retrieved from: http://seekingalpha.com/article/293068-pepsi-concludes-wimm-bill-dann-buy-in-largest-ever-foreign-acquisition-of-russian-company
Bell, L. (2003). The Story of Coca Cola. North Mankato, MN: A +
Cramer, J. (2005). Jim Cramer’s. New York, NY: Simon and Schuster.
Dravis, B. (2007). The Role of Independent Directors. Chicago, IL: ABA.
Esteral, M. (2011). A Frosty Reception. WSJ. Retrieved from: http://online.wsj..html
Kaplan, a. (2010). What Pepsi Hopes. Beverage World. Retrieved from: http://www.pepsico.com/Download/Beverage_World_Cover_Story_0410_(2).pdf
Steinberg, J. (2013). Is Coca Cola’s Growth Story Over. Fool.com. Retrieved from: http://beta.fool.over/24591/?ticker=KO&source=eogyholnk
Stodard, B. (1997). Pepsi. Los Angeles, CA: General Publishing Group.