28 February 2009

PEP: Financial Analysis through December 2008 (Update)

Back on Valentine's Day, we posted an analysis of PepsiCo's (NYSE: PEPpress release announcing fourth-quarter earnings.  This super-sized period consisted of the 16 weeks that ended on 27 December 2008.

The company subsequently filed a more complete 10-K for fiscal 2008.  We examined the 10-K and determined that the data it contained did not significantly alter the original analysis, nor did it change the gauge scores.

PepsiCo, Inc., is a leading global purveyor of beverages and snacks.  While famously locked in a battle with Coca-Cola (NYSE: KO), the Frito-Lay North America division takes in more Revenue, and it contributes more to Operating Profit, than the PepsiCo Americas Beverages unit.

The 10-K contains an excellent description of PepsiCo's business organization, strategy, and recent results.  The following tidbits of information caught our attention:
  • Operations outside of the U.S. provide 48 percent of Revenue.
  • Sales of "Liquid refreshment" beverages in the U.S. declined in 2008.
  • Sales to Wal-Mart Stores, Inc. (NYSE: WMT), including Sam’s Club, were about 12 percent of total Revenue.
  • The face value of open commodity derivative contract (those that qualify as hedges and those that don't) were $928 million when 2008 ended, up from only $110 million in 2007.
  • PepsiCo recognized $346 million of mark-to-market net losses on commodity hedges in 2008, up from only $19 million in 2007.
  • The company intends to spend up to $2.5 billion repurchasing shares in 2009. Repurchases totaled $4.7 billion in 2008.
  • Of the various ways to determine the fair value of financial items, PepsiCo did not need to use the "Level 3" method that relies the most on management judgment for any of its financial assets and liabilities.

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