PepsiCo Inc. (PEP) recently reaffirmed its long-term targets and discussed its growth strategies at the Sanford Bernstein Strategic Decisions Conference.
Long-term Outlook
The company expects mid-single digit growth in revenues on the back of its strong product portfolio and solid business in developing and emerging markets. The company continues to expect high single-digit earnings per share growth on a currency neutral basis. Operating profit is expected to grow at a higher rate than revenues while margin is expected to grow 30 to 50 basis points a year. The company expects to maintain a solid cash position in the long run and will continue to return cash to shareholders in terms of dividends and share repurchases.
Growth Strategies
The company expects to achieve its top-line target through its strong portfolio of beverages, snacks and healthy & wellness brands. The company is the #2 player in beverages globally and a leader in salty snacks. It owns leading health and wellness brands such as Quaker, Tropicana and Gatorade.
PepsiCo’s overall product portfolio includes 22 brands including Pepsi, Mountain Dew, Gatorade, Tropicana, Lay's, Doritos, Cheetos and Quaker that generate more than $1 billion each in annual retail sales. Though, PepsiCo has the competitive advantage of selling both snacks and beverages which are complementary food categories, the company expects the business mix to shift more heavily toward snacks. The complimentary portfolio results in cost leverage, capability sharing and other commercial benefits.
PepsiCo also intends to drive long-term growth through its investments in developing and emerging markets, which have significant growth potential due to their relatively low per-capita consumption. Another reason is the burgeoning middle class with rising income levels, which in turn is boosting demand for convenience food and beverages.
Moreover, many international markets are relatively untapped by other companies, especially for products like salty snacks. Hence, PepsiCo enjoys a competitive advantage over other players. The company expects its developing and emerging markets share to grow in the high single to low double-digit range, compared to low to mid single digits market share growth in the developed markets.
PepsiCo intends to drive margin and profit growth through cost savings. It aims to lower cost through efficient agricultural practices and latest manufacturing and packaging technologies. The company also expects increased productivity to drive profitability and returns.
Last but not the least, the company is keen on expanding its business through acquisitions and strategic alliances. The company invests less than $500 million a year in total and believes this will strengthen its market position.
PepsiCo carries a Zacks Rank #3 (Hold).
Some other consumer staple stocks that are worth a look include Flower Foods Inc. (FLO) carrying a Zacks Rank #1 (Strong Buy), and J&J Snack Foods Corp. (JJSF) and H. J. Heinz Company (HNZ) holding a Zacks Rank #2 (Buy).
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