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Investor Taste Challenge: Pepsi vs. Coke (PEP, KO, PBG, PAS)

247wallst — Thu, 08 Oct 2009 18:29:12 +0000

PepsiCo Inc. (NYSE: PEP) is trading down after the company’s quarterly earnings report from this morning. PepsiCo’s earnings were $1.08 EPS on a 1.5% drop in revenues to $11.08 billion, versus Thomson Reuters estimates of $1.03 EPS and $11.25 billion in revenues. Pepsi did manage to beat estimates, but the amount of the beat appears to be the result of a lower effective tax rate and on some of the cost cutting measures as we have seen at so many firms. The strength of PepsiCo’s snack food unit could actually highlight a potential weakness at Coca-Cola. What is interesting is that rival The Coca-Cola Company (NYSE: KO) is down a fraction of what has been in seen in PepsiCo shares.

Revenues were hurt by falling North American soft drink sales. More importantly, CEO Indra Nooyi and her management team are cautious on the hopes of a consumer spending revival. Nooyi specifically noted research pointing to the age of thrift in the U.S. and Western Europe customers will likely continue in 2010. Nooyi noted that Asia and South America should continue to see consumer spending growth but that won’t likely make up for what is being seen elsewhere.

If you have tracked the earnings reports from many companies, there is a pattern of the bottom line beating estimates, but on lower revenues and on cost cuts and other efficiency metrics. This may be a concern to many investors who want to see a return to top-line growth in 2010. Pepsi is likely to see some growth as a result of its $7.8 billion acquisitions of Pepsi Bottling Group Inc. (NYSE: PBG) and PepsiAmericas Inc. (NYSE: PAS). While Pepsi affirmed its 2009 earnings target and gave a 2010 earnings growth target of 11% to 13% on a constant currency basis, some may argue that is not organic growth.

Our focus here is how this can be perceived in rival Coca-Cola. Pepsi said that sales by volume rose 2% in the snack food unit in the Americas and in international segments. Drinks were the drag as volume was up 0.5%, measured as a 9% gain internationally and a drop of 6% in the Americas. While Pepsi has the snack food operations, Coca-Cola does not. And we can recall at the height of the time of fear when Coca-Cola was being treated like a luxury brand. If you draw a straight line at 0.5% for drinks only, this may signal at least some caution for Coca-Cola. Yesterday’s upgrade of Coca-Cola from Deutsche Bank may be helping today.

At 2:00 PM EST we have PepsiCo shares down 1.9% at $60.00 and Coca-Cola down 0.5% at $54.54. We would also note that Coca-Cola is trading less than 2% off its 52-week highs and that PepsiCo is down 8% from its 52-week highs. If the Thomson Reuters estimates are met, then Pepsi trades at a forward multiple of about 14.6-times expected 2010 earnings and Coca-Cola trades at about 16.2-times expected 2010 earnings.

What is possible is that Coca-Cola did slightly better in the beverage side. But Coca-Cola has no significant snack food sales as Pepsi does. If the trends of PepsiCo are the same at Coca-Cola, then there may be more profit taking ahead by Coca-Cola shareholders.

JON C. OGG
OCTOBER 8, 2009

Posted in Earnings, Food Tagged: KO, PAS, PBG, PEP

Suddenly All Is Well In Bottling Mergers (PEP, PBG, PAS, COKE, CCE, KOF, CCH, KO)

247wallst — Tue, 04 Aug 2009 13:28:26 +0000

This morning we caught the news on a volume alert, but there was no confirmation of the news. Now, we have the formal release from PepsiCo (NYSE: PEP). Pepsi has capitulated and decided to offer more for its acquisitions of The Pepsi Bottling Group, Inc. (NYSE: PBG) and PepsiAmericas, Inc. (NYSE: PAS). Both bottlers agreed and signed definitive merger pacts with PepsiCo.

Interestingly enough, this could have traders (and investment bankers) looking toward Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE), Coca-Cola Enterprises Inc. (NYSE: CCE), Coca-Cola FEMSA S.A.B de CV (NYSE: KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH)… all of which are tied to The Coca-Cola Company (NYSE: KO).

Under the agreements, Pepsi Bottling Group, Inc. (PBG) holders will have the option to receive either $36.50 in cash or 0.6432 shares of PepsiCo common stock. That value was $36.50 based on PepsiCo’s closing share price of $56.75 on July 31, 2009. That is subject to proration such that the aggregate consideration to be paid to PBG shareholders shall be 50% cash and 50% PepsiCo common stock.

In a similar deal, PepsiAmericas (PAS) shareholders will have the option to receive either $28.50 in cash or 0.5022 shares of PepsiCo common stock. That had a value of $28.50 based on PepsiCo closing share price of $56.75 on July 31, 2009. It is also subject to proration such that the aggregate consideration to be paid to PAS shareholders shall be 50% cash and 50% PepsiCo common stock.

This is not a small deal at all, particularly considering that these mergers are for the stakes not already owned. The total value of the shares that PepsiCo is acquiring comes to roughly $7.8 billion. Based on the recommendations of the Special Committee of PBG and the Transactions Committee of PAS, the boards of directors of both companies have approved the merger transactions.

Pepsi gave the end game numbers here. It sees annual pre-tax synergies of $300 million by 2012 and expects these mergers to be accretive to PepsiCo’s earnings by about $0.15 on earnings per share when synergies are fully realized in 2012.

We have yet to see much action in the rival play here in an investor Pepsi vs. Coke taste challenge. Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE), Coca-Cola Enterprises Inc. (NYSE: CCE), Coca-Cola FEMSA S.A.B de CV (NYSE: KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) are all tied to The Coca-Cola Company (NYSE: KO). Our sources have noted that there is not the same appetite to make this sort of transaction that Pepsi has embarked upon, although that was back in April and May and anything could have changed by then.

JON C. OGG
AUGUST 4, 2009

Posted in Food, Mergers and Buy Outs Tagged: CCE, CCH, COKE, KO, KOF, PAS, PBG, PEP

Pepsi Deal Twist, Pepsi Bottling Group Makes Its Own Acquisition (PEP, PBG, PAS)

247wallst — Thu, 14 May 2009 14:21:55 +0000

There is a new twist in the Pepsico, Inc. (NYSE: PEP) ‘hopeful’ acquisition of Pepsi Bottling Group Inc. (NYSE: PBG). Pepsi Bottling Group Inc. has decided to make an acquisition of its own. It could even possibly have ramifications for the proposed PepsiAmericas Inc. (NYSE: PAS) buyout, although that may be a stretch on a one-off basis.

The Pepsi Bottling Group announced that it has signed a Letter of Intent to acquire Pepsi-Cola Bottlers for the Merrimack Valley, Inc. This is not a large deal considering the size of the company, even if financial terms are not disclosed. The Massachusetts operation employs only about 70 people.

This small company is a Pepsi-Cola franchised bottler serving northeastern Massachusetts and has been a family-owned and Pepsi-licensed company with operations for the last five decades.

PBG said this expands its U.S. footprint across contiguous territories and enhances its ability to meet customer needs. The transaction announced today is expected to be completed during the third quarter of 2009, and as noted the financial terms were not disclosed.

Back in March, PBG announced plans to acquire Better Beverages, Ltd., which serves portions of central Texas; and last September it acquired Lane Affiliated Companies, with operations in Colorado, Arizona and New Mexico. In March 2008, it acquired Pepsi-Cola Batavia Bottling Corp., serving parts of upstate New York.

Making a small acquisition is certainly not an outright ‘fending off’ of a larger buyer. But it is a statement that the company is making, with a show that it intends to grow and intends to keep on its path of either being independent or fetching a higher price. There is a reason this trades at a premium to the merger price.

PBG shares are up 0.5% at $32.05, and that is $2.55 above the $29.50 per share buyout price; its 52-week trading range is $15.78 to $33.54.

JON C. OGG

Posted in Food, Mergers and Buy Outs Tagged: PAS, PBG, PEP

Pepsi’s Dividend Hike Signals Twist in Bottling Mergers (PEP, PBG, PAS)

247wallst — Tue, 05 May 2009 23:05:35 +0000

Pepsico, Inc. (NYSE: PEP) has just come out and announced it was going to hike its dividend by some 6%. The $1.70 annualized dividend will now be $1.80 on an annual basis that is paid out quarterly. Normally, these announcements are a blip on the radar, but this could actually signal that it has the capital to pay more for that proposed Pepsi Bottling Group Inc. (NYSE: PBG) acquisition. It may even have an ultimate impact on PepsiAmericas Inc. (NYSE: PAS).

It was just on Monday that the board of Pepsi Bottling Group Inc. sent a letter to Indra Nooyi, CEO & Chairman of PepsiCo. Pepsi still owns 33% of PBG after a 1999 spin-off. It said that the $29.50 for the remaining stake of about $6 billion was opportunistic timing at an inadequate value with understated synergies.

Again, normally we would not give this much thought. But PBG shares closed at $31.76 today. It also has actually not traded under the $30.00 mark at all on any closing share price-basis since the offer was made by Pepsico.

Raising a dividend is a signal that business is going to hold up. PBG already gave earnings and raised its full-year guidance for earnings per share and operating free cash flow and management said the terms essentially are at a zero-premium based upon that new guidance.

We do not know if PepsiCo is going to make another offer or not. We know they are essentially the only “owner of ease” as their businesses are interlocked and because of the 33% stake. But the higher dividend signals that Pepsico can probably afford to pony up more cash for PBG.

Ditto for PepsiAmericas Inc. (NYSE: PAS).

Jon C. Ogg

Posted in Dividend, Food, Mergers and Buy Outs, Water Tagged: PAS, PBG, PEP

If Coke Follows Pepsi’s Bottling Roll-Up (PEP, PAS, PBG, KO, COKE, CCE, KOF, CCH

247wallst — Mon, 20 Apr 2009 15:32:02 +0000

This morning’s news of Pepsico Inc. (NYSE: PEP) offering to acquire bottling affiliates PepsiAmericas Inc. (NYSE: PAS) and Pepsi Bottling Group Inc. (NYSE: PBG) may be a surprise to some, but it is far from a shock. Having multiple companies processing different parts of the same business may not be the most efficient model under certain circumstances. Interestingly enough, The Coca-Cola Company (NYSE: KO) has a similar structure with affiliated entities that are outside publicly traded stocks.

Coca-Cola Bottling Co. Consolidated (COKE), Coca-Cola Enterprises Inc. (NYSE: CCE), Coca-Cola FEMSA S.A.B de CV (NYSE: KOF), and Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) are all affiliated companies.

Pepsico (NYSE: PEP) shares are down over 4% at $50.02 today. A $6 billion buyout compares to a new market cap of almost $78 billion. The Coca-Cola Company (KO) is down 2.4% with the broad market today and in sympathy with Pepsi. It would be a kid’s game to only hang your hat on the 17% that Pepsi is offering to see if Coke would do the same, but this is somewhat uncharted and has to start at least somewhere. We wanted to take a look at what an implied 17% gain would like for Coke’s affiliated entities.

Coca-Cola Bottling Co. Consolidated (NASDAQ: COKE) is based in Charlotte, NC and is into the production, marketing, and distribution of carbonated nonalcoholic beverages primarily of Coca-Cola. Operations are throughout the Central East Coast and parts of the Southeast. Its shares are up 1% at $54.28 and its market cap is just shy of $500 million.

Coca-Cola Enterprises Inc. (NYSE: CCE) is also based in Atlanta, GA and is in the manufacturing, distribution, and marketing of nonalcoholic beverages and offers its products principally under the Coca-Cola classic, Sprite, Dasani, POWERade, Coca-Cola, Diet Coke/Coca-Cola light, Fanta, Coca-Cola Zero, and Capri-Sun brand names. It sells through wholesalers and retailers primarily in North America, the U.K. and Europe. Its shares are up 3% at $15.39 and its market cap is $7.5 billion.

Coca-Cola FEMSA S.A.B de CV (NYSE: KOF) is based in Mexico, City which is a bottler of Coca-Cola trademark beverages in Latin America. If you have forgotten, this is one of the rather large Bill Gates holdings. FEMSA’s market cap is $6.73 billion and its shares are down 3.5% at $36.47 today.

Coca-Cola Hellenic Bottling Company S.A. (NYSE: CCH) is based in Athens, Greece and it produces, distributes, and sells non-alcoholic beverages under a franchise of the Coca-Cola name serving approximately 550 million people in 28 countries throughout Europe, Eastern Europe, and Russia. Hellenic’s stock is off almost 4% at $15.32 today and its market cap is $5.6 billion.

Pepsi has said that this will become accretive to earnings and will streamline its operations. It is very possible that the same could come true for Coca-Cola. The problem is that this would come with a much larger price tag. Just like Pepsico, it also holds interests. That means that it would not all be entirely add-on capital to the market caps with a 17% premium in simple math. But if you tally up the US-equivalent of the stated market caps of the Coca-Cola bottling and distributing its goods comes to a whopping sum in excess of $21 billion. That is before backing out the company’s interest, but that is also before lumping in a premium to the share prices.

Coca-Cola’s market cap is just north of $102 billion. That would put the entire tab at a much higher price nominally. Both Pepsi and Coca-Cola are still closer to their 52-week lows than they are to their respective highs. Both should easily have access to the capital markets, particularly if the deals can be financed as a streamlining of operation or for more efficiency. It looks like it is just a lot cheaper for Pepsi to do this over what it would cost Coca-Cola.

Stay tuned.

Jon C. Ogg
April 20, 2009

Posted in Food, Mergers and Buy Outs, Water Tagged: CCE, CCH, COKE, KO, KOF, PAS, PBG, PEP

Top Pre-Market Analyst Downgrades (ALU, BRLI, GPS, GD, PCK, PSO, PAS, PTR, PKX, RTP, COL, WXS)

247wallst — Fri, 09 Jan 2009 07:17:48 +0000

The rate of downgrades versus upgrades is still coming out with a much more negative bias from Wall Street. These are some of the downgrades and negative research calls we have seen from Wall Street analysts this Friday morning:

Alcatel-Lucent (NYSE: ALU) Cut to Equal Weight at Morgan Stanley.
Bio-Reference Labs (NASDAQ: BRLI) Cut to Perform at Oppenheimer.
Gap Inc. (NYSE: GPS) Cut to Hold at Citigroup.
General Dynamics (NYSE: GD) Cut to Neutral at Goldman Sachs.
Patriot Coal (NYSE: PCX) Started as Sell at Citigroup.
Pearson (NYSE: PSO) Cut to Sell at Goldman Sachs.
PepsiAmericas (PAS) Cut to Sell at Goldman Sachs.
PetroChina (NYSE: PTR) Cut to Neutral at JPMorgan.
Posco (NYSE: PKX) Cut to Neutral at Goldman Sachs.
Rio Tinto (NYSE: RTP) Cut to Hold at Deutsche Bank.
Rockwell Collins (NYSE: COL) Cut to Sell at Goldman Sachs.
Wright Express Corp. (NYSE: WXS) Cut to Neutral at JPMorgan.

Jon C. Ogg
January 9, 2009

Posted in Analyst Calls Tagged: ALU, BRLI, COL, GD, GPS, PAS, PCK, PKX, PSO, PTR, RTP, WXS

Early Bird Analyst Upgrades & Downgrades (CHA, CHH, CMCSA, GOOG, ID, PAS, ACF, ERIC, NCC, NWS, NOK, PCTI, RAH, SHW)

247wallst — Tue, 28 Oct 2008 06:37:36 +0000

These are some of the top pre-market analyst upgrades and downgrades we are seeing from Wall Street firms this Tuesday morning with more than two hours to the open:

China Telecom (CHA) Raised to Buy at UBS.
Choice Hotels (CHH) Raised To Neutral From Underweight at JPMorgan.
Comcast (CMCSA) Started as Outperform at Credit Suisse.
Google (GOOG) Started as Outperform at Credit Suisse.
L-1 Identity Solutions (ID) Raised to Neutral from Underweight at JPMorgan.
PepsiAmericas (PAS) Raised to Buy at UBS.

AmeriCredit (ACF) Cut to Underperform at KBW.
Ericsson (ERIC) Cut to Sell at Goldman Sachs.
National City (NCC) Cut to Market Perform at KBW.
News Corp. (NWS) Cut to Neutral at Credit Suisse.
Nokia (NOK) Cut to Sell at Goldman Sachs.
PC-Tel (PCTI) Cut to Neutral at Baird.
Ralcorp Holdings (RAH) Cut to Neutral at Credit Suisse.
Sherwin-Williams (SHW) Cut to Neutral at JPMorgan.

Jon C. Ogg
October 28, 2008

Posted in Analyst Calls Tagged: ACF, CHA, CHH, CMCSA, ERIC, GOOG, ID, NCC, NOK, NWS, PAS, PCTI, RAH, SHW

Top 10 Pre-Market Analyst Calls (BA, OMTR, PAS, RRGB, CRM, PCU, TSM, TEVA, WLP, WX)

247wallst — Fri, 14 Mar 2008 07:09:13 +0000

Below are the top 10 analyst calls we are focusing on this morning:

Boeing (NYSE: BA) raised to Overweight at Morgan Stanley.
Omniture (NASDAQ: OMTR) raised to Buy at Jefferies.
PepsiAmericas (NYSE: PAS) raised to Buy at Deutsche Bank.
Red Robin Gourmet (NASDAQ: RRGB) raised to Overweight at JP Morgan; started as Buy at Jefferies.
Salesforce.com (NYSE: CRM) Started At Buy at Broadpoint.
Southern Copper (NYSE: PCU) started as Underweight at JP Morgan.
Taiwan Semiconductor (NYSE: TSM) raised to overweight at Lehman Brothers.
Teva Pharmaceuticals (NASDAQ: TEVA) cu to Hold at Citigroup.
WellPoint (NYSE: WLP) downgraded to Neutral at Banc Of America.
WuXi PharmaTech (NYSE: WX) raised to Buy at Jefferies.

Jon C. Ogg
March 14, 2008

Pre-Market Analyst Calls (November 6, 2007)

247wallst — Tue, 06 Nov 2007 07:57:44 +0000

Stock Tickers: ANF, ARO, AEO, ANN, ADSK, BMRN, CA, CHS, C, COGN, CWTR, ETR, GPS, GOOG, JCG, LF, MA, MSFT, ORH, ORCL, PAS, PNWIF, PT, RIMM, JAVA, SYMC, UA, URBN

Abercrombie & Fitch (ANF) started as Buy at UBS.
Aeropostale (ARO) started as Neutral at UBS.
American Eagle Outfitters (AEO) raised to Hold at Citigroup.
Ann Taylor (ANN) started as Buy at UBS.
Autodesk (ADSK) raised to Overweight at Lehman.
Biomarin (BMRN) Started as Buy at Jefferies.
CA INC. (CA) raised to Equal-Weight at Lehman.
Chico’s FAS (CHS) started as Neutral at UBS.
Citigroup (C) cut to Neutral at B of A.
Cognos (COGN) cut to Sector Perform at CIBC.
Coldwater Creek (CWTR) started as Neutral at UBS.
Entergy (ETR) cut to Hold at Jefferies.
Gap Inc. (GPS) started as Buy at UBS.
Googe (GOOG) target raised to $850 at Sanford Bernstein.
J.Crew (JCG) started as Neutral at UBS.
Leapfrog (LF) started as Strong Buy at Needham.
MasterCard (MA) raised to Buy at Deutsche Bank.
Microsoft (MSFT) removed from Conviction Buy List at Goldman Sachs.
OdysseyRe (ORH) raised to Hold at Citigroup.
Oracle (ORCL) replaced Microsoft on Goldman Sachs Conviction Buy List.
PepsiAmericas (PAS) cut to Underweight at JPMorgan.
PhotoChannel (PNWIF) started as Buy at Merriman Curhan Ford.
Portugal Telecom (PT) raised to Buy at UBS.
Research In Motion (RIMM) raised to Outperform at Credit Suisse.
Sun Micro (JAVA) raised to Buy at Citigroup.
Symantec (SYMC) cut to Equal-Weight at Lehman.
Under Armour (UA) started as Underweight at Morgan Stanley.
Urban Outfitters (URBN) started as Buy at UBS.

Jon C. Ogg
November 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Earnings Gappers (July 25, 2007)

247wallst — Wed, 25 Jul 2007 07:23:24 +0000

(AMZN) Amazon.com trading up over 20% after beating earnings and raising guidance; has 5 upgrades so far.
(ASH) Ashland $1.35 EPS vs $1.11 estimate.
(BA) Boeing $1.35 EPS vs $1.16 estimate; guidance looks soft if not on items; shares trading up 2% pre-market.
(CACH) Cache $0.12 EPS vs $0.07 estimate.
(CBR) Ciber $0.13 EPS vs $0.12 estimate.
(CL) Colgate-Polmolive $0.84 EPS vs $0.83 estimate.
(ETH) Ethan Allen $0.65 EPS vs $0.65 estimate.
(FLIR) FLIR Systems $0.38 EPS vs $0.36 estimate.
(HES) Hess $1.75 EPS vs $1.45 estimate.
(JOYG) Joy Global issues earnings warning.
(KEM) Kemet $0.12 EPS vs $0.10 estimate.
(MDCO) Medicines Company $0.03 EPS vs $0.02 estimate.
(MPX) Marine Products $0.14 EPS vs $0.12 estimate.
(NTRI) NutriSystem traded down another 10%+ after beating estimates, but lowering guidance.
(PAS) Pepsi Americas $0.60 EPS vs $0.50 estimate.
(PFCB) P.F.Chang’s $0.36 EPS vs $0.36 estimate.
(RAI) Reynolds America $1.10 EPS vs $1.21 estimate.
(SEE) Sealed Air $0.41 EPS vs. $0.42 estimate.
(TRAD) TradeStation $0.18 EPS vs $0.18 estimate.
(TRB) Tribune $0.47 EPS vs $0.48 estimate.
(TROW) T.Rowe Price $0.58 EPS vs $0.58 estimate.
(XEL) Xcel Energy $0.29 EPS vs $0.26 estimate.

Jon C. Ogg
July 25, 2007