From the Desk of Irwin Michael – October 7, 2016: PepsiCo Inc.

ABC Funds’ holding, PepsiCo Inc., reported strong third quarter earnings results of $1.40 last week, topping analyst estimates by eight cents. Additionally, management increased its fourth quarter and full year earnings and revenue guidance.

These results were driven by solid organic sales growth, margin expansion, productivity gains, and PepsiCo’s highly diversified product mix.

Over the years, through various mergers and acquisitions, PepsiCo has grown to include a wider range of products. The company’s brands include global food and beverage giants, such as Quaker, Doritos, Lay’s, Gatorade, and Tropicana. Moreover, PepsiCo has continued to innovate their product offerings, as they capitalize on consumers’ gradual shift towards healthier eating. The company has introduced more nutritious, higher-margin products, such as cereals, yogurts, natural hummus and dips, and cold-pressed juices and teas. These products have helped reinvigorate PepsiCo’s bottom line.

Finally, PepsiCo is a free cash flowing, “dividend aristocrat”, offering a 2.8% dividend yield. The company is trading at a reasonable price earnings ratio of 22.5x, has made share repurchases averaging $3.6 billion annually since 2007 and contemplates spending $500 million a year on “tuck-in acquisitions.”

Irwin A. Michael (initials)

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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