Anthony J. Pregony's  Instablog

On July 8, Pepsi Bottling Group posted stronger than expected earnings of $.78 per share as compared to analysts expectations of $.73 per share.

Revenue for PBG declined by 7% on a Y/Y basis and operating expenses declined by 10% Y/Y. As a result of the expenses being reduced by PBG, they were able to post a $.78 per share profit.  And for the past 12 months, PBG earnings have declined 67.75% TTM and have declined by 13.54% during the past five years.

As addressed in the previous note, the LT Debt of PBG is a cause for concern. Even though PBG has reduced their long term debt by over 1% Q/Q which now represents a LT Debt/Equity ratio of 3.19. This is a good sign that PBG is not using debt to finance their business. Debt will hinder PBG bottom line in the future. For example, PBG has paid $1,304M in interest payments due to their debt and as a result it has reduced their earnings year till date because of these interest payments.

As the revenue stream remains weak, PBG should take a few steps to increase their earnings and to strengthen their balance sheet, and as a result it will increase the bottom line.

1.       PBG should temporary suspend their dividends. As the end of 2Q of 2009, PBG has paid out $72M in dividend payments to shareholders. This will help PBG bottom line, and should be used to pay off debt.

2.       PBG should continue to make cost reductions and use those cost savings to reduce their debt.

3.       PBG should continue to make an aggressive effort to increase the top line (revenue), instead of the continuous trend of revenue reductions.

 

PBG Current Fundamentals:

ROA (TTM): 1.9

ROE (TTM): 10.9

Current Ratio (MRQ): 1.38

Quick Ratio (MRQ):1.08

LT Debt/Equity (MRQ): 3.19

Total Debt/Equity (MRQ): 3.42

 

As it was noted last time, does PBG current price of $33.65 justify itself?  We know that PBG is being pursued by Pepsi, and investors hope to make money off the purchase due to the current P/E ratio of 33.1. However, we believe PBG is over – priced at these current levels and should take the necessary actions to help the bottom line.

Disclosure: No position

The Pepsi Bottling Group (PBG) is within 10% of its 52 week high. For the past two quarters, PBG has met or beaten expectations for the past four quarters. However, on April 22, TPG earnings were down 23.1% from 1st quarter of 2008, and for 2nd Quarter 2009 the consensus estimates for PBG are for .73 per share which would represent a 6.5% decline Y/Y.

Investors seem to believe that PBG has a strong future with a P/E ratio of 40.8, but PBG earnings for the past twelve month have declined 63.7 for the twelve trailing months. Does this justify the price of $33.86?

ROA (TTM):        1.5

ROE (TTM):      10.5

Current Ratio (MRQ): 1.42

Quick Ratio (MRQ) 1.10

LT Debt/Equity (MRQ) 4.64

Total Debt/Equity (MRQ) 4.91

 

For The Pepsi Bottling Company, the ROE and ROA is a laggard to its peer Coca Cola (KO). In regards to the Current Ratio and Quick Ratio, PBG has enough current assets to pay off their current liabilities. However, what is a cause for concern is the LT Debt/Equity ratio of 4.64.

Source: Yahoo! Finance

Since Q2 2008 to Q1 2009, the long term debt for the PBG has increased by 37%. This can hurt future earnings for PBG as the interest expense will play a negative impact on their bottom line. 

On July 7, PBG will be reporting their Q2 2009 results. We should pay careful attention of their revenue stream as it has shown weakness for the past three quarters, their bottom line, and to see if they continue to use debt to finance their business.

The Pepsi Bottling Group (PBG) is within 10% of its 52 week high. For the past two quarters, PBG has met or beaten expectations for the past four quarters. However, on April 22, TPG earnings were down 23.1% from 1st quarter of 2008, and for 2nd Quarter 2009 the consensus estimates for PBG are for .73 per share which would represent a 6.5% decline Y/Y.

Investors seem to believe that PBG has a strong future with a P/E ratio of 40.8, but PBG earnings for the past twelve month have declined 63.7 for the twelve trailing months. Does this justify the price of $33.86?

ROA (TTM):        1.5

ROE (TTM):      10.5

Current Ratio (MRQ): 1.42

Quick Ratio (MRQ) 1.10

LT Debt/Equity (MRQ) 4.64

Total Debt/Equity (MRQ) 4.91

 

For The Pepsi Bottling Company, the ROE and ROA is a laggard to its peer Coca Cola (KO). In regards to the Current Ratio and Quick Ratio, PBG has enough current assets to pay off their current liabilities. However, what is a cause for concern is the LT Debt/Equity ratio of 4.64.

Source: Yahoo! Finance

Since Q2 2008 to Q1 2009, the long term debt for the PBG has increased by 37%. This can hurt future earnings for PBG as the interest expense will play a negative impact on their bottom line. 

On July 7, PBG will be reporting their Q2 2009 results. We should pay careful attention of their revenue stream as it has shown weakness for the past three quarters, their bottom line, and to see if they continue to use debt to finance their business.