At a time when many consumer packaged food companies are struggling, PepsiCo (NASDAQ:PEP) is doing very well. Just like another major ''peer'' being Procter & Gamble (PG), PepsiCo has seen organic sales headwinds relatively early (in recent years) and has aggressively and rightfully improved its positioning, allowing it to do very well in this challenging external environment.
As is well known, PepsiCo is all about (soft) drinks and snacks, and while the positioning seems very challenged with brands such as Pepsi, 7 Up, Doritos and Lay's making the company vulnerable for healthier alternatives, it has swiftly moved away from these indulgent to more nutritious alternatives. Within snacks, this is arguably achieved with Quaker Oats, and in drinks with Tropicana and SodaStream, among many others.
This improved positioning should result in achieving the long-term goal which calls for organic sales between 4% and 6% per annum.
What About 2019?
PepsiCo ended 2019 strongly. Fourth-quarter revenue growth of 5.7% marked a small acceleration from the 3.9% growth reported for the year as currency headwinds dissipated a bit. Pretty much all of the growth was achieved on an organic basis and the 4.3% organic growth number for the final quarter was 20 basis points lower than the full-year number. That said, the number looks more impressive at first sight than it really is, with most of the growth stemming from price hikes, with volumes up around a percent.
Somewhat disappointing is that both the fourth-quarter and full-year adjusted earnings number fell slightly, with full-year core earnings down 13 cents to $5.53 per share.
The reason for that is simply margin pressure. Operating margins of 15.3% are quite nice, yet they tend to be quite high for most FMCG companies, as PepsiCo is not even top of the range in terms of margins. Reported operating margins are actually down
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