Seeking Alpha: PepsiCo Looks Like A Relative Value In Its Sector

Investors have certainly been willing to pay more for the relatively predictable streams of earnings from packaged food companies recently, and that has left scant value in the sector. That PepsiCo (PEP) still seems to have some value in it is likely a product of the fact that not all analysts are completely sold on the idea that the benefits of the company's recent restructuring will last over the long term. While wasteful acquisitions and unsuccessful marketing initiatives may loom as ongoing threats, these shares do seem to over some relative value in the sector today.

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PepsiCo Looks Like A Relative Value In Its Sector

Investopedia: Will Margins Take Some Fizz From Coca-Cola?

Although many packaged food companies have struggled to maintain their volumes while passing through higher input prices, Coca-Cola (NYSE:KO) isn't like most companies. Although ongoing margin compression merits some attention, it's hard to imagine that long-term holders are going to get too worked up about it. Coca-Cola remains what it has long been - a top-quality company with a price to match.

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Investopedia: The Marvel That Is Coca-Cola

By almost any measure, Coca-Cola (NYSE: KO) is a remarkable company. Not very many companies produce long term free cash flow margins of 20% or better, nor consistent returns on invested capital in excess of 20%. Even fewer companies manage to do it in the finicky and price-sensitive world of consumer goods. Consider, too, the fact that Coca-Cola is one of the largest companies in the world and is relatively undiversified, and yet still produces pretty solid growth on a consistent basis.

Even for those who find Coca-Cola to be too boring or too big for the portfolio, there is a lot to learn from following this company and watching how management continues to build value for shareholders.

A Surprisingly Solid End To The Year
From a top line perspective, Coca-Cola had a very good fourth quarter. Worldwide volume increased 6%, or about 5% excluding a deal with Dr Pepper Snapple Group (NYSE:DPS), with decent growth in North America (3%, excluding that deal) and Latin America, but strong performance in Eurasia/Africa and weakness in Europe and Asia. Interestingly, volumes in China were down 3 percent.

Coupled with a 2% increase in price and mix, and 37% growth from so-called "structural changes," Coca-Cola reported revenue growth of just under 45 percent. Excluding all of the special items and changes, core revenue growth of about 8% is still quite good.

In order to really plumb the details of Coca-Cola's earnings statement, readers and investors will probably need a glass of something considerably more potent than soda. For purposes of clarity, brevity and sanity, I will simply focus on some bottom-line adjusted conclusions. Operating income was up about 11%, with adjusted gross margin declining from 65.5% to 61.5 percent. Currency impacts account for how adjusted operating income could outpace revenue growth while the "adjusted" margin declined.


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http://stocks.investopedia.com/stock-analysis/2011/The-Marvel-That-Is-Coca-Cola-KO-DPS-PEP-GIS-NSRGY-MJN0211.aspx

Facts Versus Food

If there is a demand, you can assume that a company will step up to supply it. While the seemingly unstoppable rise in obesity may make one consider how much Americans really care about what they eat, there is undeniably strong interest in so-called "functional foods". It is not enough anymore to just call your product "fresh", "natural", or even "organic" - no, these days consumers want your product to prevent their heart disease, clean their colons and give them shiny, healthy hair. 

Trouble is, the science behind many of these claims is (to be charitable) lacking and seldom meets the standards of the major peer-reviewed journals. Consequently, the FDA and FTC have stepped up their attempts to enforce rules about unsupported nutritional claims. That could be bad news for packaged food companies ranging from Coca-Cola (NYSE:KO) to Unilever (NYSE:UL), as these claims are often baked into the ad campaigns and constitute what the companies hope will be enduring ways to differentiate their product in the aisles at your local Wal-Mart (NYSE:WMT). 


The link below leads to the full piece on Investopedia:
http://stocks.investopedia.com/stock-analysis/2010/Facts-Versus-Food-KO-UL-WMT-K-GIS-KFT-DPS0929.aspx