Coke Vs Pepsi 092506

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From one of my many courses at Ohio Dominican University.

From one of my many courses at Ohio Dominican University.

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  • 1. Coke vs. Pepsi By: Brad Pearce, Les Pierce, Mike Puleo, Aaron Martinez, Lee Ann Whaley
  • 2.
    • 2000 Annual Sales
      • 20.5 Billion
    • 2005 Annual Sales
      • 23.1 Billion
    • Mistakes Made by Management
      • Former CEO Doug Investor
        • Raised price of syrup by 7.7%
          • Upset bottlers who in turn raised the price of Coke
        • First time in years
        • Decreased overall volume and net income by 41% in two years
        • Pushed heavily on carbonated drinks instead of sports drinks
    Case Background: Coke
  • 3. Case Background: Coke
    • New CEO
      • Douglas Daft, replaced Investor in 2000
        • Non-carbonated drinks new focus
    • Analysts believed the change in management would improve distributor relations
      • Bring back Coke to former glory
  • 4. Case Background: Coke
    • Profitability Ratios
    • Growth Ratios
  • 5. Company Background: PEPSICO, INC.
    • $20 billion company in 2000
    • Snack-food, Frito-Lay trademark
      • 2/3 of Sales & Operating Income from snacks
    • Soft-drink, manufactured concentrates
    • Noncarbonated beverages, Juices
      • 1/3 of Sales & Operating Income from beverages
  • 6. Company Background: CEO
    • Roger Enrico, CEO from 1996 to 2000
    • 1997 - Instituted a massive overhaul at PepsiCo
      • Sold KFC, Taco Bell, and Pizza Hut
      • ( ridding PepsiCo of poor return performing divisions)
    • 1999 – Spun off bottling operations To an independent public company .
  • 7. Company Background: The New PepsiCo
    • PepsiCo left with higher-margin business of selling concentrate to bottlers
    • Bottlers can now raise their own capital
      • Freeing up cash within the parent company
    • Enrico brokered the acquisitions of:
      • Tropicana, market leader in orange juice
      • Quaker Oats, Gatorade energy-drink market
    • Enrico, doubled ROE from
      • 17% in 1996 to 30% in 2000
  • 8. Industry Overview
    • Beverage Industry transformed between 1996 – 2000.
    • The non-carbonated drink market grown over 62% during that time frame.
    • Soft drink Market fell from 71.3% to 60.5%.
  • 9. Marketing Campaign for Soft Drinks
    • 1996 – 2000 Pepsi had aggressive and exciting campaigns
    • In stores Pepsi wanted Frito Lays and Pepsi products side by side
    • Summer of 2000, coke launched a failed advertising campaign
  • 10. Is it Coke or PepsiCo?
    • Tropicana?
    • Dasani?
    • Nestea?
    • Gatorade?
    • Starbucks Frappuccino?
  • 11. Market Share Battle
    • Coke – 35.7%
    • Minute Maid – 16.9%
    • Dasani – 11.8%
    • Nestea – 9.5%
    • Powerade – 14.7%
    • Frozen Drink – 0%
    • Pepsi – 34.7
    • Tropicana – 44.7%
    • Aquafina – 14.9%
    • Lipton – 21.7%
    • Gatorade – 84.7%
    • Starbucks Frappuccino – 85%
  • 12.
    • Q. What is EVA?
    • Focuses on managerial effectiveness in a given year.
    • A firm adds value when its ROIC is greater than its WACC.
    • If WACC exceeds ROIC, then new investments in operating capital will reduce firm’s value.
    • Estimate of a business’s true economic profit for the year.
    • Represents residual income that remains after cost of capital has been deducted.
    • Measures the extent firm has increased shareholder value.
    Economic Value Added (EVA)
  • 13. Weighted Average Cost of Capital (WACC)
    • Q. What is WACC?
    • The current weighted average cost a company faces for new or marginal dollar of capital.
    • It is not the average cost of dollars raised in the past.
    • Percentages of each capital component should be based on management's target capital structure.
    • Weights used in estimating the WACC should be based on market values, not book values.
    • Weights used in calculating WACC should also be based on expected future weights, which are the firm's target weights.
  • 14. Net Operating Profit after Taxes (NOPAT) $4,797 $4,470 $3,956 Total (2,131) (1,957) (1,738) Cash Taxes 295 295 295 Goodwill Amortization $6,633 $6,132 $5,399 Operating Income 2003 2002 2001
  • 15. Invested Capital Loans and notes payable Current portion of long-term debt Long-term debt Deferred taxes Total equity line Accumulated losses Accumulated goodwill amortization (Marketable securities) Total Invested Capital
  • 16. Return on Invested Capital (ROIC)
    • One method to determine whether growth is profitable.
    • Ratio of NOPAT to total operating capital.
    • Performance measure that indicates how much NOPAT is generated by each dollar of operating capital.
    • If ROIC is greater than the rate of return investors require, which is WACC, then the firm is adding value.
    27.7 26.04 23.5 2003 2002 2001
  • 17. Economic Value Added (EVA) $3,254 $3,020 $2,612 2003 2002 2001
  • 18.  
  • 19. Net Operating Profit after Taxes (NOPAT) $2,579 $2,436 $2,082 Total (1,504) (1,245) (1,142) Cash Taxes 295 295 236 Goodwill Amortization $3,788 $3,386 $2988 Operating Income 2003 2002 2001
  • 20. Return on Invested Capital (ROIC)
    • One method to determine whether growth is profitable.
    • Ratio of NOPAT to total operating capital.
    • Performance measure that indicates how much NOPAT is generated by each dollar of operating capital.
    • If ROIC is greater than the rate of return investors require, which is WACC, then the firm is adding value.
    14.72 13.29 13.11 2003 2002 2001
  • 21. Economic Value Added (EVA) $1,177 $969 $811 2003 2002 2001
  • 22. Questions??
    • ????