Coke Vs Pepsi 092506

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From one of my many courses at Ohio Dominican University.

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Coke Vs Pepsi 092506

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

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