Senior Project Analyst Report


Published on

  • Be the first to comment

  • Be the first to like this

Senior Project Analyst Report

  1. 1. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Additional Disclosures at the end of the Appendix section of the report. PEPSICO, INC (NYSE: PEP) SECTOR: CONSUMER STAPLES DATE: 5/2/2014 EPS(net) 2012 2013 2014 Est 2015 Est Quarter 1 $0.71 $0.69 $0.79 $0.85 Quarter 2 $0.94 $1.28 $1.25 $1.36 Quarter 3 $1.21 $1.24 $1.35 $1.40 Quarter 4 $1.06 $1.12 $1.30 $1.28 Fiscal Year $3.92 $4.32 $4.69 $4.89 P/E 17.3x 19.2x 18.67x 19.4x Company Rating Sector Rating Risk HOLD FAIR MEDIUM Recommendation Hold Industry Food/Beverages Current Price $85.52 2014 Price Target $87.57 Company Historical Initiating Coverage on PepsiCo, Inc. at the current market price of $85.52 as of 5/2/2014. Highlights: 1. We issue a Hold recommendation with a target Price of $87.57. 2. Solid 2013 year earnings meeting all financial targets with increase in cash flow, organic revenue growth and productivity savings. 3. We expect strong top line sales for 2014, and with continual sales growth in the range of 0.3% to 9.6% for years 2015 to 2024. 4. Increasing growth potential in emerging markets and consistent buybacks and dividends produce great financial position as well as growth opportunities. Main Driver Strength in emerging markets, with increased investment and penetration allows PepsiCo to build strong brand and growth opportunities. Main Risk Weak and shrinking sales in carbonated soft drinks sector. Ability to adapt and hedge against the changing taste in carbonated soft drinks is questionable. Future Goals Focusing core business strategy on emerging markets growth, cost cutting and providing innovative healthy product offerings. Sales Strong sales in Frito Lay snacks business both in developed and developing markets. Relatively flat sales in global beverage due to the continuation of weak sales in North America beverages. EPS Growth PepsiCo’s current EPS growth is based on Frito Lay snacks business unit, developing markets strength, increasing dividends, and share buybacks. 52 week range $77.01-$87.06 Avg. Volume 5.44M Market Cap $129.67B Shares Outstanding 1.52B Dividend Yield 3.01% Valuation(range) Monte Carlo Sim Cost of Equity 3.82 – 9.93% Beta 0.59 – 0.74% Risk Premium 2.45 – 9.55% Risk Free Rate 0.13 – 3.74% Terminal Growth 1.00 – 1.25% Projected Avg. Sales Revenue 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 B = Billion 68.9B 72.7B 76.6B 80.7B 85.0B 89.6B 94.4B 99.5B 104.8B 110.4B
  2. 2. Company Profile PepsiCo Inc. HQ Purchase, NY Primary Industry Snacks & Beverages CEO Indra Nooyi Exhibit 1: Sales Revenue in Products and Geographies Exhibit 2: Sales Revenue & Growth % Breakdown Business Description: PepsiCo, Inc. is a leading company within the consumer staples sector that produces and sells food, snacks, and beverages on a global basis. In 2012, PepsiCo owned 22 brands that each generated $ 1 Billion or more in annual retail sales. Some of company’s signature snack brands include: Lay’s Ruffles, Doritos, Cheetos, Quaker Oatmeal; its beverage portfolio includes Pepsi, 7up, Mountain Dew, Tropicana, Aquafina, and other beverage products. As of 2013, the food snacks portfolio generates 52% of the company revenue, while the other 48% is generated by its beverages portfolio. Snacks business generates 66% of growth in company while beverages generate 33% growth. U.S. and other developed markets account for 65% of sales while the developing/emerging markets account for 35%. In terms of growth, 66% is generated by developing/emerging markets and 33% is in developed markets. Company is evenly split with 51% of net revenue coming from outside U.S. and 49% within U.S. Sales Performance: PepsiCo consists of 3 business units with six global segments: PepsiCo Americas Food (PAF) which includes Frito Lay North America (FLNA), Quaker Foods North America (QFNA), and Latin America Foods (LAF); PepsiCo Beverages America (PAB) which includes all of its businesses in Europe and Asia, Middle East, and Africa (AMEA). In 2012, net revenues were represented by the following in percentage, PepsiCo Americas Food (PAF) 37%, PepsiCo Beverages America (PAB) 33%, PepsiCo Europe 20%, and PepsiCo AMEA 10%. The following is a chart in terms of sales performance of 2012 FY vs 2013 FY in segments. We continue to see strong growth in the foods/snacks business and markets outside of U.S. especially Latin America and AMEA(Asia, Middle East, and Africa) markets, while the beverages continues to shrink due to its weakening sales in the carbonated soft drinks business (CSD). Organic Revenue Growth within Global Segments FY 2012 FY 2013 PepsiCo Americas Food 7% 7% Frito Lay North America 4% 4% Latin America Foods 14% 13% Quaker Foods North America 1% -0.5% PepsiCo Beverages 1.5% -1% Europe 4% 3.5% Asia, Middle East, & Africa 10% 11% Overall 5% 4% Sales Revenue within Global Segments FY 2011 FY 2012 FY 2013 Frito Lay North America $13.32B $13.57B $14.12B Latin America Foods $7.15B $7.78B $8.35B Quaker Foods North America $2.65B $2.63B $2.61B PepsiCo Beverages $22.41 B $21.40B $21.06B Europe $13.56B $13.44B $13.75B Asia, Middle East, & Africa $7.39B $6.65B $6.50B Overall $66.50B $65.49B $66.41B
  3. 3. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibit 3: Three Different Brand images Fun-For-You Better-For-You Good- For – You Exhibit 4: PepsiCo Products Globally Company Strategy: I. Brand Restructuring – build healthy brand image PepsiCo played its brand strategy as its forefront in catering to the global changing trend of health aware consumers by creating new innovative products as well as brand restructuring. Its brands are segmented into three different brand images: Fun- for- You, Better- for – you, and Good – for – you.The Fun – for – you brand includes treats and snacks that are beloved and are core of PepsiCo. Its Better-for – you brands are low fat snacks, whole grains snacks, beverages with fewer or zero calories and less added sugar. It’s Good- for- You portfolio is comprised of nutritious foods and beverages, products with fruits, vegetables, low fat dairy, nuts, seeds and nutrients with levels of sodium, sugar, and saturated fat in line with dietary recommendations. II. Emerging and Developing Markets Growth Potential – grow market share PepsiCo has continued its aggressive investments in emerging and developing markets. As of 2012, PepsiCo was #1 food and beverage business in Russia, India, and Middle East. And #2 food and beverage business in Mexico, and top 5 food and beverage businesses in Brazil, Turkey and many other markets. Latin America delivered 13% organic revenue growth, with net revenue increased by 7% in 2013. In January 2014, PepsiCo announced its plans to spend $5 billion in the next 5 years in Mexico toward brand building, expanding products, production capacity and infrastructure. AMEA (Asia, Middle East, Africa) has delivered great growth as well, in 2012 and 2013; organic revenue grew by 10% and 11% respectively, with PepsiCo making deals with Suntory Holdings Limited and Tingyi Asahi Beverages Holding Co. Ltd, opening doors to efficient bottle refranchising and distribution in Vietnam and China markets. On Feb 27, 2014, Shanghai Disney Resort announced a multi-year strategic alliance with PepsiCo, Inc. and Tingyi Holding corp. which recognized PepsiCo and Tingyi Holding as the primary beverage suppliers to the resort. Moreover, in Nov 2013, PepsiCo announced that it will invest $5.2 billion in India by 2020 to increase its manufacturing capacity and innovation of products. In detail, PepsiCo has created new products to its portfolio catering to regional preference and taste. For example, in 2012 and 2013, PepsiCo added Gatorade grapefruit drink, Lipton milk tea, Mirinda plum and peach flavors, and also Sha La Cui, a new chip product that tastes like baked salad, all catered toward the Chinese market. PepsiCo in 2014 will continue to innovate new products and increase its diversified portfolio to cater to the changing international taste. Global Sales Revenue Comparison Sales Revenue FY 2012 FY2013 United States 33.34B 33.62B Russia 4.86B 4.90B Mexico 3.95B 4.30B Canada 3.29B 3.19B United Kingdom 2.10B 2.11B Brazil 1.86B 1.83B All Other Countries 16.07B 16.38B Total 65.49B 66.41B
  4. 4. Exhibit 5: Net Change in Cash Graph Exhibit 6: Dividend Payout Ratio Graph Exhibit 7: Common Shares Outstanding Industry Leaders Comparison REV MCAP NOI PepsiCo, Inc. 66.4B 132.1B 6.7B The Coca Cola Company 46.8B 179.6B 8.5B Dr. Pepper 5.9B 11.1B 624M REV = Sales Revenue MCAP = Market Capitalization NOI = Net Income III. Cash Flow, dividends, share buybacks – creating shareholder value - PepsiCo is a company that values its shareholders immensely. It prides itself in creating value for the shareholder by increasing cash flow, growing dividends and repurchasing share buybacks from year to year. PepsiCo increased in 10 percent in 2013 to $8.2 billion and expects free cash flow to about $10 billion in 2014. Of the last 20 years, only four of the years, the company came in with negative net change in cash flow. The good cash flow generated from operations, investing and finance allows the company to invest in long term capital and make big investments. The company is also strongly committed in increasing dividend payout and share repurchases, consistently high levels. Management: PepsiCo, Inc. currently has 30 executive officers on its core leadership management team. Management team is led by the company’s Chairman & Chief Executive Officer, Indra K. Nooyi. Indra K. Nooyi has held the CEO position since 2006 and the role of Chairman since 2007. Moreover, Nooyi has had extensive experience with the company. Since 1994, Nooyi has worked in various functions including: Strategic planning, corporate strategy and development, finance, business process optimization, information technology and investor relations. She understands and knows the business. Zein Abdalla, president of PepsiCo, assumed this role in 2012, and has been with the company since 1995. Abdalla, overlooks all of PepsiCo’s global category groups, operations and marketing services and category strategies. His focus is to work with geographic business segments to create innovation and build brand while significantly reducing cost within the process. Hugh F. Johnston, executive vice president and Chief Financial Officer, assumed this role since 2010, and has been with the firm since 1987. Johnston is responsible for strategic financial leadership, ensuring the company’s capital structure, financial systems and financial models are in line with company’s strategy. Industry Overview: Industry Characteristics: PepsiCo, Inc. operates in the Food and Beverages industries. The global food and beverage retail industry has continued significant growth over the last five years and is expected to continue, reaching approximately value of $5,776 billion dollars in 2017 with a compound annual growth rate of 5% over the next five years. The global beverage market is divided between alcoholic and non-alcoholic. Beverages Industry Key Trends: Beverage – The market is flooded with innovative products which lead to the global beverage industry’s highly competitive nature. Customer loyalty is vital to the industry’s growth and to attain this, companies constantly need to develop innovative high quality products that satisfy customers taste. PepsiCo only offers non-alcoholic products. Their beverages products are diversified including: bottled water, juice, regular coffees, dairy drinks, energy drinks, sports drinks, soft drinks and others. Soft Drinks Industry is separated into mature developed markets where growth is flat and developing markets where growth still exists. Bottled water continues to show great strength in growth with projected growth rate of 5.4% in volume terms this upcoming year. Energy drinks have also shown great prospects with average growth in the past 5 years being 10% per year. Key Industry Players: The Coca Cola Company, with its main strength in its Coke product and most recognized brand name in the world and Dr. Pepper Snapple Group, prides itself in diverse portfolio of CSD and non CSD products including brand names such as 7-Up and Snapple.
  5. 5. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibit:8 Industry Leaders North America Market Share Beverages Snacks PEP Key Mergers & Acquisitions 2006 - IZZE Beverage Company ACQ 2007 - Naked Juice Company ACQ 2009 - Calbee Foods Strategic Alliance 2010 - Wimm-Bill-Dann ACQ 2011 - Tingyi Holding Strategic Alliance 2012 - Diamond Star Agreement 2013 - The Müller Group JV ACQ = Acquisition JV = Joint Venture Innovative Products: Within the food and beverage industry, it is very important to constantly produce new and trendy products that consumers like. Companies that are able to produce new and innovative products that consumers like are able to build brand loyalty and are more likely to be industry leaders. In 2013, PepsiCo was able to release four new products, Mountain Dew Kick Start, Gatorade Frost Glacier Cherry, Starbucks Iced Coffee, and Lipton Pureleaf; each individually achieved $100 million in sales. Currently, PepsiCo has been in efforts of releasing three types of Pepsi-Cola products made with real sugar. The three offerings: “Pepsi Made with Real Sugar”, in its original, vanilla and cherry flavors. The Coca Cola company also released Diet Coke Frost, a new product as low calorie frozen carbonated beverage, and also Coca Cola Life, coke that made with a blend of sugar and stevia, as opposed to artificial sweeteners. Recently, the Coca Cola company released a new Sprite 6 Mix, a limited flavor of cherry and orange taste. Companies need to constantly create innovative products to appeal to the ever changing consumer taste. Aggressive Advertisement/ Efficient Pricing: Marketing is an essential investment in growing and sustaining the consumer market especially when introducing new products into the market. All major industry players are at the forefront with marketing and advertising. PepsiCo with its heavy investments in 2014 Super Bowl celebrations ads, and holding Ad campaign contests including “Create to Celebrate” a Black history month art contest. Whereas, Coke has recently partnered as the main drink provider with 2014 Winter Olympics and the upcoming 2014 FIFA World Cup this summer. Companies in the beverage industry also are very diligent in their competitive pricing strategy against their competitors, where all their products act on very small margin, therefore it is essential for them to get the least cost of goods possible and selling it at the highest price they can in comparison with their competitor. Supply Chain Management: In the food and beverages industry, it is essential to have an effective and efficient supply chain between company and third-party companies such as beverage bottlers. Industry leaders are able to create supply chain networks that can help company generate great productivity savings. PepsiCo is expected to generate $5 billion dollars in savings from 2015 to 2019. While, Coke’s “2020 vision” plan is expected to save $1 billion through its supply chain in the next two years. In more detail, for example, PepsiCo is plans to invest in 1 self-manufacture plant versus the usage of eight to ten distribution centers lessens vehicle, fuel, transportation, and other overhead costs that it takes in the process. Companies who have an integrated supply chain network definitely have an upper hand within the industry. Barriers to Entry: In the food and beverage industry, it is hard for new companies to create a well- established brand name for themselves. For a company to be successful in this industry one must have quality and innovative products that have consumers recognize. It is all about the brand loyalty. For industry leaders like the Coca Cola Company, PepsiCo, and Dr.Pepper, they are all big well established companies that have been in the industry for a long time and basically control this industry. These industry players analyze consumers’ habits in great detail, and have dedicated departments looking for the next big consumer trend in developing their next innovative product. For a newly established company in this industry, it is hard; it must compete against the big industry leaders for consumer attention. Mergers & Acquisitions: M&A is key trend within the food and beverage industry, as big industry leaders are constantly looking for innovation, and most often coming from smaller companies to acquire. Some of the key PepsiCo, Inc. recent M&A and JV include: Izze Beverage Company (2006), Naked Juice (2007), Wimm- Bill-Dann (2010), Tingyi Holding (2011), Diamond Star (2012), The Müller Group (2013). These partnerships and acquisitions have enhanced PepsiCo’s product portfolio as well as gain advantages such as international growth and efficient distribution channels.
  6. 6. PROS: Dividend Aristocrat Productivity Savings Strength in Snacks Business Strength in Emerging Market CONS: Slowing sales in CSDs QUESTIONABLE: PepsiCo Split Up Exhibit 9: Annual Cash Dividends Exhibit 10: Productivity Savings Investment Summary: PepsiCo, Inc. is currently trading at a fair valuation compared to historical averages. We issue a HOLD recommendation for PepsiCo because we have a target price of $87.57 and the share price currently is hovering around $ 85. And for a number reasons listed below, PepsiCo is a good company to hold in any diversified portfolio as of right now. Strong Commitment to Shareholder Value/Dividend Aristocrat: Company is a cash dividend company that values its shareholders, as it looks to increase its dividends and share repurchases in 2014. The company has announced a 15% increase from 2013 annual dividend of $2.27 per share to $2.62 per share. This marks the 42nd consecutive annual increase in dividends per share. Moreover, it will also increase its share repurchases program from 2013 of 3 Billion to 2014 of approximately 5 billion. Commitment to Productivity Savings/Cost Cutting: Company is unleashing and extending their $ 1 billion annual productivity savings target through 2019. PepsiCo seeks to improve productivity by focusing on automation, shared services, restructuring manufacturing, and restricting global transportation management system. (i.e., capital reduction, less usage of trucks and fleets, fuel & inventory reduction.) Strong Sales in Snacks Business: PepsiCo’s Frito Lay division continues to lead the company with great growth. In the recent fourth quarter of 2013, PepsiCo’s snacks division volume grew 3% and brought in $7.9 billion in revenue. And in third quarter of 2013, snacks division posted 7% organic revenue growth including 5% revenue growth in the Frito – Lay division. The snacks business as noted earlier generates 66% growth of PepsiCo overall. We believe that this will continue to be the forefront driver in leading PepsiCo, as Frito Lay is one of the most well-known and recognizable snack brands. Strength in Emerging Markets/Diversification of Products: PepsiCo continues its strong performance in emerging markets. The heavy investments in India, Asia, and Russia, are showing promising results in these key markets. There is still a lot of room for PepsiCo to grow in these countries, and being able to leverage themselves with their promising snacks brands in these countries such as India and China will be key. Moreover, we believe that PepsiCo’s diversification in their products selections with both snacks and beverages (i.e., juice & water brands) will help them succeed in the emerging markets. Slowing Sales in Carbonated Soft Drinks Industry: Key risk when looking at the PepsiCo, as the consumption of CSDs continues to decline. Since 1998, the per capita consumption of CSD dropped from 54 gallons to today’s figure of 44 gallons a year, and the consumption of CSDs is forecasted to drop significantly in the next five years. With the continuation of increasing awareness of consumers about negative health impact of CSDs and also regulations put forth on unhealthy snacks and soda, we would expect to see the numbers and sales in CSD for PepsiCo to continue to decline in growth. However, we should pay close attention to the new products that PepsiCo has stated that it will release as natural sweeteners products, if consumers will react positively to these new products, we may see flat to low single digit growth for PepsiCo in the CSD market again. Active Investor wants Split Up: Throughout 2013 until now, Nelson Peltz, owner of $1.2B common shares of PepsiCo has been on the forefront of pushing for separation of snacks and beverages into two independent entities which he argues would create more shareholder value. On the other hand, board of directors and mgmt. have argued the company to stay as “one”. We believe, if there was a split-up, it would not happen anytime soon, at least not within the next one or two years. Nextly, we believe that a split up will not be a good long term goal. A unified company with snacks and beverages complement one another for the average consumer.
  7. 7. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO CAPM Legend = risk free rate (yield curve) = beta of PepsiCo ( ) = risk premium = epsilon of PepsiCo PepsiCo, Inc. Target Prices PCTL DCF RI 20% $68.87 $70.64 25% $71.09 $73.05 30% $73.20 $75.34 35% $75.47 $77.46 40% $77.77 $79.67 45% $79.90 $81.94 50% $82.10 $84.25 55% $84.75 $87.04 60% $87.57 $89.93 65% $90.32 $93.10 70% $93.60 $96.76 75% $97.78 $101.0 80% $103.0 $106.0 ( ) Valuation: Two detailed valuation models were constructed to value PepsiCo, Inc. and they are: Discounted Cash Flow & Residual Income. Residual income model values the firm from today’s common equity plus the Present Value of future Residual Income. Discount Cash Flow Model values the firm from today’s common equity plus the Present Value of future Free Cash Flow. Pro-Forma Financial Statement: Based on PepsiCo, Inc. for being an industry leader in the consumers staples industry since 1965, the model assumes constant growth within range, which means that we have omitted all outlier years or years with extreme high or low growth. Sales Growth Forecast: The sales growth is the most important, and first line of financial statement variables. We looked at the historical 20 years (1993 – 2012) sales revenue growth, and believe it was adequate to use Min 0.3%, Avg 6.2%, and Max 9.6%. Other Forecast Estimates: Forecasts of other financial statement items are based on their historical value and relative relationship to sales growth. (i.e., cost of goods sold as percentage of sales revenue). Moreover, for each financial statement item, Min, Avg, and Max are provided with forecasted estimates. Terminal Growth Forecast: The terminal sales growth is assuming top line sales to grow into infinity; therefore, using a rather conservative estimate is a good decision. A small change in estimate will have a big effect on our valuation. In the historical 20 years, company grew at 2% from 25 Billion to 65Billion in sales revenue. Given our current market conditions and saturated market in both U.S. and emerging market with more competitors, we believe a range of 1 to 1.25% terminal growth is reasonable. Cost of Capital/ Discount Rate: Both models require an appropriate estimate of cost of equity to effectively value PepsiCo, Inc. The capital asset pricing model (CAPM) as shown in the following equation is main model to calculate discount rate for our model. Beta, risk premium, and epsilon are all simulated values using triangular distribution based on CAPM input assumption estimates. The only variable not simulated is our risk free rate. All cost of equity calculations and assumptions are shown in (appendix IV). Target Price: We arrived at our average target price of $82.10 and $84.75, with discounted cash flow and residual income model respectively. We also believe that PepsiCo, Inc. price will likely fall between 35 – 65 percentiles which is range of $75.47 - $ 90.32 for the 52 week range going forward. The free cash flow to common equity and residual income calculations are shown in appendix 5 and 6). (Valuation- Appendix 2-6)
  8. 8. Exhibit 11: PepsiCo, Inc. Gross Profit & Sales Revenue(Net) Comparison (1993- 2013) Exhibit 12: PepsiCo, Inc. Sales & Cost of Goods Financials (2008 – 2013) Exhibit 13: Current Ratio & Quick Ratio Comparison (1993 -2013) Exhibit 14: Operating Cash & Market Securities(1993- 2013) Financial Analysis: Increasing Profit PepsiCo, Inc. has proven its ability to increase its profit. PepsiCo is a profitable company. And it is forecasted to continue its profitable trend going onward. Key findings including: PepsiCo’s top line sales have increased from 43 billion in 2008 to 66 billion now which is a 53% increase. Similarly, it has also grown its gross profit dramatically within the five years from 24 billion to 37 billion now which is a 55% increase. PepsiCo has proven to grow their sales through careful management and knowing what consumers want. The company also focuses itself on effective cost-cutting. Key Financial Ratios: PepsiCo, Inc. key profitability ratios show that is a company profitable among its peers in the industry. Return on equity 28.7%, net profit margin 10.14%, return on assets 8.86%, return on investment (TTM) 14.70%. Liquidity: A company’s financial ability to pay off short term and long term debt is a key consideration in looking when valuing a company. PepsiCo, Inc. in terms of its liquidity and ability to pay off debt is in its moderately fair range. Mainly, company is able to meet its short-term obligations with good current ratio and quick ratios; however the downfall is that the company holds too much long term debt. Short Term Obligations: Since 2011, PepsiCo has improved its current ratio and quick ratios substantially to current levels of 1.24 and 0.93 respectively. Both ratios look at the components of current assets against the current liabilities. This shows that PepsiCo is improving its liquidity position which is good, financially prepared in terms of market downturns. Long Term Debt to Capital Structure: PepsiCo, Inc. has held a more leveraged position since 2006, borrowing more long term debt for financing, and has increased their debt to equity ratio dramatically from 0.16 to 1.40., which is now slightly above the industry average, but still fairly in sync within the consumer staples sector. Good Cash Flow: Holding a good amount of cash and having efficient cash flow is good for any operating business. PepsiCo, Inc. is strong in holding vast amount of Operating Cash and Market Securities, and has grown this asset account on the balance sheet to its current new high of 9.68 billion. Moreover, as mentioned earlier, the firm has a positive annual net change in cash. Intangibles/Value: PepsiCo, Inc. is a big global food and beverage company with many different patents and valuable reputational brands. Therefore, the intangible account is a big part of the firm’s balance sheet. Since the year of 2010, there has been a huge jump in intangibles growth making its current intangibles value to be at its company’s highest level. The intangibles value on the balance sheet justifies that the company has a very well-known brand and is a company that creates value for shareholders. Moreover, key acquisitions and partnerships including Wimm- Bill-Dann and Tingyi Holding Company, in 2009 and 2010 is justifiable in creating the huge spike in intangible value. Turnover Ratios: In order to understand how effective a company is in generating sales compared to its input variables, different ratios such as net operating asset, working capital, PP&E turnover ratios are used. PepsiCo, Inc. in recent trends have underperformed in all three of these ratios showing slightly below company historic average levels, showing that company can improve on its efficiency in terms of generating sales from its assets, working capital(current money available for immediate usage), and long term plant property and equipment investments. The company management has certainly made note of these low and decreasing ratio levels, as they have pin-pointed cost cutting and making productivity more efficient to be a key business strategy going forward. (Financial Analysis – Appendix 7)
  9. 9. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Key Investment Risks: All companies face various risks. In order to truly value PepsiCo accurately, it is essential in understanding the various risks that the company faces. The following are key risk factors that affect PepsiCo, Inc. Macroeconomics Risks – Moderate - PepsiCo is a global company that operates in many different countries, unfavorable economic conditions including: adverse changes in interest rates, volatile foreign exchange markets, and commodity markets will have major financial effects on the company. Interest Rates: PepsiCo uses various interest rate derivative instruments to hedge and manage their interest expense and foreign exchange risk. Therefore, an increase in interest rate will have adverse results in increasing company’s net interest expense. In 2014, interest rates are expected to rise, as the economy grows and unemployment rates decrease. We believe that there is more upside in the interest rates rising, which will cause borrowing to be more costly. Foreign Exchange: PepsiCo operates on a global scale, as 49% of the company’s net revenue is earned outside of the U.S. (Russia, Mexico, UK & Brazil accounts for 25%). This makes the company susceptible to currency exchange risk. In early 2013, the devaluation of the Venezuelan Bolivar had major negative effects on the 2013 first quarter financials. The devaluation of the Venezuelan Bolivar from 4.3 VEF/USD to 6.3 VEF/USD had depreciation effects of $111 million dollars. However, we believe that PepsiCo is prepared, as other currencies that the company operates in will offset the depreciation effects, moreover company also uses foreign currency derivatives to hedge against currency risk. Commodity Prices: PepsiCo utilizes vast amount of raw materials and goods including: sugar cane, corn, wheat, rice, oats, potatoes, and various fruits to produce their products, making them susceptible to changes in commodity prices. We expect commodity prices to inflate in 2014 due to the economy growing again; prices of commodity are going to rise. PepsiCo is prepared for the commodity price inflation. The company uses hedging strategies such as derivatives with short term contracts of less than 3 years to economically hedge price fluctuations related to metals, energy, and agricultural products. We also expect the company to increase prices of products to offset this commodity price inflation. Market Risks – Moderate Changing Consumer Taste/Health Awareness: One of the increasing trends within the soft drinks industry is the changing preference of consumers. As obesity and health issue continues to be a concern globally given USA and Mexico are the two top countries with obesity problems, they are also two key markets to PepsiCo. Recent quarter sales have shown the decline in CSD volume continues, and it is affecting all the major companies in the industry including Dr. Pepper & Coca Cola. PepsiCo has been on the forefront of this problem, by diversifying its portfolio of products and innovation of new products with stevia and aspartame replacing sugar. Regulations/ Mexico Taxes: Regulations will continue to play a key risk in the snacks and soft drinks industry. Regulations in the recent years have increased in its efforts in trying to limit consumption of sweetened drinks and snacks. In October 2013, Mexico regulators passed a tax excising 1 MXN per liter on sugary drinks and 5% tax on snack foods. We believe that it will have negative effects on Latin America sales volume, but the growth potential in this region is so high, it will offset the cons of the taxes. Going onward, we will see more progression in regulations; however, we believe that the company has diversified itself well enough, outside of sugary drinks and unhealthy snacks that it has hedged against this risk fairly well.
  10. 10. Current Analyst Research Notes and other Company News: May 6, 2014: PepsiCo Inc. declares a 15 percent increase in annual dividend, from an annual rate of $2.27 to $2.62 per share on common stock. Payable on June 30 to shareholders of record as of June 6. May 5, 2014: PepsiCo, Inc. and The Coca Cola Company have announced to remove controversial ingredient called brominated vegetable oil from their drinks. As ongoing petitions and advocacy has pressured both companies to do so. The BVO ingredient is currently used in Mountain Dew, Amp energy, and Gatorade products. April 8, 2014: PepsiCo, Inc. plans to release three types of Pepsi-Cola sweetened with real sugar and not with high fructose corn syrup. They will be marketed as “Pepsi Made with Real Sugar”, coming in three flavors: original, vanilla, and wild cherry. April 7, 2014: Cheetos and Doritos, two of PepsiCo’s Frito- Lay division are releasing a new snack mix called “Cheetos Flamin’ Hot/Doritos Dinamita Chile Limon Mix” which is a one of a kind snack mix combining Cheeto’s Flamin Hot snacks with Doritos Dinamita Chile Limon snacks. April 4, 2014: PepsiCo, Inc. reported 2014 first quarter earnings with $12.6 billion in first quarter, ahead of analysts’ estimates of $12.4 billion. Net income was up 13% to $1.22 billion and earnings per share came in at 79 cents; 10 cents per share higher than a year earlier. Still maintaining its forecast for the year and expects organic revenue to rise by mid-single digit percentage this year. April 2, 2014: PepsiCo, Inc. and Major League Baseball Properties agree on a multi-year extension of their sponsorship agreement, building on the over 15 year partnership. February 27, 2014: Shanghai Disney Resort announced a multi-year strategic alliance with PepsiCo, Inc. and Tingyi Holding Corp., which recognizes PepsiCo and Tingyi Holding as the primary beverage suppliers to the resort. February 13, 2014: PepsiCo, Inc. reported 2013 fourth quarter earnings with $20.12 billion and $66.4 billion for the 2013 full year. The company also posted $1.05 per share, $0.04 ahead of analysts’ expectations. Strong performance from Frito Lay North America of 4% organic revenue growth, and developing and emerging markets also showed strength with 10% organic revenue growth. Disclosure Notice: I, Hubert Lo, hereby certify that the analysis provided in this assignment reflects my personal opinion about PepsiCo, Inc. Neither my compensation, nor my academic performance will be directly or indirectly enhanced by the opinions outlined above.
  11. 11. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO APPENDIX SECTIONS -Valuation- Appendix 2: Sales Growth Forecast Assumption: The sales growth is the most important, and first line of the financial statement variables, because it has a trickle-down effect on every financial statement item. Therefore, it is essential and look at this item in detail. I created graph of sales growth for the past twenty years (1993 – 2012), the outlier years of high sales growth and low sales growth were omitted, (1994, 1997, 1999, 2002, 2010, 2011, 2012). The min, average, and max were used for sales growth forecast estimates after omitting outliers. Min 0.3%, average 6.2%, maximum 9.6%. Appendix 3: The following is the Pro-forma Assumptions used in DCF and Residual Income Valuation: Minimum Average Maximum Income Statement Assumptions Sales Growth 0.3% 6.2% 9.6% Cost of Goods/ Sales 40.0% 41.2% 42.2% R&D/ Sales 0.5% 0.8% 1.0% SG&A/ Sales 35.2% 37.2% 39.4% Dep & Amort/ Avge PP&E and Intang. 7.5% 8.2% 8.8% Net Interest Expense/ Avge Net Debt 5.0% 6.8% 7.9% Non-Operating Income/Sales 0.1% 0.6% 1.3% Effective Tax Rate 23.0% 26.0% 30.5% Minority Interest/After Tax Income 0.3% 0.5% 0.6% Other Income/Sales 0.0% 0.0% 3.1% Ext. Items & Disc. Ops. Sales 0.0% 0.0% 0.0% Pref. Dividends/ Avge. Pref. Stock 0.0% 0.0% 0.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 1 3 5 7 9 11 13 15 17 19 Sales Growth(1993 - 2012) Sales Growth
  12. 12. Minimum Average Maximum Balance Sheet Assumptions Working Capital Assumptions Ending Operating Cash/Sales 5.2% 7.4% 9.6% Ending Receivables/Sales 10.1% 10.4% 11.1% Ending Inventories/Sales 10.0% 12.5% 13.7% Ending Other Current Assets/Sales 1.9% 2.4% 2.8% Ending Account Payable/Cost of Goods Sold 13.0% 16.0% 20.4% Ending Taxes Payable/Sales 0.5% 1.1% 2.0% Ending Other Current Liabilities/Sales 9.7% 11.4% 13.0% Other Operating Asset Assumptions Ending Net PP&E/ Sales 26.7% 27.8% 29.6% Ending Investments/Sales 9.2% 10.0% 10.9% Ending Intangibles/Sales 20.8% 22.2% 24.5% Ending Other Assets/ Sales 1.5% 3.3% 4.1% Other Operating Liability Assumptions Other liabilities/Sales 10.4% 12.0% 14.0% Deferred Taxes/Sales 4.2% 5.6% 6.7% Financing Assumptions Current Debt/Total Assets 1.5% 1.8% 2.0% Long Term Debt/Total Assets 15.8% 18.6% 23.6% Minority Interest/Total Assets 0.0% 0.0% 0.1% Preferred Stock/ Total Assets 0.0% 0.0% 0.1% Dividend Payout Ratio 34.0% 36.5% 40.0%
  13. 13. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Appendix 4: Cost of Capital Estimation CAPM Model: ( ) Beta ( : The Beta of PepsiCo, Inc. was calculated by finding the stock price of S&P 500 and stock price of PepsiCo, Inc. for the last 20 years into monthly data from (January 1993 to December 2012). Secondly, we then utilize the natural logarithm of the prices to find our returns in monthly data. Thirdly, we use linear regression with X variable as S&P 500 monthly returns and Y variable as PepsiCo, Inc. monthly returns and analysis shows us a beta being 0.67 and standard error of 0.07. The following output is regression analysis of S&P 500 and PepsiCo, Inc. monthly returns: Below are the Beta assumptions inputs into the CAPM model in calculating the discount rate: Beta Assumptions Minimal Average High 0.59 0.67 0.74 Standard Error 0.0741 We simulated the three betas, (min, average, and max), with the triangular distribution, as an input into our capital asset pricing model. Epsilon( : The epsilon term is the residual values component within the regression output, and is component of the Capital Asset Pricing Model that measures the firm’s specific idiosyncratic risk which is also same as the error term in the regression model. We ran a regression model of S&P 500 returns and PepsiCo returns as in the output shown above and calculated the residual values, and for monthly data and sum up the residuals into annual residuals, and omitted outliers and similarly calculated the average epsilon and standard error of epsilon to compute low and high epsilon. Based on this regression model, the epsilon term has little to medium effect on the capital asset pricing model, because the standard error deviation is high. Similarly, we inserted these assumptions following a triangular distribution into our model. Below are the Epsilon assumptions inputs into the CAPM model in calculating the discount rate: Epsilon Assumptions Minimal Average High -3.14% -0.003682% 2.41% Standard Error 2.773%
  14. 14. APPENDIX 4 CONT: Risk Free Rate of Return ( : The risk free rate is theoretical rate of return of an investment with zero risk. We based the risk free rate return using the yield curve from today’s rate (year 1 to year 12) and using 30 year yield rate for our terminal value. We utilized the current yield rates and inputted into our capital asset pricing model. The following is a yield curve as of 3/7/2014. Below are the risk free rate of return assumptions inputs into the CAPM model in calculating the discount rate: Risk Free 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2043 0.13% 0.38% 0.79% 1.22% 1.65% 1.96% 2.27% 2.48% 2.64% 2.80% 3.72% Risk Premium( : The risk premium is the expected return in excess of the risk free rate of return, I gathered the historical 20 year monthly data from January 1993 to December 2013 of S&P 500 Price Close, and Libor Rates close. Then calculated the returns for both S&P 500 and Libor Rates using natural logarithm and compounding methods respectively, and calculated the difference to obtain the risk premium monthly rates. Next, we sum up the monthly risk premium rates into annual basis, and created a graph of the risk premium over the last 20 years. Then we omitted the outlier years and found the minimum, average, and maximum risk premium values with the plus or minus standard deviation as our input assumptions for the triangular distribution that we inserted into our capital asset pricing model. We thought this was adequate risk premium range, because our model is a conservative long run model that is stable, on average risk premium of the past has deviated roughly between 5-7%, and setting our maximum and minimum with the plus or minus calculated 3.55% is reasonable. Below are the risk premium assumptions inputs into the CAPM model in calculating the discount rate: Risk Premium Minimum Average Maximum Standard Deviation 2.45% 6.00% 9.55% 3.55% Exhibit: Yield Curve as of 3/7/2014
  15. 15. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO APPENDIX 4 CONT. Cost of Equity Assumptions: Below are the all assumptions used inputs into the CAPM model in calculating the discount rate: Other Assumptions Minimal Average High Beta 0.59 0.67 0.74 Risk Premium 2.45% 6.00% 9.55% Epsilon -3.14% -0.003682% 2.41% Risk Free Rate Range 0.13% 3.72% Each of the inputs, BETA, Risk Premium, Risk Free Rate are all simulated with triangular distribution to utilize random error and ultimately the average cost of capital (output) is calculated as randomly generated number between the range of 3.82% and 6.47%. (2013 – 2022) Average Cost of Common Equity using Monte Carlo Simulation (10,000 Simulations): 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Average Cost of Common Equity 3.82% 4.06% 4.45% 4.49% 5.31% 5.63% 5.94% 6.14% 6.32% 6.47%
  16. 16. APPENDIX 5: Discounted Cash Flow (DCF) Valuation To effectively value the current price of Pepsi, Co Inc., we utilized both the discounted cash flow model (DCF) and Monte Carlo Simulation in E-Val. Discount Cash Flow (DCF) model values the firm from today’s common equity plus the present value of future free cash flow. Monte Carlo Simulation was also used to incorporate simulation for random errors, allowing for all items of our pro-forma financials to be all random, in consistence with our historical 20 year values. (1993 to 2012). Free Cash Flow to Common Equity Based on simulated cost of equity and terminal sales growth, the eVal model analyzes the forecasted cash flow. The following is a table showing simulation average estimated cash flow of estimated free cash flow to equity for next 10 years (2013 to 2022). 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $6.88 m $7.39m $7.77m $8.23m $8.62m $9.16m $9.60m $10.1m $10.63m $11.26m Average Present Value of Free Cash Flow: 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 $6.63 m $6.81 m $6.85m $6.81m $6.65m $6.59m $6.44m $6.33m $6.18m $6.10m The free cash flows are then discounted and used in calculating PepsiCo, Inc’s price per share. Taking into account of a simulated cost of capital, and simulated terminal growth rate, we discount the present value beyond 10 years and also the present value of the first 10 years, ultimately coming up with a value attributable to common equity in today’s time. This value is then divided by 1.54 million shares outstanding to come up with a forecast price per share. We then run 10,000 trials using the Monte Carlo simulation on the forecast price per share, and the 50th percentile price or fair price value that we come up with is $82.24.The following are exhibits on the 20th percentile to 80th percentile forecasted target prices and also the normal distribution showing the same data.
  17. 17. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO APPENDIX 5 CONT: Valuation (Discounted Cash Flow) Method: We came up with our target price by firstly forecasting the top sales line data and other financial statement accounts. Then analyzed the last 20 years data (1993 – 2012) and omitted the outliers, and pin pointed the minimum, average, and maximum assumptions as mentioned previously. After defining the assumptions in the income statement, balance sheet -working capital, operating capital, operating asset, operating liability and financing. We utilized the triangular distribution function to create randomize values following a triangular shape function within our value assumptions. Next, we ran 10,000 Monte Carlo simulations for the price per share calculated by discounted cash flow. Overall, we believe with our discounted cash flow valuation model that current price of PepsiCo, Inc., $82.15 is trading near its fair value price of $82.10. We have set a price target of $87.57 looking at the value price 60th percentile. We also believe that the range that PepsiCo, Inc. price will likely fall between 35 and 65 percentile which is range of $75.47 to $90.32 for the 52 week range going onward. Percentiles DCF Target Price 20% $68.87 25% $71.09 30% $73.20 35% $75.47 40% $77.77 45% $79.90 50% $82.10 55% $84.75 60% $87.57 65% $90.32 70% $93.60 75% $97.78 80% $103.04
  18. 18. APPENDIX 6: Residual Income Valuation The residual income valuation model is used to find the earnings for a period in excess of investor’s required return on the beginning of period investment (common equity). We use the residual income model to see the amount of income generated by the company taking already into account for the cost of equity capital. Based on simulated cost of equity and terminal growth rate, the following simulated average residual income: Residual Income 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 6.40m 7.69m 8.01m 8.32m 8.66m 9.03m 9.43m 9.86m 10.36m 10.86m The residual income values are then discounted to present time, firstly discounting the present value of the first 10 years (2013 – 2022) and the present value of beyond 10 years. Then, the present value of first 10 years discounted, present value of beyond 10 years discounted, and common equity as of December 31, 2012, the three are added to sum up the value attributable to common equity and divided by 1.54 million common shares outstanding to come up with the forecast price per share using the residual income valuation model. Then we simulated using the Monte Carlo simulation for the forecasted price per share by 10,000 trials, and the 50th percentile price we came up with is $84.25 per share. The following is the normal distribution and percentiles of Residual income target price for PepsiCo Inc. Percentiles RI Target Price 20% $70.64 25% $73.05 30% $75.34 35% $77.46 40% $79.67 45% $81.94 50% $84.25 55% $87.04 60% $89.93 65% $93.10 70% $96.76 75% $101.03 80% $106.04
  19. 19. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO APPENDIX 7: Financial Statement Analysis Profitability Liquidity Ratios
  20. 20. Cash Flow Intangibles Turnover Ratios
  21. 21. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibits Appendix Exhibit 3: Three Different Brand Images: Fun- for- you, good- for- you, better-for-you. Exhibit 1: Sales Revenue in Products and Geographies Exhibit 2: Sales Revenue & Growth % Breakdown
  22. 22. Exhibit 4: PepsiCo Products Globally Exhibit 5: Net Change in Cash Graph Exhibit 6: Dividend Payout Ratio Graph Exhibit 7: Common Shares Outstanding
  23. 23. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibit 8: Industry Leaders North America Market Share Data Source: 2013 Company Annual Report 24% 21% 9% 8%4% 4% 5% 25% U.S. Liquid Refreshment Beverage Category Share % Retail Sales in Measured Channels PepsiCo, Inc. Coca Cola Dr. Pepper Snapple Group, Inc. Private Label. Monster Red Bull Nestle Other 37% 10% 4% 7% 3% 3% 6% 30% U.S. Savory Snacks % Retail Sales in Measured Channel PepsiCo Private Label Kraft Kellogg’s Conagra Synder’s Lance Mondelez Other PepsiCo, Inc. 24.3% Coca Cola 21.1% Dr. Pepper Snapple Group, Inc. 8.9% Private Label. 8% Monster 4% Red Bull 4.2% Nestle 5.2% Other 24.4% PepsiCo 36.6% Private Label 10.0% Kraft 3.6% Kellogg’s 6.9% Conagra 3.3% Synder’s Lance 3.5% Mondelez 5.6% Other 30.4%
  24. 24. Mergers & Acquisitions Timeline 2006 - IZZE Beverage Company ACQ  PepsiCo acquires Izze Beverage Company, an all-natural sparkling juices company. 2007 - Naked Juice Company ACQ  PepsiCo acquires Naked Juice Co., a line of healthful, preservative free juice drinks company. 2009 - Calbee Foods Strategic Alliance  PepsiCo and Calbee Foods Company announce a strategic alliance to make and sell a wide range of food products in Japan. 2010 - Wimm-Bill-Dann ACQ  PepsiCo acquires Wimm-Bill-Dann, Russia’s leading branded food and Beverage Company. 2011 - Tingyi Holding Strategic Alliance  PepsiCo and Tingyi Holding, one of the major food and beverages companies in China, announce an agreement to form a strategic alliance in China. 2012 - Diamond Star Agreement  PepsiCo announces an agreement with Diamond Star, one of the largest consumer packaged goods distributors in Myanmar, to import, sell and distribute Pepsi-Cola, 7-Up and Mirinda. 2013 - The Müller Group JV  Müller Quaker Dairy, a joint venture between PepsiCo and The Müller Group open a new yogurt manufacturing facility in New York.
  25. 25. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibit 9: Annual Cash Dividends Exhibit 10: Productivity Savings Source: company annual report Exhibit 11: PepsiCo, Inc. Gross Profit & Sales Revenue (Net) Comparison (1993- 2013)
  26. 26. Exhibit 12: PepsiCo, Inc. Sales & Cost of Goods Financials (2008 – 2013) Exhibit 13: Current Ratio & Quick Ratio Comparison (1993 -2013) $43.25 $43.23 $57.84 $66.50 $65.49 $66.42 $18.84 $18.60 $24.06 $29.07 $28.80 $28.77 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Last 5 years Sales Revenue & COGS Comparison - billions Sales Revenue Cost of Goods Sold
  27. 27. Cal Poly SMPP ANALYST REPORT ANALYST: HUBERT LO Exhibit 14: Operating Cash & Market Securities (1993- 2013) Exhibit 15: Selected Financial Data Current Ratio Quick Ratio Net Change in Cash (Billion) Dividend Payout % Sales Revenue (Billions) Gross Profit Operating Cash & Marketable Securities (billions) Annual Cash Dividend Shares Oustanding (thousands) 1993 0.785 0.569 29.1% $25.02 $14.18 $1.86 $0.32 798.78 1994 0.962 0.671 (0.368) 31.1% $28.47 $15.96 $1.49 $0.36 789.9 1995 1.060 0.747 0.010 37.3% $30.42 $16.84 $1.50 $0.40 788 1996 1.000 0.643 (0.712) 58.7% $31.65 $17.68 $0.79 $0.46 1545.00 1997 1.468 1.182 2.097 34.4% $20.92 $13.30 $2.88 $3.70 1502.00 1998 0.551 0.360 (2.489) 33.2% $22.35 $14.03 $0.39 $0.52 1471.00 1999 1.102 0.729 0.662 69.8% $20.37 $13.02 $1.06 $0.54 1455.00 2000 1.170 0.795 0.274 36.5% $20.44 $13.32 $1.33 $0.56 1446.00 2001 1.171 0.759 0.319 32.6% $26.94 $17.10 $1.65 $0.58 1756.00 2002 1.060 0.723 0.196 29.4% $25.11 $14.54 $1.85 $0.60 1722.00 2003 1.080 0.753 0.156 30.0% $26.97 $15.61 $2.00 $0.64 1705.00 2004 1.279 0.954 1.444 31.6% $29.26 $16.92 $3.45 $0.92 1679.00 2005 1.111 0.866 1.437 39.2% $32.56 $19.49 $4.88 $1.04 1656.00 2006 1.331 0.954 10.081 32.5% $35.14 $20.56 $2.82 $1.20 1638.00 2007 1.309 0.886 (0.341) 39.0% $39.47 $22.74 $2.48 $1.50 1605.00 2008 1.230 0.792 (0.107) 49.4% $43.25 $24.41 $2.28 $1.70 1553.00 2009 1.436 1.000 1.865 45.9% $43.23 $24.63 $4.14 $1.80 1565.00 2010 1.106 0.799 2.239 47.1% $57.84 $33.78 $6.37 $1.92 1581.00 2011 0.961 0.624 23.601 43.8% $66.50 $37.43 $4.43 $2.06 1564.00 2012 1.095 0.799 2.201 48.3% $65.49 $36.69 $6.62 $2.15 1544.00 2013 1.210 0.86 (1.63) 51.0% $66.42 $37.64 $9.68 $2.27 1529.00 2014F 1.209 0.85 0.253 36.9% $72.70 $42.80 $5.40 $2.62 1510.00 2015F 1.240 0.89 0.350 38.0% $76.60 $45.12 $5.64 $2.78 1485.00