Coke Vs Pepsi 092506

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From one of my many courses at Ohio Dominican University.

Text of Coke Vs Pepsi 092506

  • 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 operationsTo an independent public company .

7. Company Background: TheNewPepsiCo

  • 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 1996to30% 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 firms value.
  • Estimate of a businesss 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??

  • ????