Capstone Case (4pages)

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Read the case carefully, and answer 4 essay questions. Pls meet all the requirements, provide me a quality paper. I have attached the Pepsico Financial Segment Spreadsheet and the pictures of the case, but there is limitation to upload here, so I will upload more when we chat.

Read “Pepsico’s Diversification Strategy in 2015” (In Textbook pp. 377-389)

Complete the PEPSICO Financial Segment Analysis Spreadsheet with your calculations of the indicated (green boxes) financial ratios. Calculate your financial ratios for the spreadsheet from Exhibit 7 in the case (pp. 385) (I completed this Spreadsheet, and attached it below)

Note: There are two tables with calculations, revenue growth and operating margins.

Answer the following questions with short essays (Typed, Double-Spaced, 12pt. Font w/ 1" margins). Please clearly separate and mark each essay:

(1) What is PepsiCo’s corporate strategy? Tie your answer to the types of corporate strategy described in Chapter 8 of the textbook, page 157. How does PepsiCo execute this strategy? Describe PepsiCo’s corporate strategy in terms of their various business segments. (Recommended page length: 1⁄2 to 1 pages)

(2) Conduct a revenue and revenue growth analysis of Pepsico’s 6 business segments. Which of PepsiCo’s business units are the largest? Are these large business units the core businesses of PepsiCo? Which of PepsiCo’s business segments are growing the fastest? Which of Pepsico’s business units growing the slowest? Why? Which business segments require managerial attention, based upon your analysis of revenues and revenue growth? Why? (Recommended page length: 1 to 11⁄2 pages)

(3) Briefly conduct an operating margin analysis of Pepsico’s 6 business segments. Which of Pepsico’s business units has the lowest operating margins? Why? Does your case provide any clues regarding why this unit or units are lagging the rest of Pepsico’s business segments? Based upon your analysis of each business segment’s operating margins, which unit or units appears to require managerial attention? (Recommended page length: 1 to 1 1⁄2 pages)

(4) Based upon your analysis of Pepsico’s revenues, revenue growth and operating margins, what are your conclusions regarding Pepsico’s overall business portfolio? Do you observe any general trends with regards to Pepsico’s overall business? Also, which business units appear to be most in need of managerial attention? Why?

Hint: On page 388 in the textbook, “Pepsico’s Strategic Situation in 2015”, there are clues regarding how to approach answering the above questions.

Unformatted Attachment Preview

Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 SEGMENT REVENUE GROWTH ANALYSIS 2011 2012 2013 2014 Net Revenue Frito Lay North America (millions) Frito Lay NA Actual Frito Lay NA Growth Rate $13.322 $13.32 billion N/A $13.574 $13.57 billion 1,89% $14.126 $14.13 billion 4,07% $14.502 $14.50 billion 2,66% Quaker North America (millions) Quaker NA Actual Quaker NA Growth Rate $2.656 $2.66 billion N/A $2.636 $2.64 billion -0,75% $2.612 $2.61 billion -0,91% $2.568 $2.57 billion -1,68% Latin American Foods (millions) LA Foods Actual LA Foods Growth Rate $7.156 $7.16 billion N/A $7.780 $7.78 billion 8,72% $8.350 $8.35 billion 7,33% $8.442 $8.44 billion 1,10% Pepsico Americas Beverage (millions) Pepsico Americas Actual Pepsico Americas Growth $22.418 $22.42 billion N/A $21.408 $21.41 billion -4,51% $21.068 $21.07 billion -1,59% $21.154 $21.15 billion 0,41% Europe (millions) Europe Actual Europe Growth Rate $13.560 $13.56 billion N/A $13.441 $13.44 billion -0,88% $13.752 $13.75 billion 2,31% $13.290 $13.29 billion -3,36% $7.392 $7.39 billion N/A $6.653 $6.65 billion -10,00% $6.507 $6.51 billion -2,19% $6.727 $6.73 billion 3,38% Asia, Middle East, Africa AMEA Actual AMEA Growth Rate Note: N/A means not available or missing data Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 OPERATING MARGIN ANALYSIS 2011 2012 2013 2014 Operating Margins Frito Lay North America (millions) Operating Income (millions) Operating Margin $13.322 $3.621 27,18% $13.574 $3.646 26,86% $14.126 $3.877 27,45% $14.502 $4.054 27,95% Quaker North America (millions) Operating Income (millions) Operating Margin $2.656 $797 30,01% $2.636 $695 26,37% $2.612 $617 23,62% $2.568 $621 24,18% Latin American Foods (millions) Operating Income (millions) Operating Margin $7.156 $1.078 15,06% $7.780 $1.059 13,61% $8.350 $1.242 14,87% $8.442 $1.211 14,34% Pepsico Americas Beverage (millions) Operating Income (millions) Operating Margin $22.418 $3.273 14,60% $21.408 $2.937 13,72% $21.068 $2.955 14,03% $21.154 $2.846 13,45% Europe (millions) Operating Income (millions) Operating Margin $13.560 $1.210 8,92% $13.441 $1.330 9,90% $13.752 $1.293 9,40% $13.290 $1.331 10,02% Asia, Middle East, Africa Operating Income (millions) Operating Margin $7.392 $1.210 16,37% $6.653 $1.330 19,99% $6.507 $1.174 18,04% $6.727 $1.043 15,50% Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 SEGMENT REVENUE GROWTH ANALYSIS 2011 2012 2013 2014 Net Revenue Frito Lay North America (millions) Frito Lay NA Actual Frito Lay NA Growth Rate $13.322 $13.32 billion N/A $13.574 $13.57 billion 1,89% $14.126 $14.13 billion 4,07% $14.502 $14.50 billion 2,66% Quaker North America (millions) Quaker NA Actual Quaker NA Growth Rate $2.656 $2.66 billion N/A $2.636 $2.64 billion -0,75% $2.612 $2.61 billion -0,91% $2.568 $2.57 billion -1,68% Latin American Foods (millions) LA Foods Actual LA Foods Growth Rate $7.156 $7.16 billion N/A $7.780 $7.78 billion 8,72% $8.350 $8.35 billion 7,33% $8.442 $8.44 billion 1,10% Pepsico Americas Beverage (millions) Pepsico Americas Actual Pepsico Americas Growth $22.418 $22.42 billion N/A $21.408 $21.41 billion -4,51% $21.068 $21.07 billion -1,59% $21.154 $21.15 billion 0,41% Europe (millions) Europe Actual Europe Growth Rate $13.560 $13.56 billion N/A $13.441 $13.44 billion -0,88% $13.752 $13.75 billion 2,31% $13.290 $13.29 billion -3,36% $7.392 $7.39 billion N/A $6.653 $6.65 billion -10,00% $6.507 $6.51 billion -2,19% $6.727 $6.73 billion 3,38% Asia, Middle East, Africa AMEA Actual AMEA Growth Rate Note: N/A means not available or missing data Pepsico Financial Segment Analysis Pepsico's Diversification Strategy in 2015 Data from Textbook Exhibit 7, Page 385 OPERATING MARGIN ANALYSIS 2011 2012 2013 2014 Operating Margins Frito Lay North America (millions) Operating Income (millions) Operating Margin $13.322 $3.621 27,18% $13.574 $3.646 26,86% $14.126 $3.877 27,45% $14.502 $4.054 27,95% Quaker North America (millions) Operating Income (millions) Operating Margin $2.656 $797 30,01% $2.636 $695 26,37% $2.612 $617 23,62% $2.568 $621 24,18% Latin American Foods (millions) Operating Income (millions) Operating Margin $7.156 $1.078 15,06% $7.780 $1.059 13,61% $8.350 $1.242 14,87% $8.442 $1.211 14,34% Pepsico Americas Beverage (millions) Operating Income (millions) Operating Margin $22.418 $3.273 14,60% $21.408 $2.937 13,72% $21.068 $2.955 14,03% $21.154 $2.846 13,45% Europe (millions) Operating Income (millions) Operating Margin $13.560 $1.210 8,92% $13.441 $1.330 9,90% $13.752 $1.293 9,40% $13.290 $1.331 10,02% Asia, Middle East, Africa Operating Income (millions) Operating Margin $7.392 $1.210 16,37% $6.653 $1.330 19,99% $6.507 $1.174 18,04% $6.727 $1.043 15,50% case 9 PepsiCo's Diversification Strategy in 2015 a connect JOHN E. GAMBLE Texas A&M University-Corpus Christi DAVID L. TURNIPSEED University of South Alabama PepsiCo was the world's largest snack and bever- age company, with 2014 net revenues of approxi- mately $66.7 billion. The company's portfolio of businesses in 2015 included Frito-Lay salty snacks, Quaker Chewy granola bars, Pepsi soft-drink prod- ucts, Tropicana orange juice, Lipton Brisk tea, Gatorade, Propel, SoBe, Quaker Oatmeal, Cap'n Crunch, Aquafina, Rice-A-Roni, Aunt Jemima pancake mix, and many other regularly consumed products. The company viewed the lineup as highly complementary since most of its products could be consumed together. For example, Tropicana orange juice might be consumed during breakfast with Quaker Oatmeal, and Doritos and a Mountain Dew might be part of someone's lunch. In 2015, PepsiCo's business lineup included 22 $1 billion global brands. The company's top managers were focused on sustaining the impressive performance through strategies keyed to product innovation, close rela- tionships with distribution allies, international expansion, and strategic acquisitions. Newly intro- duced products such as Mountain Dew KickStart, Tostitos Cantina tortilla chips, Quaker Real Med- leys, Starbucks Refreshers, and Gatorade Energy Chews accounted for 15 to 20 percent of all new growth in recent years. New product innovations that addressed consumer health and wellness con- cerns were important contributors to the company's growth, with PepsiCo's better-for-you and good-for- you products becoming focal points in the compa- ny's new product development initiatives. In 2014, PepsiCo's nutrition business accounted for about 20 percent of the company's net revenue. In addition to focusing on strategies designed to deliver revenue and earnings growth, the company maintained an aggressive dividend policy, with more than $53 billion returned to shareholders between 2003 and 2012. PepsiCo increased its dividend for the 42nd consecutive year in 2014 and paid $8.7 billion to its shareholders through dividends and stock repurchases, which was a 36 percent increase over 2013. The company bolstered its cash returns through carefully considered capital expenditures and acquisitions and a focus on operational excel- lence. Its Performance with Purpose plan utilized investments in manufacturing automation, a ratio- nalized global manufacturing plan, reengineered distribution systems, and simplified organization structures to drive efficiency. In addition, the com- pany's Performance with Purpose plan was focused on minimizing the company's impact on the envi- ronment by lowering energy and water consumption, and reducing its use of packaging material, provid- ing a safe and inclusive workplace for employees, and supporting and investing in the local communi- ties in which it operated. PepsiCo had been listed on the Dow Jones Sustainability World Index for eight consecutive years and listed on the North America Index for nine consecutive years as of 2014. Even though the company had recorded a number of impressive achievements over the past decade, its growth had slowed since 2011. In fact, the spikes in the company's revenue growth since 2000 had resulted from major acquisitions, such as the $13.6 billion acquisition of Quaker Oats in 2001, the 2010 Copyright © 2015 by John E. Gamble. All rights reserved. Part 2 Cases in Crafting and Executing 378 acquisition of the previously independent Pepsi Bottling Group and PepsiCo Americas for $8.26 billion, and the acquisition of Russia's leading food- and-beverage company, Wimm-Bill-Dann (WBD) Foods, for $3.8 billion in 2011. A summary of Pep- siCo's financial performance for 2005 through 2014 is shown in Exhibit 1. Exhibit 2 tracks PepsiCo's market performance between 2004 and July 2014. Company History PepsiCo, Inc., was established in 1965 when Pepsi- Cola and Frito Lay shareholders agreed to a merger between the salty-snack icon and the soft-drink giant. The new company was founded with annual revenues of $510 million and such well-known brands as Pepsi-Cola, Mountain Dew, Fritos, Lay's, Cheetos, Ruffles, and Rold Gold. PepsiCo's roots can be traced to 1898, when New Bern, North Caro- lina, pharmacist Caleb Bradham created the formula for a carbonated beverage he named Pepsi-Cola. The company's salty-snack business began in 1932, when Elmer Doolin, of San Antonio, Texas, began manufacturing and marketing Fritos corn chips and Herman Lay started a potato chip distribution busi- ness in Nashville, Tennessee. In 1961, Doolin and Lay agreed to a merger between their businesses to establish the Frito-Lay Company. During PepsiCo's first five years as a snack and beverage company, it introduced new products such as Doritos and Funyuns, entered markets in Japan and eastern Europe, and opened, on average, one new snack-food plant per year. By 1971, PepsiCo had more than doubled its revenues to reach $1 bil- lion. The company began to pursue growth through acquisitions outside snacks and beverages as early as 1968, but its 1977 acquisition of Pizza Hut sig- nificantly shaped the strategic direction of PepsiCo for the next 20 years. The acquisitions of Taco Bell in 1978 and Kentucky Fried Chicken in 1986 cte- ated a business portfolio described by Wayne Cal- loway (PepsiCo's CEO between 1986 and 1996) as a balanced three-legged stool. Calloway believed the combination of snack foods, soft drinks, and fast food offered considerable cost-sharing and skill- transfer opportunities, and he routinely shifted man- agers among the company's three divisions as part of the company's management development efforts. PepsiCo strengthened its portfolio of snack foods and beverages during the 1980s and 1990s with the acquisitions of Mug Root Beer, 7-Up Interna- tional, Smartfood ready-to-eat popcorn, Walker's Crisps (United Kingdom), Smith's Crisps (United Kingdom), Mexican cookie company Gamesa, and Sunchips. Calloway added quick-service restaurants Hot-n-Now in 1990; California Pizza Kitchens in 1992; and East Side Mario's, D'Angelo Sandwich Shops, and Chevy's Mexican Restaurants in 1993. The company expanded beyond carbonated bever- ages through a 1992 agreement with Ocean Spray to EXHIBIT 1 Financial Summary for PepsiCo, Inc., 2005-2014 (in millions, except per share amounts) Net revenue Net income 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 $66,683 $66,415 $65,492 $66,504 $57,838 $43,232 $43,251 $39,474 $35,137 $32,562 6,558 6,787 6,214 6,443 6,320 5,946 5,142 5,599 5,065 4,078 $4.31 $4.37 $3.96 $4.08 $3.97 $3.81 $3.26 $3.38 $3.00 $2.43 Income per common share-basic, continuing operations Cash dividends declared per common share Total assets $2.53 $2.24 $2.13 $2.03 $1.89 $1.78 $1.78 $1.65 $1.42 $1.16 $1.01 Long-term debt $70,509 77,478 74,638 72,882 68,153 39,848 35,994 34,628 29,930 37,727 23,821 24,333 23,544 20,568 19,999 7,400 7,858 4,203 2,550 2,313 Source: PepsiCo 10-K reports, various years. Case 9 PepsiCo's Diversification Strategy in 2015 379 EXHIBIT 2 Monthly Performance of PepsiCo, Inc.'s Stock Price, 2005-July 2015 (a) Trend in PepsiCo, Inc.'s Common Stock Price 110 100 Hut 90 HH 80 NUESTRA Stock Price ($) 70 HITH 60 50 40 06 1 07 08 09 T 11 T 13 10 T T 15 12 14 Year (b) Performance of PepsiCo, Inc.'s Stock Price Versus the S&P 500 Index +90%. PepsiCo's Stock Price +75% 4 MOBILE +60% +45% ) +30% معه TRA H2H +15% Percent Change (2006 = 0) They +0% v A -15% -30% S&P -45% T 06 1 07 T 11 T 12 1 13 09 10 14 08 15 Year distribute single-serving juices, the introduction of Lipton ready-to-drink (RTD) teas in 1993, and the introduction of Aquafina bottled water and Frappuc- cino ready-to-drink coffees in 1994. By 1996, it had become clear to PepsiCo manage- ment that the potential strategic-fit benefits existing between restaurants and PepsiCo's core beverage and snack businesses were difficult to capture. In 380 Part 2 Cases in Crafting and Executing Strategy out of convenience store channels. In its approval of the merger, the FTC stipulated that Gatorade and PepsiCo's soft drinks could not be jointly distributed for 10 years. addition, any synergistic benefits achieved were more than offset by the fast-food industry's fierce price competition and low profit margins. In 1997, CEO Roger Enrico spun off the company's restau- rants as an independent, publicly traded company to focus PepsiCo on food and beverages. Soon after the spin-off of PepsiCo's fast-food restaurants was com- pleted, Enrico acquired Cracker Jack, Tropicana, Smith's Snackfood Company in Australia, SoBe teas and alternative beverages, Tasali Snack Foods (the leader in the Saudi Arabian salty-snack market), and the Quaker Oats Company. Acquisitions after 2001 After the completion of the Quaker Oats acquis. tion in 2001, the company focused on integration of Quaker Oats's food, snack, and beverage brands in the PepsiCo portfolio. The company made a number of “tuck-in” acquisitions of small, fast-growing food and beverage companies in the United States aro internationally to broaden its portfolio of brands. Tuck-in acquisitions in 2006 included Stacy's bagel and pita chips, Izze carbonated beverages, Netherlands-based Duyvis nuts, and Star Foods (Poland). Acquisitions made during 2007 included Naked Juice fruit beverages, Sandora juices in the Ukraine, New Zealand's Bluebird snacks, Penelopa nuts and seeds in Bulgaria, and Brazilian snack pro- ducer Lucky. The company also entered into a joint venture with the Strauss Group in 2007 to market Sabra, the top-selling and fastest-growing brand of hummus in the United States and Canada. The com- pany acquired the Russian beverage producer Leb- edyansky in 2008 for $1.8 billion, and in 2010, it acquired Marbo, a potato chip production operation in Serbia. The 2001 Acquisition of Quaker Oats At $13.9 billion, Quaker Oats was PepsiCo's larg- est acquisition and gave it the number-one brand of oatmeal in the United States, with more than a 60 percent category share; the leading brand of rice cakes and granola snack bars; and other well-known grocery brands such as Cap'n Crunch, Rice-A-Roni, and Aunt Jemima. However, Quaker's most valuable asset in its arsenal of brands was Gatorade. Gatorade was developed by University of Florida researchers in 1965, but it was not marketed com- mercially until the formula was sold to Stokely-Van Camp in 1967. When Quaker Oats acquired the brand from Stokely-Van Camp in 1983, Gatorade gradually made a transformation from a regionally distributed product with annual sales of $90 million to a $2 billion powerhouse. Gatorade was able to increase sales by more than 10 percent annually dur- ing the 1990s, with no new entrant to the sports bev- erage category posing a serious threat to the brand's dominance. PepsiCo, Coca-Cola, France's Danone Group, and Swiss food giant Nestlé all were attracted to Gatorade because of its commanding market share and because of the expected growth in the isotonic sports beverage category. PepsiCo became the suc- cessful bidder for Quaker Oats and Gatorade with an agreement struck in December 2000, but the merger would not receive U.S. Federal Trade Commission (FTC) approval until August 2001. The FTC's pri- mary concern over the merger was that Gatorade's inclusion in PepsiCo's portfolio of snacks and bever- ages might give the company too much leverage in negotiations with convenience stores and ultimately force smaller snack-food and beverage companies In 2010 and 2011, the company executed its larg- est acquisitions since the 2001 acquisition of Quaker Oats. In 2010, PepsiCo acquired the previously inde- pendent Pepsi Bottling Group and PepsiCo Ameri- cas for $8.26 billion in cash and PepsiCo common shares. The acquisition was designed to better inte- grate its global distribution system for its beverage business. In 2011, it acquired Russia's leading food and beverage company, Wimm-Bill-Dann Foods, for $3.8 billion. The combination of acquisitions and the strength of PepsiCo's core snacks and beverages business allowed the company's revenues to increase from approximately $29 billion in 2004 to more than $66 billion in 2013. Exhibit 3 presents PepsiCo's consolidated statements of income for 2012-2014, while the company's consolidated balance sheets for 2013-2014 are presented in Exhibit 4. The compa- ny's calculation of free cash flow for 2011-2014 is shown in Exhibit 5.
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Explanation & Answer

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Running head: CAPSTONE CASE

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Capstone Case
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Institution

CAPSTONE CASE

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Capstone Case
Question one: PepsiCo's corporate strategy

PepsiCo was the largest company in the world selling snacks and beverages. The
company's business strategy was diversified into different varieties of products. Specifically,
the company ventured into and sweet and salty snacks, orange juice, soft drink, ready to drink
coffee and tea as well as bottled water. In a bid to expand and enter into diverse industries,
the company used different corporate strategies including acquisitions and mergers. By the
year 1968, the company had diversified beyond the beverages and snacks. Using the
acquisition approach, PepsiCo acquired some companies dealing with ready to eat popcorns,
Mexican cookies, Walker's and Smith's crisps by the year 1977.
PepsiCo has of late been seen to be aggressive to venture into new markets through
this strategy. Currently, the company has about twenty-two brands, which it has brought into
place through acquisition. Recent acquisitions include Wimm-Bill-Dann and Lebedyansky
juice and dairy businesses in Russia, Mabel cookies and Lucky snacks in Brazil, as well as
Dialexis cookies in Argentina. Additionally, the company has got into strategic alliances
across the world. Notably, PepsiCo got into partnership with Tingyi in China in a bid to
benefit from the expanded beverage market in China. In India, the company also got into a
joint venture with Tata Company to increase capabilities of manufacturing drinking water.
Additionally, PepsiCo also got into partnership with Almarai in South Arabia in a bid to
expand its market. At home, the company also formed a partnership with Starbucks, which is
one of the major players in the production of coffee. Through the mentioned above strategies,
the company is seen to tap various markets within the food industry. It can, therefore, be said
to diversify using related businesses in a bid to gain more competitive strength, skills, and
capabilities as well as cost efficiency.

CAPSTONE CASE

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Question two: Analysis of the PepsiCo revenue analysis for the six segments
PepsiCo has six main segments. These segments include Frito- Lay North America,
Quaker Foods in Northern America, the Latin American foods, Americas Beverages, Asia,
Africa and the Middle East and finally Europe. According to the analysis, the Frito – Lay in
North America segment is the most profitable among the other segments. According to the
analysis released in the year 2013 and 2014, the segment alone accounted for 21% of the total
revenue and 35% of the operating profit for the division. Pepsi American beverages were the
second regarding profitability accounting for 32% of the total revenue. Frito –Lay North
America deals mostly with snack branded foods like the Doritos tortilla chips and Lay's
chips. The analysis also indicates that the snacks industry is more profitable than the
beverage industry. Comparing the analysis for 2013 and 2014, the segment made a revenue
growth of 4% while other segments such as the Quaker food and Latin America food
segments made a decline of 1% and 7% respectively. The snack industry seems to outdo the
beverage industry due to the favorable pric...


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