Skip to Content
Stock Analyst Update

Pepsi Pumps Up Profits

Quaker is a wild card, but this stock looks good regardless.

Mentioned: , , , , , , , ,

What Happened?
Soft-drink and snack-food giant PepsiCo (PEP) reported solid results in line with Wall Street expectations Monday, with fourth-quarter earnings growth of 15% and revenue growth of 8%. The company's Frito-Lay divisions (which now account for more than 60% of revenue) continued to generate double-digit profit growth, and Pepsi-Cola North America turned in a particularly impressive performance, with 15% sales growth and a 23% operating margin. However, Pepsi-Cola International had another lackluster showing, with revenue declining 4% from a year ago. The company said it's comfortable with current Wall Street projections, which call for 12%-13% earnings growth in 2001.

What It Means for Investors
PepsiCo is coming off a great year in which it capitalized on the troubles of its arch rival, Coca-Cola (KO), and we continue to think it makes a great core holding. While Coke has been restructuring and struggling with reduced earnings, Pepsi has kept on rolling with renewed focus, generating $2.7 billion in free cash flow and a return on equity better than 30% in 2000. Not only has it kept its core snack-food and soft-drink businesses highly profitable, it has strengthened its position in the fast-growing market for sports and energy drinks through its acquisition of SoBe and its forthcoming purchase of Quaker Oats (OAT), maker of Gatorade.

David Kathman does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.