Presented By: Aaron Czerkies Jonathan Barki Amin Rizwan Chris Tsoulakas Frank Damian December 6, 2011 PepsiCo, Inc. NYSE:PEP

Presented By: Aaron CzerkiesJonathan BarkiAmin RizwanChris TsoulakasFrank Damian

December 6, 2011

PepsiCo, Inc. NYSE:PEP

• PepsiCo, Inc. is a global food, snack and beverage company founded in 1919.

• The Company's brands include Quaker Oats, Tropicana, Gatorade, Lay's, Pepsi, Walkers, Gamesa and Sabritas.

• Market capitalisation: $100.68bn

• Approximately around 294,000 employees worldwide.

• December 5th 2011 closing price: $64.40

• 52-week range: $58.50-$71.89

Introduction

(5 Year) Stock Market Performance

• Blue line – iShares S&P Global Consumer Staples (KXI)

• Red line – PepsiCo• Green – S&P 500 index

Yahoo Finance

Technical Analysis

Yahoo Finance

20 and 200 day moving average over a 5-year time horizon

Yahoo Finance

20 and 200 day moving average over a 2-year time horizon

OwnershipHolder Shares (millions) % Held

The Vanguard Group Inc. 66.24 4.39%

State Street Global Advisors 58.69 3.85%

BlackRock Fund Advisors 57.82 3.74%

Capital Research Global Investors 38.60 1.83%

Wellington Management Co. LLP 31.56 1.62%

Banc of America Securities LLC 24.92 1.61%

Northern Trust Investments 22.96 1.43%

T. Rowe Price Associates, Inc. 21.98 1.33%

Yacktman Asset Management Co., Inc 18.11 1.25%

Fidelity Management & Research Co. 15.34 1.22%

Above 10 holders comprise 22.27% of shareholders’ ownership.

Data as of 30th September, 2011, Financial Times

Macroeconomic Analysis

Consumer spending: • IBIS World estimates 2.6% compound growth in

consumer spending from 2011 to 2016

http://clients.ibisworld.com/bed/default.aspx?bedid=363 Image: http://clients.ibisworld.com/charts/bed/1_1_363_BEDScores.png

Industry AnalysisSoda Production in the US: • ~$17bn revenue, $2.5bn profitPerformance• Industry has been suffering recently with an annual 7.1%

decline from 2006 to 2011 Outlook• IBIS World project a negative annual growth rate of -2.0%

for 2011 to 2016Major PlayersThe Coca-Cola Company - Market Share: 41.2%PepsiCo Inc. - Market Share: 33.6%Dr Pepper Snapple Group Inc. - Market Share: 15.4%

http://clients.ibisworld.com/industryus/default.aspx?indid=285

Industry Analysis (cont.)Snack Food Production in the US• ~$28.4bn revenue, $5.9bn profitPerformance• Steady growth with an annual rate of 4.2% from 2006 to

2011Outlook• IBIS World project an annual growth rate of 2.1% for 2011

to 2016Major PlayersFrito Lay North America - Market Share: 48.4%Kraft Foods Inc. - Market Share: 5.2%General Mills Inc. - Market Share: 5.1%


Industry Analysis (cont.)Juice Production in the US• ~$27bn revenue, $6.1bn profitPerformance• Recent performance has been strong with annual growth

rates of 10.4% from 2006 to 2011Outlook• IBIS World project an annual growth rate of 0.5% for 2011

to 2016Major PlayersPepsiCo Inc. - Market Share: 38.4%The Coca-Cola Company - Market Share: 21.5%Dr Pepper Snapple Group Inc. - Market Share: 6.1%


Product Segments

Source: Barclays “BTS” Consumer Conference, Sep 2011http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf

2010 Revenue Breakdown

Source: Annual Report, Dec 2010

Global Markets Exposure• About $20 billion or 31% of Revenue from emerging markets in 2010

• Focus on growth in Central Asia and Eastern Europe

• 70% growth of sales in Russia over last 2 years

• Robust economic indicators, low debt ratios, good foreign exchange reserves

• Wimm-Bill-Dann acquisition 66% at $3.8 B total ownership to 77% 15 Aug 2011, ‘squeeze-out demand’ for other 23% 3,883.70 Russian rubles per share

Source: Q3 Earnings Release, Oct 2011

Financial Performance• 24% 5-year CAGR• High operating margins and potential for growth• 5-year Compounded Annual Growth Rates:

12% in Net Revenue10% Operating Profit

• $29 B in Dividend and Share repurchases in the last 5 yrs

9% EPS8% Operating Cash Flow

Savory Snacks

Frito Lay’s World’s largest Food Brand $9.4bn Doritos $4 B, Cheetos $3.1 B, Ruffles $2.6bn,

Tositos $1.7bn, Fritos $1.3bn

• Transnational expansion strategy through balance between: Localization Maintaining consistent quality standards and

cooking processes

• 5-year CAGR: 3% Volume 8% Revenue 8% NOPBT


Beverages

Source: Barclays “BTS” Consumer Conference, Sep 2011http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf

Carbonated Soft Drinks• Sustain powerhouse brands

Sierra Mist, +7% in volumeMountain Dew, +2.5% in volumePepsi Max, +93% in volume

• Focused advertising & marketing campaignsPepsi MaxDiet PepsiPepsiSocial media exposure

• Continue innovating productsPepsi Next

• Develop Occasion-based marketingOn-the-Go RefreshmentSpecial Occasion and CelebrationsMeal-time and Snacking


Hydration & NourishmentGatorade•11% Sales growth•77.3% Sports Drink market share

Tropicana•About 50% Sales TTM growth•$150 MM

Source: Q3 Earnings Release, Oct 2011 Barclays “BTS” Consumer Conference, Sep 2011 http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf

Nutrition• Top 3 globally in Nutrition, aiming to be $30B business by 2020• Huge growth potential, 5-year double-digit revenue CAGR• Strong demographic and consumer interest in health and wellness• Aging population seeking healthy and tasty foods• On-the-Go consumers and their demand for convenience

Source: Q3 Earnings Release, Oct 2011 Barclays “BTS” Consumer Conference, Sep 2011 http://www.pepsico.com/Download/Barclays_BTS_Presentation.pdf

Recent Challenges and Concerns• 2012 Pricing Strategy• Commodity inflation and Demand elasticity• Margins & Cost cutting measures• Currency exposure

• Investors appealing for a split of Snacks and Beverages• Strong growth in snacks business• Strong growth with Tropicana and Gatorade• Weak CSD strategy and culture has impacted PepsiCo’s overall stock

performance• While Coke has increased by about 50%• Over-spending in marketing and advertising• Kraft and Sara Lee example

Source: “Don’t Rule Out a Pepsi Breakup Yet”, Barron’s, 11/19/2011 Q3 Earnings Release, Oct 2011

The Power of One• Two powerful businesses worth $31B each• Consumption:

Planned togetherBought togetherConsumed together

• Synergies unique to PepsiCo that lead to selling & service advantages and efficient operations:

Common MerchandisingConvenience Store ChannelDemographicsBroad Price PointsPrime-time MerchandisingDistribution NetworksNew NFL 10 Year Deal


Public Comparable Analysis• Quaker/Nutrition

• SWX:NESN Nestlé S.A. Business areas include Food and Beverage, Nestle Waters and Nestle Nutrition.

• NYSE:KFT Kraft Foods Inc. Manufactures and markets packaged food products, including biscuits, confectionery, beverages, cheese, convenient meals and various packaged grocery products.

• NYSE:BGS B&G Foods Inc. B&G Foods, Inc. (B&G Foods) manufactures, sells and distributes a diverse portfolio of branded shelf-stable food products.

• NYSE:GIS General Mills, Inc. Global manufacturer and marketer of consumer foods. products categories in the US include cereals, refrigerated yogurt, soups, shelf stable and frozen vegetables, dough products, dessert and baking mixes, grain, fruit and savory snacks, and a variety of organic products.

Public Comparable Analysis - Quaker• Range: 66.49 to 73.73• Median: 71.06• Price: 8.36

RELATIVE VALUE

P/ E 15.7x 2012E P/ E * 4.67 2012E EPS $73.11

P/ S 1.8x 2012E P/ S * $68,533 122,299.77

Implied Share Price $68.58

EV/ Revenue 2.1x EV / Revenue * $68,533 143,500.88

Implied Market Value 123,754.88


EV/ EBITDA 10.2x EV / EBITDA * $13,620 138,500.76



Public Comparable Analysis (cont.)• Soft Drinks

• NYSE:KO The Coca-Cola Company

Produce over 3,500 beverages. Notable brands include: Coca-Cola, Powerade, Fanta, Sprite, Dasani and Vitamin Water

• NYSE:COT Cott Corporation

Products: Red Rooster, Blue Charge

• NYSE:DPS Dr Pepper Snapple Group, Inc.

Products: Dr Pepper, 7UP, Canada Dry, RC Cola Deja Blue

• NasdaqGS:FIZZ National Beverage Corp.

Products: Shasta, Faygo, Everfresh

Public Comparable Analysis – Soft Drinks• Range: 5029 to 81.79• Median: 56.40• Price: 24.00

RELATIVE VALUE

P/ E 13.4x 2012E P/ E * 4.67 2012E EPS $62.44

P/ S 1.3x 2012E P/ S * $68,533 89,838.69








Public Comparable Analysis (cont.)• Frito-Lay

• NasdaqGS:LNCE Snyder's-Lance, Inc.

Manufacturer and distributer of snack food products, including pretzels, crackers, kettle chips, cookies, potato chips and tortilla chips.

• NasdaqGS:DMND Diamond Foods, Inc.

Products: Kettle Brand Potato Chips,

• NYSE:CAG ConAgra Foods, Inc.

Consumer Foods producer. Brands include Banquet, David Seeds, Egg Beaters, Healthy Choice, Hebrew National, Pam and Snack Pack.

• NYSE:HSY Hershey Co.

Snacks

Public Comparable Analysis – Frito-Lay

• Range: 21.52 to 67.22• Weight: 55.00

• Other multiples low so used closer to P/E

• Price: 15.17

RELATIVE VALUE

P/ E 14.4x 2012E P/ E * 4.67 2012E EPS $67.20

P/ S 0.6x 2012E P/ S * $68,533 38,373.02








Public Comparable Analysis (cont.)• Tropicana

• NasdaqGS:HANS Hansen Natural Corporation

Develops, sells and distributes beverages. Brands include Monster Energy, Peace Tea, Hansen's, Hansen's Natural Sodas, Junior Juice, Blue Sky, X-Presso Monster, Vidration, Hubert's, Rumba, Samba and Tango.

• NYSE:CQB Chiquita Brands International Inc.

Products: Chiquita Fruit juices

Public Comparable Analysis - Tropicana• Range: 70.11 to 148.88• Median: 109.49• Price: 19.78

RELATIVE VALUE

P/ E 16.9x 2012E P/ E * 4.67 2012E EPS $78.76

P/ S 1.8x 2012E P/ S * $68,533 125,026.43








Recommendation

• DCF value: $65.93• Comps value: $67.31• Current market price (12/06/2011):$64.40

• Current recommendation: Watch List, but would love to buy on a pullback below $60

Documents

Presented By: Aaron Czerkies Jonathan Barki Amin Rizwan Chris Tsoulakas Frank Damian December 6, 2011 PepsiCo, Inc. NYSE:PEP