Question

Read PepsiCo’s (NYSE:PEP) most recent 10-K (2019-2-15), its Proxy (DEF 14 A, 2019-3-22 and answer or produce the following:go to www.sec.gov/edgar/searchedgar/companysearch.html and search for Pepsi

1. As an analyst and using the Company’s “Long-term debt obligations” schedule as a guideline, what would you estimate the Company’s cost of borrowing to be?

2. Pepsico manages its business in “reportable segments”. List them.

3. Which is the largest segment in terms of revenue? In terms of operating profit

4. As an analyst, which two risk factors (Risk Factors Item 1a) do you consider the most important? Please ensure that your answer includes your reasoning why?

5. What was the Company’s “free cash flow” in 2018 and 2017?

6. “Operations outside of the United States generated” what percent of the Company’s consolidated net revenue?Go to

Answer 1

Long Term Debt Obligations

Long-term debt obligations - $ 28,351

Interest - $ 11,157 - this is not relevant since this is future expense

Interest on long term debt obligations for the year - $ 1,525 million

Cost of borrowing = 1,525 / 28,351 = 5.38% . This cost is pre-tax i.e. ignoring the tax benefit on interest expense.

Reportable Segments

The following are the reportable segments for PepsiCo

1) Frito-Lay North America (FLNA), which includes branded food and snack businesses in the United States and Canada;
2) Quaker Foods North America (QFNA), which includes cereal, rice, pasta and other branded food businesses in the United States and Canada;
3) North America Beverages (NAB), which includes beverage businesses in the United States and Canada;
4) Latin America, which includes beverage, food and snack businesses in Latin America;
5) Europe Sub-Saharan Africa (ESSA), which includes beverage, food and snack businesses in Europe and Sub-Saharan Africa; and
6) Asia, Middle East and North Africa (AMENA), which includes beverage, food and snack

Risk Factors

Changes in, or failure to comply with, laws and regulations applicable to our products or our business operations could adversely affect our business, financial condition or results of operations.

PepsiCo needs to comply with a diverse range of laws and regulations. Recognizing the strength of Consumer laws and consequences of the same is important and thus this is an important risk factor

Any damage to our reputation or brand image could adversely affect our business, financial condition or results of operations.

The nature of the industry in which pepsico operates is sensitive to reputation and branding. The fame and reputation is built over years through successful branding strategy. An adverse impact could wash out the branding efforts of decades in a single moment.  

Free Cash Flow

2018 $ 6,267 million

2017 $ 7,241 million

Operations outside of the United States generated 43% of consolidated net revenue in 2018

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