Pepsi Vs. Coke

Executive Summary

PepsiCo and Coca-Cola are two successful companies that have a long history of competition between one another. This report will compare the two dominant soft drink companies, to determine where potential shareholders should invest. Following this summary, we will present a financial analysis of both companies using common-size income statements, ratios such as price earnings and dividend pay-out, relative profitability and critical analysis. A thorough recommendation will be given at the conclusion of this report.

For over a decade PepsiCo and Coca-Cola have been consistently competing against one another to reign as the best seller in their market. These companies have similar business practices and core values which have led to their success. Although Coca-Cola is the best known brand across the globe, Pepsi’s ability to diversify their product line has kept them in the running. In 2014, both Pepsi and Coca-Cola showed an increase in earnings per share and both companies show a steady increase of dividend yield. Both companies have strong portfolios and provide stable cash flows. However, Pepsi currently has the edge over Coke because of the Frito-Lay chip brand as well as other snack foods offered. This caused their earnings per share to grow at a much faster rate than Coca-Cola through 2014-2015. However, Pepsi has a lower price-to-earnings ratio than Coke. The efficiency of their respective operations is what has helped price per share increases even if sales are stagnant.

Both companies are struggling to keep market share in their industry and improve sales of their products. The following reports and research, prove not only beneficial to potential investors, but also to the company, customers and retailers worldwide. The importance of knowing the competitive financial standing is highly important and useful to all companies.

Introduction

Our team has chosen to examine a financial comparison between two very well know rivalries, PepsiCo and Coca Cola. The captivating fight, or as it is better known, “The Cola Wars” is one of the crucial events that has characterized the corporate world for over a century and rightly so seeing that soft drinks are a $60 billion a year industry. The North American Industry Classification System (NAICS) code for Soft Drink Manufacturing is 31211 (U.S. Census Bureau, 2012). Coca Cola and PepsiCo share this code with approximately 3,000 competitors. Latest statistics show that the two companies control about 60% of this abundant soft drink industry, and 29% of total beverage consumption. Coca Cola has a market share of about 40% or while Pepsi has slightly lower share of about 20%. (Nasdaq, 2014) When the two companies were formed, they were primarily involved in the production of soda, however due to changing customer tastes and preference they have diversified into other products with Coca Cola having 20 other products with market value of over 1 billion each and Pepsi having 22 other products with over 1 billion market value share.  The North American Industry Classification System Next we will look into the brief history of both companies over the last few years, to include their corporate strategy, leadership, and financial performance.