Looking to capitalize on the popularity of its Lays brand potato
chips in China,
PepsiCo Inc.
(
PEP
) recently opened a new food manufacturing plant there which will
have the capacity to produce 15,000 tons of Lays chips
annually.
The plant, located at Wuhan, is the sixth food manufacturing
site in the Greater China Region. It also boasts of being the only
snack plant in China to be certified by Leadership in Energy and
Environmental Design, or LEED, the world's leading green building
standard.
PepsiCo is indeed busy expanding its food and beverage business
in China. Earlier this year PepsiCo completed its strategic
alliance with leading Chinese food and beverage maker, Tingyi
Holding Corp. whereby Tingyi's beverage subsidiary was appointed as
PepsiCo's franchise bottler in China. The deal has created the
number one liquid refreshment beverage (LRB) manufacturing network
in China and is expected to help PepsiCo to revamp its Chinese
business.
This emphasis on the emerging markets, particularly in China and
India, came in the wake of weakness in the maturing domestic
market. The company has tripled its revenues from the emerging and
developing markets in the past five years. The economic outlook of
these fast growing nations is at present much better than the
developed markets due to the improving standard of living of the
middle class.
Our Recommendation
Currently, the stock has a Zacks #4 Rank (short-term Sell
rating). Over the long term, we provide a Neutral recommendation on
the stock.
We are encouraged by PepsiCo's strong brand portfolio, its
product and geographic diversity and solid cash flow generation.
Moreover, PepsiCo's marketing support investments, brand building
innovation and cost saving efforts will boost growth in the long
term.
However, a challenging consumer spending environment combined
with higher commodity costs raises concern. Moreover, PepsiCo faces
strong competition from
The Coca-Cola Company
(
KO
). The Coca-Cola Company commands a larger share of carbonated soft
drinks (CSD) consumption in the U.S. measured channels and also
enjoys higher market share in many markets outside the United
States than PepsiCo.
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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