Pepsi Bottling Group Inc.PBG

Morningstar Rating

Stock Research and Analysis

by Philip Gorham, CFA

Despite the popularity of the range of Pepsi brands, the bottlers do not reap many of the rewards in the lucrative beverage and snack industry. PepsiCo's PEP control of concentrate pricing, as well as the capital-intensive nature of the bottling business, Read more

Bulls Say

Pepsi's collection of brands resonates with consumers throughout the firm's primary geographic markets of North America and Europe.

With around 30% of its North American volumes being generated from sales of noncarbonated beverages, Pepsi Bottling Group has a slightly more diversified product portfolio than most of its peers.

Through its acquisition strategy, Pepsi Bottling Group has expanded its geographic footprint in markets such as Spain and Russia, and revenue outside of North America has increased from 15% of total revenue in 2001 to 25% in 2008.

PepsiCo could raise its bid to buy PBG, despite the firm's rejection of the original offer, and this could further increase the value of PBG's shares. Read more

Bears Say

There could be a significant drop in Pepsi Bottling Group's share price if the acquisition offer from PepsiCo does not close.

The influence of PepsiCo is enormous, with the concentrate supplier calling the shots on pricing. The terms of the Master Bottling Agreement require that PBG's operating and financial plans for the year ahead be presented to PepsiCo annually.

The secular change in favor of noncarbonated beverages at the expense of carbonated beverages is putting pressure on Pepsi's existing brands and forcing the firm to add more products to the distribution system.

Carbonated drinks may become the latest targets for tax hikes as local and national governments, struggling to balance their budgets, look for new ways to raise revenues.

Almost 10% of the firm's revenues in 2008 were generated from sales to Wal-Mart WMT, a retailer notorious for driving hard bargains in procurement, often at the expense of the margins of its suppliers. Read more

Strategy

Pepsi Bottling Group sees itself as a consolidator and has acquired smaller bottlers in adjacent markets in its key operating regions of North America and Europe. To boost sales in mature markets, the Read more

Management

With its ownership of around 34% of the Class A shares and 100% of the Class B shares of Pepsi Bottling Group, PepsiCo holds around 42% of the voting rights of the bottling company. Together with its representation by two directors on the company's Read more

Profile

The Pepsi Bottling Group is the world's largest manufacturer, seller, and distributor of Pepsi Cola beverages. It operates in the United States, Canada, Greece, Mexico, Read more

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