We recently downgraded the shares of Pepsi Bottling Group (PBG) from Outperform to Neutral. Pepsi Bottling Group is the world’s leading bottler and distributor of Pepsi-Cola beverages and commands a strong portfolio of globally recognized brands.
However, a leveraged balance sheet and intense competition from other bottlers continue to affect the
company’s performance. This leaves limited space for above-market performance of the company.
Pepsi Bottling Group’s balance sheet is highly levered as indicated by a debt-to-capitalization ratio of 60.4% at the end of fourth quarter of 2009. The significant debt levels led to an outflow of $88 million or about 47.3% of operating income during the fourth quarter in interest payments, which reduced the company’s overall profitability.
Furthermore, Pepsi Bottling Group’s significant international presence exposes it to unfavorable foreign currency fluctuations, which often affect its operating results.
Nevertheless, the company’s massive distribution network backed by a robust supply chain infrastructure offers a strong competitive advantage to the company and reinforces its dominant position in the market.
Pepsi Bottling Group is undertaking restructuring initiatives in an effort to control costs and boost profitability. The initiatives include rightsizing employee strength, closure of underperforming facilities and distribution centers, streamline decision making and optimize supply chain infrastructure.
The company’s primary brands include Pepsi, Diet Pepsi, Mountain Dew, Aquafina, Sierra Mist, Lipton Brisk, SoBe, Starbucks Frappuccino and Tropicana juice drinks.
Read the full analyst report on “PBG”
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