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Pepsi Co

The document compares the financial statements of PepsiCo and Coca-Cola over five years. It finds that Coca-Cola had higher average gross profit margins of 64.74% compared to 55.11% for PepsiCo due to Coca-Cola's lower average cost of sales to sales percentage of 35.26% versus 44.89% for PepsiCo. This was largely because Coca-Cola charged higher prices for syrup concentrates and managed to lower raw material costs through suppliers and hedging. While PepsiCo had slightly lower selling expenses, its gross margins declined over time in contrast to Coca-Cola's steady margins, raising concerns over PepsiCo's costs. Both companies saw some

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Keine Lee
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259 views2 pages

Pepsi Co

The document compares the financial statements of PepsiCo and Coca-Cola over five years. It finds that Coca-Cola had higher average gross profit margins of 64.74% compared to 55.11% for PepsiCo due to Coca-Cola's lower average cost of sales to sales percentage of 35.26% versus 44.89% for PepsiCo. This was largely because Coca-Cola charged higher prices for syrup concentrates and managed to lower raw material costs through suppliers and hedging. While PepsiCo had slightly lower selling expenses, its gross margins declined over time in contrast to Coca-Cola's steady margins, raising concerns over PepsiCo's costs. Both companies saw some

Uploaded by

Keine Lee
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PepsiCos five-year average gross profit margin was 55.

11%, much lower than its


rival Coca-Colas average of 64.74%. PepsiCos lower gross profit margin was a
direct result of its higher cost of sales to sales percentage. On their common-size
income statements, PepsiCos five-year average cost of sales to sales percentage
was 44.89%, noticeably higher than the 35.26% average cost of sales to sales
percentage for Coca-Cola. One major contributing factor to Coca-Colas lower
cost of sales percentage was that Coca-Cola was able to charge premiums for its
syrup concentrates compared to Pepsi. Another factor could be Coca-Cola had
always been able to effectively lower the cost of raw ingredients by acquiring
from suppliers with lower price or by favorable commodity hedging. A third factor
could be that PepsiCos diversified businesses other than soft drink/beverage had
lower gross profit margin in general.

By examining common-size income statements, PepsiCo and Coca-Cola had


similar fiveyear average selling and administrative expenses as a percentage of
sales. So operating profit margin, pretax profit margin and net profit margin
highly correlated with gross profit margin. Coca-Cola was able to obtain higher
net profit margin compared to PepsiCo by maintaining lower cost of sales to sales
percentage.

Its worth noting that PepsiCo did have a slightly lower five-year average selling
and administrative expenses to sales percentage of 36.85% than 37.61% for
Coca-Cola. PepsiCos slightly lower selling and administrative expenses and other
miscellaneous expenses to sales percentage helped to bring its profit margin a
little closer to its rival, from 9.63% lagging behind in gross profit margin to only
6.83% lagging behind in net profit margin on average.

Over years, PepsiCos gross profit margin decreased from 56.69% in year 2004 to
52.95% in year 2008, caused by increased cost of sales to sales percentage from
43.31% in year 2004 to 47.05% in year 2008. This should raise some concerns
whether this trend could continue in future years. On the other side, Coca-Colas
gross profit margin had been relative steady with well-maintained cost of sales to
sales percentage.

By decreasing selling and administrative expenses to sales percentage from


37.70% in year 2004 to 35.99% in year 2007 with a slight increase to 36.76% in
year 2008, PepsiCos operating profit margin and pretax profit margin from year
to year was steady without declining trend. The changes of income taxes
percentage over years caused PepsiCos yearly net profit margin to fluctuate a
little bit. The lower profit margin in year 2008 was consistent with the economic
downtown started from that year.

Coca-Cola was able to maintain its gross profit margin in a relatively steady level
year after year with only a slight increase in year 2006. The decreased cost of
sales to sales percentage in year 2006 was the reason for the slight increase in

its gross profit margin. We dont have enough information to find out why CocaCola could only bring down cost of sales to sales percentage in that particular
year but could speculate on very successful commodity hedging. The overall
trend of Coca-Colas gross profit margin as well as operating profit margin, pretax
profit margin and net profit margin were flat and steady with the exception of
lower pretax profit margin and net profit margin in year 2008. By examining its
common-size balance sheet, the economic downturn in year 2008 appeared to
hurt profitability of Coco-Colas bottling company and thus an equity loss of
2.74% to sales was posted to Coco-Colas balance sheet. The equity loss in year
2008 brought down Coca-Colas pretax profit margin and net profit margin

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