Financial AnalysisFinancial Analysis

Table of ContentsTable of ContentsFinancial Comparison: PepsiCo Vs

Abbott Laboratories……………..4-14– Financial Ratios……………….15-17

Review of 2006 PepsiCo Annual Report…………………………..18-22

The Future of PepsiCo……….23-29Recommendations………………..30References………………………..31

Executive SummaryExecutive Summary PepsiCo is a world-class food and beverage company that

amassed over $35 billion in revenues for 2006 In comparison with the healthcare company Abbott

Laboratories, PepsiCo delivers better returns with less debt

Future PepsiCo products will maintain focus on core brands while expanding the line of healthy refreshment alternatives

Through healthy financial returns and an innovative research and development department, PepsiCo is well positioned to continue it’s success as a premier consumer products company

A FINANCIAL A FINANCIAL COMPARISON:COMPARISON:

PepsiCoVs.

Abbott Laboratories

PepsiCo IncorporatedPepsiCo Incorporated

PepsiCo PepsiCo INC.INC.

Seek to produce healthy financial rewards for investors as we provide opportunities for growth and enrichment to our employees, our business partners and the communities in which we operate. And in everything we do, we strive to act with We aspire to make PepsiCo the world’s premier consumer products company, focused on convenient foods and beverages. We honesty, openness, fairness and integrity.

MISSION STATEMENT:

ABBOTTABBOTTLABORATORIES

A PROMISE FOR LIFE

ABBOTTABBOTT

Abbott is a global, broad-based health care company that discovers, develops, manufactures and markets products that span the continuum of care – from prevention and diagnosis to treatment and cure. Abbott’s principal businesses include medical products, including devices, diagnostic tests and instruments, nutritional products for children and adults, and pharmaceuticals. Headquartered in north suburban Chicago, Abbott serves customers in more than 130 countries, with a staff of 65,000 at more than 100 manufacturing, distribution, research and development, and other locations.

LABSLABSCompany Profile:

How do sales compare?How do sales compare?

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

ABBOTT PEPSI

SALES VOLUME (IN MILLIONS)

ABBOTT SALES (2006): $22.5 BILLION PEPSI SALES (2006): $35.1 BILLION

What about Net Income?What about Net Income?

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

ABBOTT PEPSI

NET INCOME (IN MILLIONS)

ABBOTT (2006): $1.7 BILLION PEPSI (2006): $5.1 BILLION

InvestorInvestorInformation:Information:

EARNINGS PER SHARE(EPS)

PEPSI……………………………………………… $3.00

ABBOTT…………………………………………... $1.12

What does the future look What does the future look like?like?

LONG-TERM DEBT (IN MILLIONS)

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000

ABBOTT

PEPSI

PEPSI (2006): $2.5 BILLION ABBOTT (2006): $7 BILLION

Abbott Worldwide SalesAbbott Worldwide Sales

ABBOTT TOTALS: $22.5 BILLION

NET SALES (IN MILLIONS)

$7,481

$885

$1,054 $1,061

$11,995

United StatesThe NetherlandsJapanGermanyAll Others

PepsiCo SalesPepsiCo Sales

Net Revenue:$35.1 Billion

MARKET SEGMENTS

37%

27%

31%

5%

PepsiCo InternationalPepsi North AmericaFrito-Lay North AmericaQuaker Foods

0%10%20%30%40%50%60%70%

2006 Financial Ratio Comparison between Pepsi and Abbott Labs

Pepsi 37% 16% 49%Abbott Labs 12% 8% 61%

Return on Equity Return on Sales Debt Ratio

00.51

1.52

2.53

2006 Financial Ratio Comparison between Pepsi and Abbott Labs

Pepsi 1.33 1.17 1.94Abbott Labs 0.94 0.62 2.57

Current Ratio Asset Turnover Asset to Equity

Historical P/E Ratio’sHistorical P/E Ratio’s

Pepsi P/E Ratio Historical Data

Abbott Labs P/E Ratio Historical Data

PepsiCo 2006 Annual Report PepsiCo 2006 Annual Report EvaluationEvaluation

2006 proved to be a strong year for PepsiCo. The past several years, PepsiCo has been a leader

in the industry with double-digit EPS growth, increased operating profits, 8% top line growth and multi-billion dollar cash flows from operations

2006 Showed consistent results with previous years: Volume increased 5.5% Net Revenue increased 8% Division Operating Profit increased 7% Earnings Per Share increased 13%

2006 PepsiCo Annual Report 2006 PepsiCo Annual Report resultsresults

Income Statement

2006 2005 2004

5,642

4,078 4,212

0

2,000

4,000

6,000

Am

ount

Year

Net Income (in millions)

PepsiCo’s Net Income is up in PepsiCo’s Net Income is up in 2006 for many reasons2006 for many reasons

Net Revenue increased 8% due to higher volume and positive effect net pricing

Total operating profit increased 9% in 2006 Corporate unallocated expenses decreased by $55 million

due to the change in accounting methods for warehouse and freight costs which eliminated this previous annual recurring charge

The tax rate decreased by 16.8% from 2005 as a result of 2006 tax adjustments, the resolution of state income tax audits from previous years and the absence of the 2005 AJCA tax charge

PepsiCo Statement of Cash PepsiCo Statement of Cash Flows 2006 Flows 2006

There was an overall decrease in Cash and Cash Equivalents in 2006 due to an increase in financing activities including short-term borrowings and excess tax benefits

1,651 1,716

1,280

0200400600800

1,0001,2001,4001,6001,800

in millions

2006 2005 2004Year

End of Year Cash and Cash Equivalents

PepsiCo 2006 Balance SheetPepsiCo 2006 Balance Sheet Assets: Decrease in overall assets from 2005 mainly

resulting from a decrease in cash and short-term investments

Liabilities: Decrease due to payment of short-term obligations in 2006 and a drop in the income tax due

Shareholders Equity: Retained Earnings up in 2006 as a result of an increase in Net Income

FUTURE OFFUTURE OFFuture commitment will continue strongly to focus on…

• Giving back to society the company serves• Meeting consumer needs for a range of convenient foods and

beverages. • Replenishing the environment through water, energy and packaging

programs.• Supporting its employees through a diverse and broad environment

that recruits and keeps top-notch talent

• Generating strong financial returns

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THIRST QUENCH OF AMERICATHIRST QUENCH OF AMERICAHealthy living pressures PepsiCo to launch Lighter Gatorade

and Caffeinated Water

• Available nationwide in early 2008

• G2 - low-calorie version of Gatorade “designed to meet hydration needs of athletes off the field, on a 24/7 basis”.

• 25 calories per 8-ounce serving, half the amount of regular Gatorade; three flavors with the same amount of electrolytes and minerals as Gatorade, and fewer carbohydrates.

• Propel Invigorating Water - vitamin enhanced and lightly caffeinated designed to provide a “boost for active people throughout the day”.

• contains vitamins and caffeine, and has 20 calories per serving, compared with 10 calories for regular un-caffinated Propel.

LOOKING INTO THE CRYSTAL BALL:LOOKING INTO THE CRYSTAL BALL:

“By holding onto consumers who were leaving the brand for lower-calorie options, attracting a slightly older/more female user than core Gatorade and holding onto or expanding Gatorade’s share of non-sport occasions,” G2 is projected to boost the company’s sales and consumer’s wishes for their product.

Due the lack of price increases by Pepsi and price cuts by Coke on its sport drinks, it is forecasted that Gatorade (G2) growth will ricochet.

PepsiCo’s earnings estimates are predicted to stay steady, but the new G2 product may help “limit risks from the slowdown”.

It is probable that the new products will heighten earnings per share for Pepsi “by 2 cents in 2008 and 3 cents in 2009”.

IT DOES NOT END HERE…IT DOES NOT END HERE…

Along with near future product additions, G2 and Propel Invigorating Water, the company will promote a few of

its accepted existing beverages.

SoBe Life Water - reformulated with sucrose, antioxidants, vitamins, and natural herbs. Each flavor will have an exclusive mix of ingredients offering a distinct benefit; 35 calories per serving, 30% fewer than before.

Aquafina Alive - reformulated with a new sweetener blend, additional nutrients, and less calories.

THE FUTURE IS LOOKING GOODTHE FUTURE IS LOOKING GOODThe world’s second largest soft drink maker acquires 80 percent of Sandora, LLC

("Sandora"), a chief juice company in Ukraine; total purchase price of $542 million plus assumed liability

PepsiAmericas will hold a 60 percent interest, administering the day-to-day process of the business, while PepsiCo will supervise the brand development. The joint venture expects very soon to acquire the remaining 20 percent interest.

Ukraine is one of the fastest growing beverage markets in Europe with more than 46 million consumers.

"Our expansion into Ukraine adds another important contiguous market to our international portfolio, following Romania last year."

The transaction is expected to be $0.01 accretive to earnings per share in 2008.

GLIMPSE OF INVESTORS’ GLIMPSE OF INVESTORS’ FUTURE WITH PEPSICOFUTURE WITH PEPSICO

Currently Pepsico’s management has delivered excellent return on invested capital, with an impressive over 25%.

Their equity growth rate has been “fairly consistent” and the future holds room for growth, but not too much.

“Earnings per share growth has been even more steady. Over the 10 years, the average is 12.64%, over the 5 years, it is 12.12%, over 3 years it is 12.51%, and last year, it was 11.11%.”

BUMPS IN THE ROADBUMPS IN THE ROAD Coke replacing Pepsi at Daytona after a 50 year affiliation

– Pepsi will lose the right for the Pepsi 400 at Daytona.– Pepsi will, however, uphold a relationship to ISC through PepsiCo, with

Gatorade remaining as the title sponsor for victory lane at ISC tracks.

In future India ‘Bazaar’ retail chains, Pepsi’s Frito Lay loses out to “Bingo” brand

– Margin disagreements persuade the retail chain to replace Frito Lay products with ITC’s Bingo snack products.

– Bazaar also introduced it’s own private label snacks, making matters worse for Frito Lay

– A mistake? “Future Group, including Bazaar food chains, with it's large presence throughout India can use some muscle with bigger companies like PepsiCo to pass cheaper prices onto customers while taking good margins by itself.”

THE SHOW MUST (AND WILL) THE SHOW MUST (AND WILL) GO ON!GO ON!

Team recommendations for the future of PepsiCo

PepsiCo should continue to focus on growing their more nutritious product lines that contribute to consumers’ demand for healthier lifestyles. By increasing the depth and variety of these product lines they can ensure long-term sustainability at the top of the market.

Controlling costs in the future by implementing environmentally friendly practices now is a must. Reducing waste water, recycling rainwater, using alternative energy sources such as wind and solar and recycling packaging material are all ways PepsiCo can contribute to a healthier planet as well as financially benefit from lower energy expenses and raw material costs in the future.

ReferencesReferencesAbbott. (2007). Abbott 2006 Annual Report. Retrieved September 6, 2007,

from Abbott Website: http://www.abbott.comPepsico Inc. (2007). Pepsico 2006 Annual Report.

Retrieved September 6, 2007, fromPepsico Website: http://www.pepsico.com

Additional information retrieved from the following websites:•www.firsttrade.com•www.usatoday.com•www.foxnews.com

•www.seekingalpha.com