Mon, Dec 29, 2014, 11:54 AM EST - U.S. Markets close in 4 hrs 6 mins

Recent

% | $
Quotes you view appear here for quick access.

Berkshire Hathaway Inc. Message Board

  • Novalis_97 Novalis_97 Aug 12, 1998 10:26 AM Flag

    Buffett buying Pepsi?

    I haven't been paying attention to the markets
    recently. Someone told me he heard on TV or somewhere that
    Buffett has already or is considering buying some Pepsi.
    My friend told me it was because Pepsi is now doing
    what Coke did many years ago -- sell off its
    capital-intensive bottling operations. In addition, Pepsi's
    decision to sell off its fast-food operations a while ago
    was a good decision. Anyone see anything about
    Buffett saying anything about Pepsi lately?

    I
    think Buffett buying Pepsi sounds plausible:

    1)
    He used to drink Pepsi
    2) Pepsi sold off its
    fast-food operations and selling off its bottling
    operations
    3) Pepsi's stock price has been tanking
    recently

    What do you think?

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • ..........if this were true WEB would have to resign from the board of Coke wouldn't he? In past writings he's expressed great loyalty to Coke calling it one of BRK's "core holdings"

      • 3 Replies to bobo21029
      • I think he would, if he thinks it is a good buy.
        I don't think he would have to resign from the
        board, unless somehow he gained a major stake it it
        (over 5%).

        He has shown he doesn't mind holding
        stocks of competitors, e.g., Dairy Queen &
        McDonalds.

        (Although he sold some MCD, he stated at the annual meeting
        he still has quite a bit of it, not enough to meet
        the $750MM reporting criteria for the annual report)

      • Pepsi is the biggest steal in the S&P500 right
        now. Almost totally immune to economic forces such as
        Asia, and with two of the dominant brand names in the
        U.S. in Pepsi and Frito Lay. Regardless of that fact,
        I know there are some things more important to WEB
        than money, and one of them is the trust and respect
        of Doug Ivester and the rest of the people at Coke.
        Buying Pepsi is out of the question for WEB in my humble
        opinion.
        He has said many times that he'll pass up a good
        deal if he doesn't feel right about it, even if there
        is easy money to be made. This fits into that
        category.

      • I don't see PEP in the future. Mr. Buffett has said he prefers to invest in the leader of an industry and has also expressed disdain for "turnaround company" plays.

    • Warren Buffett looking into Pepsi? It wouldn't be
      too surprising. If you're looking to find fairly
      large companies (small investments are pointless for
      BRK now) with high returns on equity you won't be
      looking at very many stocks...

      JimC
      The Toronto
      Investment Club
      http://torontoinvest.ndsn.com

    • Take a look at the "max" chart vs. the S&P500 for
      Pepsi here on Yahoo and tell me if second in a two
      company industry is a bad thing. It's a position almost
      any company would kill for. Not as good as a monopoly
      but close. The economics of the industry are very
      compelling.

      As for spinning of its Frito Lay unit,
      that would take away the part of the company with the
      greatest margins and market power.
      Frito Lay is more
      dominant than Pepsi.

      Pepsi did spin off its
      restaurants (Pizza Hut, Taco Bell, KFC)last October and will
      be spinning off its bottling operations as one unit
      next year or so. Today's purchase of one of its
      bottlers (to roll them all into one unit before spinning
      them off) was another step in that
      direction.

      Believe me, if Coke could get Frito Lay, it would be
      happy to be in the "foodstuffs" business.

    • Down here in the US the only competition Frito
      Lay has is Mr. Pringles, and his market share is
      insignicant compared to Frito Lay. Whenever I go to the
      supermarket, all I ever see (and buy) is Lays, Dorito's,
      Cheeto's, Frito's, Ruffles, etc., which are all Frito Lay
      products. Please let me know what competitors you're
      thinking of. Thanks.

    • i'm definately not an expert on the snack food
      business, but i would assume that frito lay would compete
      with all other snack foods (i guess those you would
      munch on while watching sports or a movie or something)
      such as popcorn, nachos and salsa, store brand nachos
      and chips and stuff like that. as munger said in an
      interview with morningstar, to understand coke it is
      important to understand pepsi and cott - especially cott.
      why did munger feel store brands to be a threat?
      store brands proliferate on price rather than on
      brand.

      in addition, unless somebody can tell me "the return
      on equity for the fountain business is 24% and the
      return on equity of the snack food business is 26%,
      therefore the average return on shareholder equity for
      pepsi is 25". I have no idea if frito lay is hurting or
      helping pepsi. it could equally be that the fountain
      business is earning the bulk of pepsi's return. if that is
      the case, why is pepsi in the snack food business
      exactly?

      jimc
      the toronto investment
      club
      http://torontoinvest.ndsn.com

    • Please refrain from giving opinions on things you
      have no idea what you're talking about. Do the
      research, THEN give an opinion.

      Frito Lay's
      operating margins exceed those of Pepsi's drink division.
      ROE does also. It has something like a 60% market
      share of the U.S. snack food market. As for all those
      other variables you mentioned, I have a life and don't
      have time to list every possible variable I take into
      account when doing an analysis. Apparently, you
      do.

      You wrote about Campbell's:
      "roe is high but debt
      is unacceptable. buffett believes that best
      indicator of economic performance is return on shareholder
      equity without excess debt. campbells has more than
      excess."


      Take a look at Coke's debt level, or McDonald's, or
      Disney's. Then tell me that Campbell's has more than enough
      debt. Coke's debt is actually more than four times its
      book value (equity). In addition, Campbell's has one
      of the dominant franchises in the world, although it
      has been feeling the squeeze lately and losing a bit
      of market share. But it could easily handle more
      debt if it so chose. It has incredibly predictable
      earnings,
      a 35% return on total capital (which includes
      its debt), and has been buying back shares recently.
      It is also divesting its lower-margin
      operations.

      When doing an analysis of a company with a brand name
      as strong as Coke, Pepsi, McDonald's, Wrigley,
      Disney, Campbell's, Kodak, Hershey, etc., you can't just
      "run the numbers" and use that as your only guide. You
      have to take into account the value of brand equity.
      Haven't you picked that up from studying
      Buffett?
      Unless interest rates go up or there is a disaster,
      these companies will always sell at a huge premium to
      "intrinsic" value. Figuring out the value (both today and in
      the future) of a company's brand equity is critical
      if you're going to try and follow Buffett's
      investment strategy.

      The stock market is overvalued
      right now, but what price to pay for a company that has
      something impossible for competitors to recreate (dominant
      brand name)? That's a hard one to figure out and that's
      why these companies p/e's are so high.

    • <<<When doing an analysis of a company
      with a brand name as strong as Coke, Pepsi,
      McDonald's, Wrigley, Disney, Campbell's, Kodak, Hershey,
      etc., you can't just "run the numbers" and use that as
      your only guide. You have to take into account the
      value of brand equity. Haven't you picked that up from
      studying Buffett?>>>

      Hmmm... Let me make
      sure that I understand.

      If a brand is valuable,
      that means that it can command higher sales prices for
      the goods sold. Therefore, the company would have
      higher earnings. So a good brand is reflected in
      accounting numbers such as earnings. I grant that book
      values do not reflect brand values (economic goodwill)
      unless the brand was purchased at a premium.

      Is
      that right?

      Or, are you saying that a good
      brand warrants a higher P/E even though it does not
      generate higher earnings? And would that be a good brand
      then or just something that feels good?

      Or,
      perhaps, a good brand means more predictable earnings,
      therefore commanding a higher P/E than for firms with no
      brand values and commodity-type competition? That would
      make sense.

      You can see that I am slightly
      confused by this discussion.

    • "Frito Lay's operating margins exceed those of
      Pepsi's drink division. ROE does also. It has something
      like a 60% market share of the U.S. snack food
      market."

      This doesn't tell me what frito lay's return on equity
      is.

      "Take a look at Coke's debt level, or McDonald's, or
      Disney's"

      KO's debt to equity is 0.09. MCD is 0.64. DIS is
      0.61.
      Campbells is 1.27. For every dollar of equity you buy in KO
      you are stuck with 9 cents in debt. For every dollar
      of equity you buy in Campbells you are stuck with
      $1.27.

      "you can't just "run the numbers" and use
      that as your only guide."

      It's my failing from
      my engineering background. Benjamin Graham and
      Martin Whitman's methods appeals to me.

      "You
      have to take into account the value of brand
      equity."

      Brand shows up in net income. Besides, if brand doesn't
      affect net income then it's meaningless.

      "35%
      return on total capital (which includes its
      debt)"

      How does it include the debt? Campbells is running at
      25 times book and that's not even confirming the
      true value of Campbell's book which may be
      overstated.

      "The stock market is overvalued right now"

      I'll
      have to agree with that.

    • Mr. Rickson:

      <<<
      Brand shows
      up in net income. Besides, if brand doesn't affect
      net income then it's
      meaningless.
      >>>

      I think a brand is meaningful because it's some
      protection against future declines. Not immunity, mind you,
      but something. Over time, brands can erode. Cadillac
      used to be synonymous with the best car you could
      have--in 1960. Today, look at it. The Cimarron (and
      others) have really damaged this once-unblemished
      brand.

      Coke, McD's, and Disney all have pretty good brand
      names. This says something about the revenues they'll
      see *next* year, unlike, say, International Paper or
      ESS audio codecs (on PC motherboards).

    • I'm taking a huge hit on Disney. Any advice from you Berkies out there? My gut instinct says buy more at current price.

    • View More Messages
 
BRK-A
228,049.9688+1,549.9688(+0.68%)11:41 AMEST

Trending Tickers

i
Trending Tickers features significant U.S. stocks showing the most dramatic increase in user interest in Yahoo Finance in the previous hour over historic norms. The list is limited to those equities which trade at least 100,000 shares on an average day and have a market cap of more than $300 million.