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?
think Buffett buying Pepsi sounds plausible:
He used to drink Pepsi
2) Pepsi sold off its
fast-food operations and selling off its bottling
3) Pepsi's stock price has been tanking
What do you think?
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
He has shown he doesn't mind holding
stocks of competitors, e.g., Dairy Queen &
(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
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
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...
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
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
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
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
the toronto investment
Please refrain from giving opinions on things you
have no idea what you're talking about. Do the
research, THEN give an opinion.
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
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
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
a 35% return on total capital (which includes
its debt), and has been buying back shares recently.
It is also divesting its lower-margin
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
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
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
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.
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?
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
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
This doesn't tell me what frito lay's return on equity
"Take a look at Coke's debt level, or McDonald's, or
KO's debt to equity is 0.09. MCD is 0.64. DIS is
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
"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.
have to take into account the value of brand
Brand shows up in net income. Besides, if brand doesn't
affect net income then it's meaningless.
return on total capital (which includes its
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
"The stock market is overvalued right now"
have to agree with that.
up in net income. Besides, if brand doesn't affect
net income then it's
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
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).