The Dominion Bond Rating Service recently published a report about future prospects for the US-based Pepsi Bottling Group. The report outlines that recent acquisitions have put the Group in a strong position and that it is destined for further steady growth.
The DBTRS report begins by outlining fact that the Pepsi Bottling Group, is the largest and most important bottler in the PepsiCo system. PBG accounts for 55 per cent of Pepsi Cola sales in the US. DBTG also believes that International sales (the US market currently accounts for 85 per cent of PBG's sales) will increase as PBG recently reached a non-binding agreement for the acquisition of Pepsi-Gemex of Mexico for US$1.25 billion (€1.33bn). It is said that the acquisition will increase leverage, yet it is considered a good strategic fit.
So far, PBG's performance is on track since being split from PepsiCo in 1999. Results for 2001 were better as sales grew by 6 per cent and 12 per cent, respectively. DBTG says that results are expected to improve further due to PBG's strong portfolio, an exclusive agreement with PepsiCo to sell its beverages in assigned territories, a PepsiCo debt guarantee and improving cash flows.
However the report also highlights a number of challenges that Pepsi bottling are facing. These number the competitive nature of the segment, rising costs, high levels of investment to keep up to date with packaging technologies and the fact that retailers have increased their bargaining power in recent years.
DBRS is a Toronto-based, non-affiliated full-service credit rating agency established in 1976.