USA: DBRS Releases Benchmark Report on Quaker Oats, PepsiCo and Coca-Cola

The Quaker Oats Company The Quaker Oats Company ("Quaker") is the leader in sports drinks globally, the fourth largest global cereal company, and it also has a sizeable convenience food business. Operations exhibit the following strengths: (1) The brand portfolio is strong, if not overly deep, with over 80% of sales in categories where it holds leading market shares. Quaker has had good success with recent product introductions. (2) Quaker has divested a number of its less profitable divisions to focus on its core areas, causing sales to fall to about $5.0 billion, even as EBITDA levels have improved to the $800-$900 million range. Profitability is strong compared to peers and trending up, with EBITDA margin in the 17%-19% range and ROC above 30%. (3) Diversification by product category is strong and lends stability to results. The U.S. food area is the largest division with close to 60% of sales and slightly larger portion of operating profits, with Gatorade contributing the remainder. (4) Recent restructuring charges have improved productivity, including the F2000 charge that is estimated to save about $70 million by 2002. (5) The balance sheet should remain above average with good coverage ratios as cash flow is strong (now in the $600 million range) and should fund internal needs over the near future.