When we last left off (1924), the company had sold nearly 17.5 million gallons of syrup, an increase of 230% from the volume sold ten years earlier. In 1925, the upward trajectory continued, with sales at the company reaching a new plateau ($28.5 million, up 12% year over year and crossing 20 million gallons of syrup sold for the first time) despite a decrease in overhead expenses (COGS fell by $400,000 from 1924).
Robert Woodruff, who succeeded Mr. Candler as the company’s President in 1923, had this to say about the years’ results: “The development of both foreign and domestic subsidiaries has been satisfactory.” Suffice it to say that Mr. Woodruff was being humble; the net profit for the year hit $7.9 million, an increase of more than 38% from the $5.7 million earned in 1924. For the year, the company paid $3.5 million in dividends to common stockholders, equal to a payout ratio of 44%.
In Charlie’s speech (discussed in the first article of this series), he highlights the importance of creating a beverage that can be consumed morning, afternoon, and night on every corner of the globe; Coca-Cola talked about their ability to attract consumers regardless of climate in the 1925 report:
“From these two cities of such wide extremes — Montreal (12 million bottles sold in 1925), brisk metropolis of the great Dominion of the North, and Miami (9 million bottles sold), wonder city of sunny Florida—you get the whole story, the big story of Coca-Cola's tremendous popularity despite great variations in climate… It can be told of the hundreds of cities in between where the popularity of Coca- Cola continues through all four seasons—winter, spring, summer and fall. It's the story of the tremendous public demand for the fight product.”
In 1926, the year of the company’s fortieth anniversary, sales crossed $30 million for the first time (gallons sold increased 5.2%), and net profit increased to $8.4 million (up 6% from 1925).
Twelve months later, the company reported its fourth consecutive year of record sales ($32.5 million) and profits ($9.2 million); as noted in the annual report, the majority of this cash would be reinvested in the domestic and international operations to fuel future growth: “In considering the Company's future policies, your Directors have provided for the enlargement of the Company's already extensive program of broadening both domestic and foreign markets. The broadening of the Company's activities will undoubtedly lay a more stable and comprehensive basis for future business and earnings.”
In 1928, Coca-Cola (yet again) hit record sales and profit figures; the company shipped more than 24 million gallons of syrup for the year and net profit crossed the $10 million mark, an increase of 125% from the reported bottom line just five years earlier. In addition, the company was in the early stage of developing a scale advantage over competitors, with cost per unit decreasing by nearly 20% since 1923.
With each passing year, management continues to subtly drop golden nuggets that suggest the global potential that this company might one day achieve: “Contrary to a generally prevalent belief, our experience in marketing Coca-Cola indicates that climatic, geographical, and racial factors exercise relatively small influence upon our sales over a reasonable period of time.” As an example, management noted that the company’s two largest bottling plants serving individual cities in that year were located in New Orleans (51 million bottles per annum) and Montreal (39 million bottles, up more than three-fold from the 1925 figure), two regions with drastically different climates. With this in mind, the company continued their unconstrained expansion to all corners of the globe, increasing product availability from 30 countries to 76 countries over the course of 24 months.
The first “per-capita” chart (which has become a visual representation of the company’s opportunities in international markets) appeared the 1928 report, and showed that consumption had increased (in the U.S.) from an average of 18 bottles/glasses of Coca-Cola per person in 1922 to an average of 25 per annum in 1925; as we will see, that figure will continue to increase region by region across the globe (in 2010, per capita consumption was 394 servings in the U.S.).
Importantly, management was clear in letting shareholders now that expansion internationally would come with a cost in the short term; but for investors, the long term payout trumped the near-term expense: “The opening of foreign markets is a costly undertaking- and during the early years of development promises to parallel our domestic experiences with regard to the protection of our trade-mark and the development of consumer acceptance, with the manifold problems involved. Successful prosecution of these undertakings will require time, courage and patience, as well as large expenditures. Our experiences in Canada, where we operated for a number of years with annual losses, bear out this view.”
Despite the market crash of 1929, sales and profit both increased for the year, at a rate of 13% and 25% respectively. In the annual report, Mr. Woodruff is again focused on the keys to strengthening the company’s moat: increased advertising, a continually improving sales force, and continued development and expansion into foreign markets.
The Coca-Cola Company was firing on all cylinders; this would be critically importantly in the coming years as the longest and deepest depression of the 20th century would soon leave the economy ravished by widespread unemployment and a collapse in global trade.
Here is the continuation of the chart from the first article depicting gallons sold per annum, with the most recent years discussed included:
About the author:I'm a value investor, with a focus on patience; I look to buy great companies that are suffering from short term issues, and hope to load up when these opportunities present themselves. As this would suggest, I run a fairly concentrated portfolio by most standards, usually with 8-10 names; from the perspective of a businessman rather than a market participant / stock trader, I believe this is more than sufficient diversification.
I hope to own a collection of great businesses; to ever sell one, I would demand a substantial premium to the average market valuation due to what I believe are the understated benefits to the long term investor of superior fundamentals and time on intrinsic value. I don't have a target when I purchase a stock; my goal is to replicate the underlying returns of the business in question - which if I've done my job properly, should be very attractive over a period of many years.