GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

This Beverage Giant may Bubble Up to the Top of Your Portfolio

June 27, 2014 | About:
abirk

abirk

4 followers

Soft drinks have always been a hit among people of all ages, until recently. This trend has taken a dip as weight gain, poor dental health, diabetes and cardiovascular diseases are on the rise. People are now much more health conscious as the rate of obesity is accelerating at a great pace. Sugar, being the most important ingredient of soft drinks, is the main contributor to obesity.

The Coca-Cola Company (KO), being the leader in the beverage industry is constantly innovating new products and techniques for its valued customers. Over the years, this Atlanta, Georgia-based company has also provided a decent return to its valued investors.

Health consciousness of people has paved the way to decline in the consumption of carbonated soft drinks and diet soda in the U.S. market. The only reason behind this is numerous health problems such as weight gain, poor dental health, diabetes, and cardiovascular disease.

Financials

Coca-Cola is the biggest beverage company in the world with over 500 brands sold in over 200 countries. The company achieved record volumes in 2013 and is expected to grow earnings at 8% over the next three years. Coca-Cola has a history of returning capital to shareholders that only a select few companies can claim. Over the past 80 years, Coca-Cola has increased its profits in 76 of those years.

More recently, earnings per share for Coca-Cola have increased by 90% cumulatively over the last ten years. From 2008 to 2013, net income (earnings without the financial engineering of buybacks) increased at a compound annual growth rate of 8.1%. Even more exciting is the fact that during the first quarter of 2014, case volumes in China increased by 12%, along with 6% increases in both India and Russia. Brazil saw a 4% increase in case volumes during the same period. For 2014, analysts expect the company to generate adjusted earnings per share of $2.09, which is just barely above the $2.08 that was generated in 2013. Coca-Cola's most recent dividend increase was 9%, lifting its quarterly per-share payout to $0.305.

Coca-Cola Invests US$100m in Building a Green Plant In Heilongjiang, China

Coca-Cola established its first plant in Heilongjiang in the Harbin Economic-Technological Development Zone in 1994. The new plant is part of the redevelopment plans and will be located in the New South Harbin Industrial City. With strong business growth in the northeast region, there is a need to increase capacity to fulfill the fast increasing local consumer needs.

The 200,000 sq. m new plant is designed to accommodate nine production lines for both sparkling and still beverages, including Coca-Cola, Sprite, Fanta, Minute Maid and Ice Dew. Upon completion, the total investment is expected to deliver an annual production capacity of 1.2 million tons of beverages. The first phase of the new plant will be operational in 2016. At that time, the existing Heilongjiang plant will be relocated to the new site together with its operation and management team.

Coca-Cola (Heilongjiang) Beverage Co., Ltd. has achieved long-term development in the past 20 years with its establishment in the Harbin Economic-Technological Development Zone. Providing quality and safe products to consumers, Coca-Cola Heilongjiang plant has always been committed to operating in a sustainable way, promoting energy-efficiency, low-carbon and green operations, and has played an active role in supporting and driving various social and charity causes. "

What to expect

As I said earlier that people are much aware of their health therefore, to regain its market position Coca-Cola will implement stevia (a natural product that is sweeter than sugar) into its products instead of sugar. Stevia sweetener contains zero calories, and is made from the best-tasting part of the stevia leaf. The cola giant has used stevia in 45 products, such as Vitaminwater Zero, and Fanta Select, but never in its flagship cola.

Coca-Cola becomes increasingly focused on improved product and packaging mix, especially in developed markets.

While Coke has been priced differently at different markets when, it must be noted that these differences in price exist in the markets (like Europe, Mexico, and Brazil) where favoritism exists in favor of Coke.

Recently, Coca-Cola has made collaboration with Liberian governments, civil society, and other businesses to bring women entrepreneurs into the company’s value chain, and create opportunity for sustainable prosperity.

Good News Is

Coca-Cola is increasing its marketing spend to spur growth. It is focusing on efficiencies in the business and is trying to attain cost savings wherever possible. Coca-Cola's Keurig Green Mountain deal can expand its addressable market. The company Coca-Cola is seeing positive trends in some of its end-markets, indicating that it can resume volume growth. Coca-Cola's fundamentals are still strong, making it a solid investment.

Coca-Cola's performance is driven by the strength of its brand, price, pack and channel architecture across its entire portfolio. The company has been increasing its marketing investments rapidly, and is simultaneously focused on decreasing other costs in line with its commitment to identify savings opportunities and to increase support for its brands.

Coca-Cola's performance is driven by the strength of its brand, price, pack and channel architecture across its entire portfolio. The company has been increasing its marketing investments rapidly, and is simultaneously focused on decreasing other costs in line with its commitment to identify savings opportunities and to increase support for its brands.

On a concluding note

Coca-Cola is implementing different strategies to gain the confidence of their valued consumers in the U.S. market. Recently, Coca-Cola introduced ‘Coca-Cola Life’ - an all-natural, low-calorie soda packaged in a fully-recyclable plant-based bottle. The drink is made with a mixture of sugar and stevia-based substitute. This introduction proves that the company is always there for its valued consumers.

Coca-Cola has a long track record of steady and strong cash flow, and in terms of earnings growth in the future. The company also has a strong foothold in the international markets.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide