Reading headlines about The Coca-Cola Co (NYSE:KO), you would think the company will be shutting its doors soon.
– The End of the Coke Era on Business Insider
– Coca-Cola: End of an Era? on Seeking Alpha
– Is This The End of Coca-Cola As We Know It? on NASDAQ
Make it sound like Coca-Cola is on its last legs.
People here Coca-Cola, and they think of the iconic soda; and they are right to – Coca-Cola is the global leader in soda.
But there’s more to Coca-Cola than soda…
Source: Coca-Cola Investor Relations
Coca-Cola is the global leader in:
– Still (non-carbonated) beverages
– Ready-to-drink coffee
– Ready-to-drink juice
The company has 20 brands that generate more than $1 billion a year in sales. And no, they aren’t all soda brands.
Of Coca-Cola’s 20 billion dollar brands 14 are non-carbonated.
It’s time we stop thinking about Coca-Cola as a soda business, and start thinking about Coca-Cola as a global beverage business.
During the third quarter of the last year, Coca-Cola’s popularity among the investors tracked by Insider Monkey registered a decline, as the number of funds with long positions slid to 54 from 62. However, the aggregate value of their holdings fell just slightly to $1.93 billion from $1.95 billion and was equal to 11.10% of the company’s outstanding stock at the end of September. Warren Buffett’s Berkshire Hathaway is betting big on Coca-Cola, owning 400 million shares, followed by Donald Yacktman’s Yacktman Asset Management and Ken Fisher’s Fisher Asset Management with 24.89 million shares and 10.29 million shares, respectively.
Coca-Cola’s Simple Growth Story
The growth story surrounding Coca-Cola is surprisingly simple.
If people continue to drink beverages, Coca-Cola will continue to grow its earnings.
As long as more people prefer any type of beverage to tap water, Coca-Cola will very likely grow.
That’s about as safe an investment as can be made.
Fortunately for Coca-Cola, greater numbers of people in the world are able to afford buying the company’s expensive (relative to tap water) beverages.
Over the next 5 years, the global middle class is expected to increase by 700 million. Personal consumption growth is expected to increase 20 trillion. The image below highlights this growth:
Source: Coca-Cola September 2015 Barclay’s Presentation, slide 4
Margin Improvement Programs
Coca-Cola CEO Muhtar Kent is focused on improving Coca-Cola’s margins. Margin enhancing cost-cutting moves in 2015 are shown below:
– 4 Plant closures
– Closed or converted 7 distribution facilities
– Reduced non-bottling headcount by ~10% (over 1,600 people)
The company is also refranchising many North American bottlers and consolidating bottling agreements in other parts of the world.
Coca-Cola has also initiated zero-based budgeting. This process requires all expenditures to be approved, forcing management to regularly justify expenditures to create a more efficient organization.
Coca-Cola’s margin improvement program is expected to generate $3 billion in savings per year by 2019.