Fructose has been associated with negative health consequences. There is growing scientific evidence in support of fructose leading to higher-calorie diets and obesity. The Coca-Cola Company (NYSE:KO) has launched an ad campaign to guide its customers toward healthier lifestyles and change public perceptions of the company. Is this a morally driven campaign to do the right thing for society, or a public relations tactic?
Investors should require low valuations in this industry. Inexplicably, valuation multiples are currently too high for investors to take a sip.
Coca-Cola Uses TV Spots to Show how it’s Fighting Obesity
The Coca-Cola Company (NYSE:KO), the largest global soft-drink manufacturer, has been blamed for the increase in obesity cases. The company has found a new way of fighting this blame through advertisements. A statement from Coca-Cola says that ads will be aired throughout the year to sensitize the public on the importance exercising regularly. The advertisements are Coca-Cola’s latest move to counter criticism that it is one of the main contributors of the obesity pandemic. Statistics released by the Centers for Disease Control and Prevention indicate that about 36% of the American adult population are obese, while 17% of American children are obese.
Michael Jacobson, executive director of Washington-based Center for Science in the Public Interest said, “This is part of Coke’s effort to blunt the opposition they are running into in all different sectors. The opposition is not sitting still these days.”
In the “coming together advert,” Coca-Cola's advice to consumers is to check on the amount of calories they take so that they can control weight gain. The aim of the ad is to highlight that the company is playing an active role in the fight against obesity. On the Coca-Cola advertisement a female narrator points out that it offers 180 low and non-calorie drinks in its wide range assortment of soft drinks. This had helped to reduce the calorie average per each drink sold by 22% in the last 15 years. Furthermore, the ad said that by the end of the year 90% of U.S. consumers will be purchasing smaller-portioned products.The company intends to air 30 to 60 second versions of the commercial all year via different communication media, including Spanish media, according to company spokeswoman Diana Garza Ciarlante. However, she was not willing to reveal how much the company is spending on these ads.
Health experts concur that soft drinks contain unhealthy amounts of sugars that are harmful to the body in large quantities. According to the CDC, obesity has led to massive job losses and treatment costs for diabetes, a disorder which is associated with obesity, and cost the public almost $147 billion in 2008.
In 2009, President Obama suggested that soft drinks be taxed so that the taxes collected could be used to pay for the health care reforms. This move, however, did not go well with Muhtar Kent, Coca-Cola Chief Executive Officer--he termed the idea “outrageous.”
Non-alcoholic beverages are not cheap by any stretch of the imagination:
|Ticker||Company||P/E||P/S||P/B||P/FCF||D/E||EPS Growth Next 5 Years|
|DPS||Dr Pepper Snapple Group Inc. (NYSE:DPS)||15.51||1.58||4.07||NA||1.19||7.0%|
|KO||The Coca-Cola Company (NYSE:KO)||19.64||3.55||2.23||54.67||0.99||8.0%|
|KOF||Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF)||32.51||2.84||4.15||NA||0.21||11.4%|
|MNST||Monster Beverage Corp (NASDAQ:MNST)||26.27||4.1||9.21||29.06||NA||19.0%|
|PEP||PepsiCo, Inc. (NYSE:PEP)||19.33||1.71||5.24||51.81||1.3||6.2%|
For comparison the Standard and Poor’s 500 average price-to-earnings ratio is 13.25, it’s average price-to-book-ratio is 2.02, and its average price-to-sales ratio is 1.31. The multiples of Coca-Cola, Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF), Monster Beverage Corp (NASDAQ:MNST), PepsiCo, Inc. (NYSE:PEP) are off the charts. Dr Pepper Snapple Group Inc. (NYSE:DPS) is priced more reasonably, but it still trades at higher multiples than the broader market. This really make no sense given the societal implications of obesity and the threat of government response.