Dividend Aristocrats Part 49: The Coca-Cola Co (KO)

Reading headlines about The Coca-Cola Co (NYSE:KO), you would think the company will be shutting its doors soon.

Articles Like:

– 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…

KO Infographic
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:

KO Abundant 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.

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