Coca-Cola: New Global Strategy Will Fuel Your Portolio
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One of the other hats I wear in my life is teaching international students about globalization and how it is affecting our world economy. The dilemma most interesting to tackle is the debate revolving around global vis-à-vis local strategy. Does a company utilize a global standardization or create local customization? The answer often determines the difference between superior and inferior performances. However, is there only one answer to that question?
The answer may lie more in the middle ground of developing a globalized brand that maintains the delicate balance of being multinational yet local. There must be global leadership that drives the spread and acceptance of the brand. Yet it is the local adaptation which ensures success and acceptance in the neighborhood market.
Coca-Cola (NYSE: KO) has taken on this challenge of building a global mindset. Coke is the beverage leader of the world. Nevertheless, Coca-Cola seeks to find the bridge to localization that addresses unique cultural differences.
The Coca-Cola logo is an icon recognized by 94% of the world’s population. Coke products represent around three percent of all the beverages on the planet. Coke’s brand is worth $74 billion.
Coke acknowledges the importance of global direct investment in countries, especially emerging markets that hold a golden future of expansion. Coca-Cola recently invested $160 million in a production plant in Liaoning, China. Over the next three years, Coke plans to increase its position to $4 billion in an effort to establish a long-term sustainable growth pattern in China.
The investment in the 42-acre Liaoning plant will open the door to serving up 5 billion Coke beverages, including Sprite and Minute Maid, annually. Locally the factory will open up job opportunities for 500 people at the plant and a possible 5,000 opportunities in related industries.
PepsiCo (NYSE: PEP) is beginning to nod towards China, India, Russia and other emerging markets. Pepsi is in negotiations with Tingyi, China’s biggest maker of packaged foods. Coca-Cola has already invested over $2 billion in India over the last 18 years and is confident about its continued Indian operations growing and influencing that part of the world. In addition, Coke will be allocating $3 billion over the next four years in the Russian market.
SodaStream International is looking to hitch its star to the global spread by teaming up with a cosmetics partner that will place its soda siphons in Japanese bathrooms. SodaStream’s repeat sales of carbon-dioxide cartridges and flavorings drive its business model.
SodaStream discovered a preference among Japanese women to wash their faces in sparkling water while exploring overseas expansion. It is counting on this beauty secret to nibble away at Coca-Cola’s share. SodaStream's system is more environmentally conscious than containers of cans and bottles. With consumers becoming more eco-friendly this may be just the niche SodaStream needs. Coke however will not even feel the little bite out of the overall global market Coke firmly has a hold of.
With all this talk of a global focus, Coke is not abandoning its home turf. Coke and Dunkin’ Brands Group (NASDAQ: DNKN) recently announced a multi-year agreement to switch from Pepsi and serve Coca-Cola products exclusively in the more than 9,400 Dunkin’ Donuts and Baskin-Robbins outlets across the United States. Starwood Hotels (NYSE: HOT) also switched to Coke from Pepsi last year.
Emerging markets with the fastest-growing economies seem to hold the golden egg for stock investors looking to maintain stability in their portfolio. Coca-Cola has established itself as a leading contender in overseas markets and has a well thought-out foreign investment plan. Increased demand for consumer goods overseas will result in a solid pay off for patient investors.
Financial stability, dividends and strong U.S. blue chips can balance ones portfolio for the long haul. Coca Cola, Procter & Gamble and Yum! Brands all have stable positions in emerging markets, sustainable earnings and enticing dividends. In uncertain market times, it makes sense to gravitate to U.S. companies that have increasing market share in diverse global locations.
Coca-Cola has paid uninterrupted dividends on its common stock since 1893. Payments to common shareholders have increased over the last 50 years. Warren Buffett’s Berkshire Hathaway is the largest shareholder of this beverage king that dominates the field of competitors that includes PepsiCo, Dr. Pepper Snapple and Monster Beverage. For the last 10 years, Coca-Cola has delivered an annualized total return of 6.7% to its shareholders.
EPS has been stable at 9.7% since 2002. Analysts anticipate Coca-Cola to earn $4.08 per share in 2012, increasing to $4.47 per share in 2013. The company itself envisions a high-single-digit annual EPS growth rate throughout the next decade in its 2020 Vision Strategy.
This continued and anticipated growth revolves around development in the four core global markets of development. Coca-Cola will invest over $20 billion in Africa, China, Mexico and Russia. These key markets will ensure the continued case volume growth.
These emerging markets are significant to Coca-Cola’s sustained growth strategy, as more consumers join the middle class ranks. In China, the average consumer enjoyed 34 servings of coke, while India averaged 11 and the average Russian had 69 servings of the product. Coke is still a good value at 18.7 times its earnings, with a consistent dividend payout and yields at 2.9%.
Coca-Cola has a strong position with anticipated growth rate over the next five years of 6.17%. Coke’s revenue growth has charged ahead of its industry competitors at about 5.2% per quarter versus the industry average of 4.4%. Its net operating cash flow has performed even better, increasing to almost 16%.
I think Coke looks strong. It is aggressively pursuing investments in emerging global markets, maintaining its focus on the beverage industry rather than branching into other areas and is still grabbing footholds in its home market of the U.S. It is poised to maintain its beverage market domination.
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