Coke is Still It
Eric is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In our still shaky economy, there are very few near-certain bets. One of that tiny number is Coca-Cola (NYSE: KO), a company that despite a longtime market-dominating, number one position in its industry still manages to grow and produce cash to grow its operations and reward its shareholders.
The company just announced that its fourth quarter revenue grew 5% to a little over $11 billion. Meanwhile net profit excluding restructuring and other charges was 79 cents per share, a penny or two more than the consensus estimates. Although the net figure represents a steep drop from 4Q 2010, that particular quarter saw the company book a large one-time gain, so the results aren't really comparable. Stripping that gain out of the 4Q 2010 results shows that net actually grew by around seven cents, or nearly 10%.
Which is impressive. After all, Coke and other companies in the food and beverage sector had to contend with a big bump in the prices of commodities such as corn (used to make syrup for soft drinks), which climbed to record levels last year. It also didn't help that consumers spooked by the economy tightened their financial belts and spent less on non-essential items like cans of Coke. Despite being buffeted by these strong winds, KO still managed to eke out a slight increase in both North American and European sales volume.
Increases were higher in faster-growing markets elsewhere on the globe. Latin America saw a 4% year on year rise, while Asia zoomed ahead faster at 5%. More specifically, thirsty China was a star market for the company -- sales there jumped 10% over the previous year's fourth quarter.
Coke's not only sharp about making money, it's good about saving it too. Wrapping up a four-year program to cut several hundreds of millions of dollars in costs, the company saved over half a billion in the green stuff. This was higher than the upper range of its anticipations. This bodes very well for the future, since Coke wants to slice another $350 million-$400 million by the end of 2015. If they've done it successfully once in recent times, there's little doubt they can do it again.
No other player in the soft drink sector approaches Coke's success. Pepsico (NYSE: PEP) has done a good job growing its top line over the past decade or so (thanks in no small part to a market-leading position in the snack food segment), but its net margins are nowhere near those of the market leader. Even before that fat one-time gain in 2010 Coke was posting net margins well in the 20% range; Pepsico's were typically around half of that. Coke also has significantly more cash for crucial activities like marketing and is burdened with less debt.
Smaller rivals are nipping at Coke's heels. So far, however, they're not much of a threat. Dr Pepper Snapple Group (NYSE: DPS) is a niche player with a specialty drinks portfolio, and as such doesn't have the immense, concentrated brand power or the global reach enjoyed by King Coke. Its margins are Pepsi-like and its dividend, yielding more or less the same as that of both KO and PEP, isn't high enough to set it apart.
One sugary drink purveyor to watch for the future -- perhaps as an acquisition? -- is Monster Beverage (NASDAQ: MNST). Although the company's signature product is even more niche than Dr. Pepper or Snapple, it's top in its class, and the firm manages its business well. Net margins are consistently fat (just over 16% in the most recent fiscal year), EPS growth is expected to approach 30% over the next two years, and its balance sheet is debt-free. It offers no dividend, instead choosing smartly to plow its profits back into the business.
In other words, it's no Coke. But then again, what company is? Eternally a blue chip, eternally a strong performer, Coca-Cola remains one of the best stocks for any portfolio or investor.
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