Coca-Cola the Great
Alvin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
No other company has quietly dominated the world as much as The Coca-Cola Co (NYSE: KO). Coca-Cola, which has been in business since 1886, is in the boring business of selling soft drinks. However, in the over 100 years that the company has been in existence, it has built up a globally recognizable brand that is unrivaled by any other company in the soft drink industry. Coca-Cola owns or licenses over 500 non-alcoholic beverage brands. According to BrandZ, Coca-Cola is the number one brand in soft drinks with a brand value of $60.3 billion. Diet Coke is number two with a brand value of $14 billion. The following table shows the top ten brands in the soft drinks industry (BrandZ).
As shown, Coca-Cola dominates the industry. While there are ten brands listed, there are actually only four companies with a brand in the top ten: Coca-Cola, Red Bull GmbH, PepsiCo (NYSE: PEP), and Dr. Pepper Snapple Group (NYSE: DPS). Coca-Cola owns Coca-Cola, Diet Coke, Fanta, and Sprite; Red Bull GmbH owns Red Bull; PepsiCo owns Pepsi, Gatorade, Mountain Dew, and Diet Pepsi; and Dr. Pepper Snapple Group owns Dr. Pepper. Coca-Cola has a 20 year license agreement (agreed on in year 2010) with Dr. Pepper, in which Dr. Pepper licenses certain Dr. Pepper trademarks to Coca-Cola for use in North America. In “BrandZ Top 100 Most Valuable Global Brands 2012,” Coca-Cola sits at number six overall and beats out some other well known companies such as General Electric, Visa, Nike, and Intel. In comparison, Pepsi and Red Bull sit at 67 and 80, respectively. In terms of competition, Pepsi is Coca-Cola’s biggest rival. In 2011, Coca-Cola, Pepsi, and Dr. Pepper Snapple had net incomes of $8.6 billion, $6.4 billion, and $606 million, respectively.
In Q3 2012, in a tough global economy, Coca-Cola reported a solid quarter. Net revenue and net income grew by 1% and 4% year over year, respectively. Most impressively, Coca-Cola reported volume growth in all of its geographic operating groups including Europe, which was up by 1%. Coca-Cola CEO Muhtar Kent stated, “We have been able to crack the calculus for growth in this environment. We have done this by consistently investing in our system and our brands to ensure that our global portfolio is more relevant and healthier today than it has ever been. We remain resolutely focused on ensuring that we leverage our wonderful heritage and fuse it with what is expected by our consumers today in order to earn and sustain our place in their daily lives tomorrow.”
Looking back, Coca-Cola recently (relatively) made expensive acquisitions. In 2010, Coca-Cola acquired Coca-Cola Enterprises’ (NYSE: CCE) North America bottling business for $12.3 billion. In the exchange, Coca Cola Enterprises bought Coca-Cola’s bottling operations in Norway and Sweden. Coca-Cola Enterprises’ North America bottling business is Coca Cola’s largest bottler in the region. Also, in 2007, Coca-Cola bought Glaceau the maker of Vitaminwater for $4.1 billion. While acquisitions have always been part of Coca-Cola’s DNA, these are very expensive acquisitions. However, the acquisitions look like they have been panning out for the company. From 2006 to 2011, Coca-Cola averaged a 14.08% compounded annual growth rate (CAGR) in revenue and a 12% CAGR in operating income.
Going forward, the company’s growth hinges on increasing its volumes through developing markets and partnering with local bottlers. There should be a natural trend of growth because global and urban populations are growing. In a UN report, by year 2050, Africa’s and Asia’s urban populations are projected to grow from 414 million to over 1.2 billion and from 1.9 billion to 3.3 billion, respectively. In the quarter, Eurasia & Africa accounted for just 6% of the company’s net operating revenue. Coca-Cola has plenty of opportunity to grow. However, there are risks to such a big global operation. Big global operations are very complex, susceptible to currency fluctuations, and at the mercy of local laws. Regardless, Coca-Cola is a solid business. It has a well established business with an overwhelming brand and opportunities to grow. At a PE of 19.1 and a tangible book value per share of only $1.21, the company is not cheap. In addition, the company has about $33 billion in total debt. However, with the current global economic problems (Europe, Fiscal Cliff, etc) investors might get the opportunity to snatch up shares at a cheap price. Boring Coca-Cola should not be ignored.
Alvin has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend The Coca-Cola Company and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!