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Coca – Cola the beverage giant despite of the economic slowdown has managed to do well in terms of its growths and sales. It has given healthy returns to its investors especially Berkshire Hathaway, owned by Warren Buffett. What makes the company stand out and what are the reasons for its growth? Let’s find out -
Brand Recognition and Strong Fundamentals
Coca-Cola owns major brands which are recognized worldwide which makes the company standout and beat its rival PEPSICO time and again. The company promotes four of the world's top five beverage brands namely - Coke, Sprite, Fanta and Diet Coke proving its reach to the end consumer and showing its mettle as one if the best beverage brand of the world. Company earns $1 billion through its 15 brands which helps it to keep a free cash flow, Not only in sparkling drinks, the company also owns 2 of the biggest juice brands of the world ( Minute – maid and Powerade). Coca -Cola is constantly trying to diversify its market by introducing various new products, for e.g. In 2011, Coca-Cola announced a wide variety of brands Fanta Powder in India and Coke-Zero in Uganda. It is also diversifying in its core business like launching Frugos Sabores Caseros juice in Latin America and Real Leaf green tea based drink in Vietnam. However, the cutting advantage comes to the company as it owns a flawless supply chain system throughout the globe.
Coca Cola – Hathaway’s favorite.
Berkshire Hathaway (NYSE: BRK-B) doesn’t shy away from praising the company as it has given it results time and again and according to them reasons are plentiful.
Firstly, Coca – Cola has had only one dip in earnings per share over the past ten years.
Therefore, EPS have grown on an average of 19.1% per year. Taking into consideration $5 billion one-time windfall involved last year in its acquisition of its North American bottler, the growth rate is almost 13% per year, over a period that includes two recessions, including one of the worst in world history – Impressive isn’t it?
Buffett – a visionary, invests primarily in company who have strong financials, which can pay off their debt, if need be, in a few years time. Coca – Cola fits perfect into that margin. With just over $14 billion in debt and $11.9 billion in annual earnings Coca- Cola more than just satisfies Buffett.
Lastly, Coca Cola is driven by a strong and competitive management – another requirement for Berkshire Hathaway. It can be measured by return on Earnings. While Hathaway seeks 15% Coca-Cola has provided 30%.
Benefits reaped by Hathaway from investing in Coca- Cola -
Hathaway in 1995 received $88 million from Coca – Cola, the year after Hathaway had finished purchasing the stock. Since then the company has been increasing its dividend and in 2011 Hathaway received a whopping $376 million in dividends. The company is expecting this figure to almost double in the next 10 years. Which means Warren is certainly not selling its stocks now and is looking for a long term relationship with the company.
Coca – Cola a healthy option to buy?
Definitely. The company has advantages from price increase, a great product mix and very good volumes. The company is growing at a brisk pace of 5% in almost every country it is plying. It is surpassing its expectations on revenues and the volumes have grown by 4% in the first quarter itself. In countries like India it is growing a t a pace of more than 20% and its stocks offer room for more appreciation. No doubt when the economy is see-sawing, Coca- Cola looks a good bet.
indarkb has no positions in the stocks mentioned above. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services recommend Berkshire Hathaway and The Coca-Cola Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.