Beverage Maker Still King of The World

Margie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

With the world still rapidly embracing American products, and seeing Coke and PepsiCo (NYSE: PEP) products all through the developing world, let’s do a quick SWOT analysis on the big beverage leader, Coca-Cola (NYSE: KO).

Strengths

  • Brand name- one of the strongest in the world. This is a huge part of their economic moat they have carved for themselves. Heck, old Coke machines sell for Thousands of dollars and are coveted by collectors worldwide, a tribute to the power of their brand.
  • Excellent marketing. That brand name doesn’t come from nowhere. Then again, they spend enough doing so. Fascinating that acidic, carbonated, sugar water can hold such a high place in American lore.
  • Certainly one of America’s most successful companies with a 100 year + history. Warren Buffett is a long term shareholder. You don’t have to worry about Coca-Cola going out of business tomorrow, like you might some tech stock.
  • Solid balance sheet, and a dividend of 2.7% which the company has the cash flow to pay, should both warm investor hearts this holiday season.
  • While Pepsi’s domestic sales declined by 2% in Q3, Coca-Cola’s rose 3%. The company is obviously doing something right.
  • Has a lower debt to equity ratio than competitors Pepsi Cola and Dr. Pepper.
  • Net profit margin of 18.7% is much higher than industry peers.
  • Recent insider buying by a company director, however small the amount, is a bullish signal.  

Diversified portfolio of products becoming less soft drink dependent, which today make up 40% of sales.

Weaknesses

  • Dr. Pepper Snapple Group (NYSE: DPS) has successfully integrated Stevia into some of its products, while Coca-Cola is still struggling, having introduced it in Sprite and some of its Odwalla line. To some degree this gives Dr. Pepper at least a temporary advantage in the low calorie drink market amongst health conscious consumers. Coke however is working diligently on a solution.
  • Soda volume has been falling in North America since 1998. Obviously being made up for internationally, but it has to be mentioned.

Opportunities

  • Last year, the EU approved Rebania-A (which is processed Stevia) for commercial use, which has given Coca Cola a big opportunity to introduce low caloric, stevia sweetened products there. This will also help in the United States should a New York inspired ban on sugary drinks spread. (see below)
  • A “large acquisition of a stake in Aujun Industries helped the beverage producer gain a greater position in the Middle East and take away share from PepsiCo, the market leader.” Quoted from this Motley Fool column.
  • Also expanding into dairy drinks via Fair Oaks Farms, along with expansion in Chile, and a new plant in Vietnam.
  • Set a goal to double sales by 2020 with the Middle East and BRIC nations being targeted as prime opportunities for growth.

Threats

  • Governments around the world employing fat taxes, on products that eventually will burden the health care system.
  • Specifically the state governments and or Federal government starting to charge sales tax on soda, eliminating it from the tax exempt “food” list.
  • Recent ban of large sugar based beverages in New York might be the beginning of a trend that would reduce demand for Coca-Cola products.
  • SodaStream (NASDAQ: SODA) markets machines which allows consumers to produce their own soda-like beverages at home. By marketing to environmental concerns and the relative lack of waste they produce compared to Coke and Pepsi, they have the potential to take market share from them, at least from environmentalists such as myself.

Bottom Line

Coca-Cola is always looking to expand its operations, and is not resting on its laurels. Warren Buffett is a long term shareholder, and has shown no inclination to sell. They have a leading market position in the beverage world, and a wide wide wide economic moat around their business, with an excellent marketing department.

If you are a conservative investor, buying shares of Coca-Cola seems like a no brainer, especially if you are willing to Buffett it, and let the shares sit in your portfolio for a number of years.


margiecfl has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo and SodaStream. Motley Fool newsletter services recommend The Coca-Cola Company, PepsiCo, and SodaStream. 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!

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