You Drink Coke and You Don't Even Know It

By Michael Carter - September 2, 2012 | Tickers: KO, PEP | 0 Comments

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In we look at the last 5 years of quarterly earnings per share (EPS) for Coca-Cola (NYSE: KO), one would see that this traditional blue-chip company is still on the rise.  The last 10 quarters (last 2.5 years) show an EPS average of $0.54 while the previous 10 quarters (first 2.5 years) have a $0.33 EPS average.  That is an over a 63% increase in EPS.  During this same time the share price has increased over 42% with real returns of over 65% if you had reinvested your dividends.  Many people might only see KO as the company that produces the popular coke soft drink.  However, KO makes hundreds of products and you probably use their products and don’t even realize it.

Always Coca-Cola

Coca-Cola in my opinion is the best of the best in the non-alcoholic beverage industry.  Their portfolio includes owning or licensing of more than 500 non-alcoholic beverage brands and over 3500 beverages total.  They have everything from diet and sparkling beverages to still beverages such as 100 percent fruit juices and fruit drinks, waters, sports and energy drinks, teas and coffees, and milk and soy-based beverages.  Here are some of the popular drinks you may use or see in the grocery stores that are brands of KO or have an invested relationship with the company.

Still Acquiring and Improving

What I like about Coca-Cola is that it is not satisfied with where it is and is willing to continue to improve every year.  During the first half of 2012, their acquisition and investment activities totaled $756 million.  These investments included investments in the existing beverage business of Aujan Industries, one of the largest independent beverage companies in the Middle East.  KO also acquired bottling operations in Guatemala, Vietnam, and Cambodia. 

KO is making other improvements.  They recently finished a company-wide transformation effort to improve productivity.  This improvement in productivity will allow KO to have further flexibility for future growth.  KO has also been in partnership with Fuji Electric Retail Systems in Japan to develop a new generation of vending machines.  The A011 works by varying the cooling to better manage electricity usage during high traffic hours and use during the day.  The new machine has vacuum insulation and airtight design so that less power needs to be used to keep the drinks in the machine cool.  If the machine becomes a hit, it could open the door to a new revenue channel for KO as some businesses and cities where electricity costs are high could decide to switch for the modern vending machine.

The Pepsi Challenge

In the 5 year comparison chart above showing share price % change of Coca-Cola (Blue) to PepsiCo (NYSE: PEP) (Red), you can see KO has been a much better investment with gains of over 43% to PEP 7% in the same time period.  Even though both companies have seen similar rising price patterns for the last few decades and both carry a decent dividend of over 2.5% annually, I prefer KO as the stock of the two today. 

If you only look at revenue and EPS, PEP actually looks like the better stock right now.  PEP even beats KO with a slightly higher dividend.

However, in 2011 KO sold over twice as much soda as PEP ($28 billion vs. $12 billion).  This is because KO is strictly drink focused while PEP has to rely on its other brands like Frito Lay that may not fit within today’s market of health more and more people growing health conscious.    

Top Two Spots

Coca-Cola is in such a dominating position that it is basically competing with itself to keep the title of America’s Favorite Soft Drink.  Last year, Pepsi lost the second spot to Diet Coke.  If this doesn’t show the domination and the momentum KO is building, I don’t know what will.  For Coke and Diet Coke to have the top two spots shows that KO deserves a spot somewhere on your watch list or in your portfolio.  America loves Coke and your portfolio should realize this sooner than later.  The next earnings announcement for KO is October 15, 2012.

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