Coca-Cola’s Downslide: Threat or Opportunity

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

The market value of Coca-Cola (NYSE: KO) continues to diminish after reaching its 52-week high in July. The company has provided a 6.6% return over a 12-month period, but the stock have fallen 10.6% since July. Although the current market conditions for Coca-Cola do not seem very convincing for investors, the prospects for the financial performance of the company seem bright. There has been an indication in the growth of dividend and this anticipation in the market is expected to push the value of the stocks of the company to a higher point.

Although the company’s performance has been lower when compared to its competitors i.e. Neste, Dr Pepper Snapple Group (NYSE: DPS), Diageo plc, and PepsiCo (NYSE: PEP), one factor that may help in reinstating the value of the company’s shares is the steady increase in its dividend per share. In the past decade, the dividend per share of the company has risen steadily and this trend is most likely to continue. In FY 2002, Coca-Cola gave out a dividend of $0.40, which has risen to $1.02 in FY 2012. From the historic trend of the company’s dividend, it can be expected that the dividend for FY 2013 will rise to $1.10, and this will add strength to the market performance of the company.

Another factor that keeps Coca-Cola from claiming the biggest market share in any region is the fierce competition by its rival PepsiCo. Both the companies follow each other in international markets. If Coca-Cola invests in an international market, PepsiCo follows rendering Coca-Cola unable to capitalize on the sole market share. Dr Pepper Snapple Group also poses as a major competitor for Coca-Cola in soda business; however, the market share of Dr Pepper is not as extensive as that of PepsiCo and Coca-Cola.

Coca-Cola’s Ninth Annual Sustainability Report

Coca-Cola has been making efforts to create value for its shareholders, and these efforts can be evidenced by the ninth annual Sustainability Report that was recently released by the company. One of the major factors that influence the company's market performance is the goodwill of the company, and goodwill can be enhanced by taking an active part in corporate social responsibility. Cola-Cola seems to be following this path as well, as the company disclosed its extensive efforts to bring improvement in the society. Bea Perez, Chief Sustainability Officer at Coca-Cola said, “Coca-Cola is intent on growing our business by making a difference wherever our business touches the world and the world touches our business. We are committed to enhancing people’s lives, economically empowering women, providing access to safe water and promoting water replenishment – in collaboration with critical partners from civil society and government.”

The report included a number of facts that might have a positive influence on the company’s market performance. The company disclosed that the calories per serving of its products have decreased by 9% since 2000. This factor may push the global sales of the company as the consumer trend is shifting towards products with low caloric value. Coca-Cola also launched a cause-marketing project called Arctic Home, which will raise awareness and funds for the protection of the polar bear. This project will not only enhance the scope of the company’s marketing, but will also increase the goodwill of its brand. These factors may translate into higher sales, which means higher profits.

Coca-Cola’s Global Expansion

Despite its presence all over the globe, the company has been making significant efforts to boost its growth in international markets. The most recent attempt is the company’s plan to invest $300 million in Vietnam. This investment will be carried out over a period of 3 years and it will create a strong foundation for the company’s brand in the country, along with creating jobs, new infrastructure, and strong partnerships with local brands.

Coca-Cola is also targeting emerging markets like Russia, China, and India for its international growth. These emerging markets have shown a serious growth rate and the company intends to benefit from this growth rate by making investments in these markets. The company has been very optimistic with regard to its business in India. The current investment of the company in India stands at $2 billion and Coke  intends to make an additional investment of $3 billion in the country over the next eight years for fostering infrastructure and consumer marketing.

For China, the company has planned an investment of $4 billion over a time period of three years. With this additional investment, the total investment of the company in China will stand at $7 billion in 2014.

The company has also planned to invest an additional $3 billion in Russia over the next 4 years and an additional $8 billion in Brazil. These investment plans clearly indicate that Coca-Cola is targeting the markets that have potential for growth. Therefore, the company intends to earn high profits in prospective periods from these markets.

In my opinion, Coca-Cola's plans for global expansion and the anticipated dividend will push the market value of the company’s stocks to a higher point. The investors can be recommended to hold the investments in the company as the stocks are expected to regain their value soon.

muhammadbazil 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!

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