Want to Make Profits? Just Open Your Fridge
Rishabh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With a rate of more than 1.8 billion servings a day, the world’s largest beverage company with more than 500 sparkling and still brands recently reported a lackluster quarter. But looking at the company’s future prospects, it seems that Coca-Cola (NYSE: KO) has the potential to stay on your portfolio and in your fridge for a long time.
The bottle opener
Coca-Cola reported its second-quarter results on July 16, leaving investors thirsty for more. Although earnings of $0.61 per share were in line with the analysts’ estimates, revenue slipped 3% to $12.75 billion. Second-quarter volume grew 1% and year-to-date volume grew 3%. EPS was reported at $0.59, down by 3%, and comparable EPS was $0.63, up 4%. The company’s management blames the global macroeconomic environment and bad weather conditions for the weak quarter.
The company performed well in the other beverage categories, like bottled water, juice drinks and ready-to-drink tea, showing volume growth of 6% in both quarterly and year-to-date numbers. With strong performance of key brands, ready-to-drink tea pushed up the volume by 10% in the quarter. Similarly, owing to the company's focus on innovative and sustainable packaging with immediate consumption occasions, packaged water volume grew 6% along with a 5% push in energy drinks volume for the quarter, driven by growth across the company's global portfolio of energy drink brands.
The bubbles and the fizz
The recent quarter brought along some good news and bad news for investors. Let’s start with the good news:
Coca-Cola was recognized during the quarter with the 2013 Creative Marketer of the Year Award at the Cannes Lions International Festival of Creativity, which is widely considered to be the world's foremost celebration of creative excellence in brand communications.
Also, the company has elected Ana Botin to be the newest member of its board of directors. Botin is currently acting as CEO for British personal finance firm Santander UK. Prior to this, she received international recognition for her outstanding work in the banking industry. She is a founding member of the “Teach for America” network.
"Her knowledge of global macroeconomic issues, experience as an entrepreneur and commitment to sustainable communities will be invaluable as we continue to grow and develop our business around the world.” said Muhtar Kent, chairman and CEO of the beverage giant.
But NOAA has brought in some bad news for the company and its management. This year's forecast calls for an "extremely active" hurricane season, which can prove disastrous for orange crops and the makers of orange juice, such as Coca-Cola. Currently, there is a prediction of three to six major hurricanes and 13 to 20 named storms. As the company’s management blamed the quarterly miss on poor weather conditions, it will be far worse once the hurricanes start coming through North America.
All this might make you wonder if Coca-Cola is still a good buy as a long-term investment. I would still say yes.
Other bottles in the fridge
Despite the recent pullback in the domestic soda sales, PepsiCo (NYSE: PEP) reported a growth in organic revenues by 4.4% in its first quarter. By contrast, it operates both in the snacks and beverage business. Almost 75% of the company’s revenue from the beverage business comes from its non- carbonated section, as more and more people are shifting toward a healthier lifestyle. Recently, the company has shown its growing potential in the snack foods arena, with company-wide snack volume rising strong as compared to its beverage sales. The real advantage lies in the fact that it is the world’s leading snack-food maker, owning approximately 40% of U.S. salty snack retail sales, which is way above its competitors.
Dr Pepper Snapple (NYSE: DPS) also concentrates on beverages like Coca-Cola, however its recent global volume did not sync with that of the latter. Its volume declined 4%, whereas there was a 1% increase for Coca-Cola. People are not yet ready to switch to its new ‘Ten’ soda lineup. Further, unlike Coca-Cola’s strong still-beverage segment’s performance, Dr Pepper’s ownership of Snapple juice has not helped the company in reviving the declining soda revenue. It really needs to increase its product depth and diversify its portfolio if it really wants to be in the race.
Compared to its peers, Coca-Cola does have some really impressive numbers under its belt. Looking at the company’s enterprise value, brand image and advertising dominance as compared to PepsiCo, one can easily guess the consumer value it has earned today. The reach and distribution of this company is almost incomprehensible. Together with its bottling partners, it ranks among the world's top 10 private employers with more than 700,000 system associates. Through the world's largest beverage distribution system, consumers in more than 200 countries enjoy the beverages at a rate of more than 1.8 billion servings a day.
Coca-Cola is a seasoned customer and owing to its growing non-carbonated business and incredible brand value, it still has a lot to offer to its investors. It already pays a healthy dividend of $1.12, or about 3% every year since the 1920s, and it’s growing every year in sync with its profits. The company can improve by diversifying itself and look to buy a company that is moving with the trend of healthy eating, in order to push revenue figures.
“I believe that our performance will be better in the second half of the year. We remain confident in our 2020 vision and our system's ability to execute with precision around the world," said CEO Kent. "In this context, we remain firmly focused on investing alongside our global bottling partners to strengthen our system for the future, to deliver the brands and beverages that consumers love and to achieve our long-term performance goals.”
I would suggest a buy at current prices looking forward to double-digit earning growth in the long term. Coca-Cola is a good choice for your portfolio as well as your fridge in the times to come.
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's brand-new special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.
Rishabh Jain has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola and PepsiCo. The Motley Fool owns shares of 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!