4 Reasons to Invest in This Beverage Giant

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

On July 16, beverage giant Coca-Cola (NYSE: KO) turned in some pretty disappointing numbers. Revenue declined 3% while free cash flow crept up a mere 48 basis points. Management blamed global economic conditions, weather, and environmental conditions for its plight. Probably, the question on your mind: “Is Coca-Cola still a viable long-term investment?” The answer is yes and here’s why.

Non-soda future

While Coca-Cola’s sparkling volume remained flat for the quarter, its still beverage volume increased 6%. People’s desire to live a longer, healthier life along with subsequent savings compared to ever rising healthcare costs compels consumers on a global scale to purchase beverages perceived as healthier. Consumers know that sodas add calories to their diet. Consequently, they show continued preference for bottled water, orange juice, and tea.

Coca-Cola’s rivals also experienced the same level of relative performance in their non-sparkling versus sparkling beverages. Food and beverage giant PepsiCo (NYSE: PEP) saw non-sparkling beverages decline in the low single digits versus a decline in mid-single digits in its sparkling beverages in North America.

Non-carbonated and carbonated drinks declined 2% and 3%, respectively, for Dr Pepper Snapple Group (NYSE: DPS).

This demonstrates an industry-wide trend which means Coca-Cola’s future will lean away from its traditional soda offerings.

Infrastructure

Coca-Cola and its more than 250 bottling partners maintain a vast global distribution infrastructure. This is good for three reasons. First, it allows them to distribute and produce cheaply and profitably. Second, if Coca-Cola’s future lies in non-sparkling beverages, then its distribution infrastructure will allow them to profitably sell the more commoditized bottled water, juice, and tea at a much lower price than smaller players. Finally, it allows Coca-Cola to maintain a ubiquitous presence in the global economic landscape with both its sparkling and non-sparkling beverages.

Emerging markets

Coca-Cola’s unit case volume in more developed regions such as North America and Europe declined 4% and 1%, respectively, in its most recent quarter. Growth in emerging markets resides on the more robust side. For example, unit case volume in Eurasia and Africa grew 9%. Believe it or not, there are some parts of the world that still don’t possess easy access to a chilled bottle of Coke.

Coca-Cola’s rivals also experienced greater growth in the emerging markets scene. PepsiCo’s Asia, Middle East, and Africa segment experienced the highest level of growth with snack and beverage volume growing 6% and 9%, respectively.

For Dr Pepper Snapple Group, Latin America represented the only region showing an increase in volume, clocking in at 2%.

The emerging markets represent the best possible future, geographically speaking, for all three big beverage companies including Coca-Cola.

Beverage focus

Coca-Cola shows focus on only one type of product: non-alcoholic beverages. As an owner in shares of a publicly-traded business, you should want your management team to focus on maintaining and building its competency to have an edge over competitors.

By contrast, PepsiCo operates both in the snacks and beverage business. Recently, PepsiCo has shown potential in the snack foods arena with company-wide snack volume growing 3% versus 2% for beverages when adjusted for acquisitions, divestitures, and currency fluctuations.

Dr Pepper Snapple Group also focuses mainly on beverages; however, its global volume declined 4% in its most recent quarter versus a 1% increase for Coca-Cola. Consumers are slow in accepting its new “ten” line up. This company needs to increase product depth if it wants to maintain success.

Conclusion

Over the long-term, look for Coca-Cola to continue to make inroads into emerging markets with its sparkling sodas and non-sparkling beverages such as bottled water, juice, and tea. Overall, this company’s business will slowly transform from soda maker, distributor, and seller to a more diverse beverage giant focused more on healthier non-sparkling beverages. Coca-Cola definitely warrants a long-term spot in your portfolio.

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William Bias owns shares of Coca-Cola. 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!

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