Faizan Farooque
·5 min read
Founded in 1886, the Coca-Cola Co (NYSE:KO) is a multinational beverage giant and one of the most easily recognizable brands globally. The company operates in more than 200 countries and owns or licenses over 500 nonalcoholic beverage brands, including Coca-Cola, Diet co*ke, Coca-Cola Zero, Minute Maid Juices and Dasani.
Some investors might worry about this company because of the decreasing global demand for sodas. According to a GlobalData report, traditional soft drinks declined 4.3% worldwide in 2020, and while growth in emerging markets may still be found, developed markets such as the U.S. are becoming more health-conscious, to the detriment of soda sales. According to a Harvard study, the percentage of Americans bingeing on soft drinks frequently declined significantly from 13% in 2013 to 9% in 2016. Some countries are also introducing sugar taxes, which are taking their toll on sugar-laden soft drinks.
To combat this decline in soda popularity, Coca-Cola has diversified its product portfolio into other categories such as sparkling soft drinks, water, sports drinks and ready-to-drink coffee and tea beverages, which helped it avoid the worst of the pain. The strength of the Coca-Cola brand has also done well despite headwinds such as inflation and logistical issues. This resilience combined with decent returns through dividends and share buybacks makes me positive on Coca-Cola overall.
Coca-Cola flexes its financial muscle in a difficult market
Coca-Cola posted revenue of $11.06 billion in the third quarter of 2022, which showed an increase of 10.17% from $10.04 billion in the year-ago quarter. The earnings per share reflected an increase of 14% in the third quarter of 2022, rising to $0.65 from $0.57 in the prior-year quarter. The currency exchange rates during the quarter negatively affected the beverage giant, which impacted the bottom line.
The company had single-digit returns from the developed countries, while lower single-digit results came from developing countries. China, India and Brazil drove higher revenues, as did the United States, Mexico and Western Europe. Coca-Cola has been working to make its beverages more relevant and adjust to consumer trends to spur future growth. The company has also been prioritizing margins over volume to be more profit-oriented.
Coca-Cola has long been one of the world's most recognizable brands but has faced several challenges in recent years. For example, in Russia, Coca-Cola's decision to halt operations in the wake of the country's invasion of Ukraine will likely have financial repercussions in the years to come. Russia and Ukraine operations previously accounted for around 1% of its total consolidated net operating revenue and 2% of operating profits.
Due to pandemic-related interruptions in the world's supply chains, costs for everything from aluminum cans to labor and shipping have increased over the past year, prompting businesses in the packaged food industry to raise prices in response. The company has managed the situation reasonably well, aided by plants in just about all the regions in the world.
Global demand for soda is decreasing, but Coca-Cola has continued to diversify
Coca-Cola is one of the most iconic brands in the world, and for a good reason. The company has been around for over a century, and people of all ages enjoy its products. However, Coca-Cola is not immune to changing market trends. In recent years, there has been a growing awareness of the health risks associated with soda, and as a result, many consumers are seeking alternative beverage options. New research from food broker Presence reveals that health-conscious consumers will pay extra if a product positively impacts their health.
This has significantly impacted the soda industry, and Coca-Cola has had to adapt to stay relevant. The company has diversified its offerings and now has several bottled water brands, energy drinks, juices, sports drinks, teas and vitamin water. These changes allow the company to survive and thrive even if the demand in one central area slows down.
A stable income play
Coca-Cola has maintained a long tradition of paying dividends, delivering a robust 2.9% dividend yield as of this writing. In total, the company has hiked payouts for 60 years consecutively, making it a Dividend King. The business anticipates that share repurchases will start again in 2022, with net share repurchases totaling about $500 million. For investors looking for a stable income play, I believe Coca-Cola is a good bet. The share price does not fluctuate much, and returns are pretty reasonable even if not particularly high.
Coca-Cola has historically been a reliable investment, and shareholders have always been able to count on the company to deliver consistent dividend payments. While other companies have cut or suspended their dividend payments in recent years, Coca-Cola has continued to pay out dividends without fail. This commitment to shareholder value is one of the things that makes Coca-Cola such a popular stock.
Takeaway
Coca-Cola is one of the most well-known brands in the world, and it has a long history of success. In recent years, Coca-Cola has faced some challenges but has continued to perform well financially. Despite inflation and other factors, Coca-Cola has all of its ducks in a row and is doing well during tough times. The company has a strong portfolio of products, strong brand recognition and a loyal customer base. In addition, Coca-Cola has a diversified business model that includes beverages to keep up with market trends. As a result, I believe Coca-Cola is well-positioned to continue its success in the years to come.
This article first appeared on GuruFocus.
