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TOP CONTRIBUTORS
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KO AT A GLANCE
P/E ► 21.1 AVG
EV/EBITDA ► 14.3 AVG
ROA ► 14% AVG
ROE ► 26.4% HIGH
Debt to Equity ► 0.966 AVG
Current Ratio ► 1.27 AVG
Interest Coverage Ratio ► 21.8 AVG
This article refers to the overall multinational beverage manufacturer, distributor, and
marketer. To view Coca-Cola bottlers, see Coca-Cola (disambiguation)
The Coca-Cola Company (NYSE: KO) is the world’s largest manufacturer, distributor,
and marketer of non-alcoholic beverage concentrates and syrups. Based in Atlanta,
Georgia, KO sells concentrated forms of its beverages to bottlers, which produce,
package, and sell the finished products to retailers. The Coca-Cola Company operates in
over 200 countries and sells over 400 different brands that produce over 3000 different
products, including the world-famous Coca-Cola and Sprite lines of soft drinks. [1]
An increased consumer preference for healthier drinks has resulted in slowing growth
rates for sales of carbonated soft drinks (abbreviated as CSD), which constitutes 78% of
KO’s sales. [2] KO’s profits are also vulnerable to the volatile costs for the raw materials
used to make drinks - such as the corn syrup used as a sweetener, the aluminum used in
cans, and the plastic used in bottles. Furthermore, slowing consumer spending in Coke's
large North American market compounds the challenge of increasing costs[3] and a weak
economic environment. Finally, Coca-Cola earns approximately 75% of revenue from
international sales, exposing it to currency fluctuations, which are particularly adverse
with a stronger U.S. Dollar (USD). [4]
Despite these challenges, Coca-Cola has remained profitable. Though the non-CSD
market is growing quickly, the traditional CSD market is still large in terms of both
revenues and volume and highly lucrative. The size and variety of KO’s offerings in the
CSD category, coupled with the unparalleled brand equity of the Coca-Cola trademark,
has allowed KO to maintain its share of this important market. KO has also responded to
consumers’ changing tastes with new, non-CSD product launches and acquisitions such
as that of Glaceau[5] in 2007. Strong international growth has also more than offset a
weak domestic market.
History and Corporate Overview
The Coca-Cola Company traces its origin to 1884, when an entrepreneur named John
Stith Pemberton concocted a cocaine-infused wine for sale in the U.S. A non-alcoholic
version, called Coca-Cola, was introduced in the following year in response to new laws
prohibiting alcoholic beverages, and the company was officially incorporated in 1888 in
Atlanta, Georgia.
The entire Coca-Cola system is divided into two parts: the Coca-Cola Company and its
bottlers. KO manufactures concentrates and syrups for its beverages, which it then sells
to bottlers for packaging and distribution. KO owns all the rights for its brands, which
include some of the world’s most popular non-alcoholic beverages, though it does grant
bottlers some rights as part of its bottling agreements. In addition to manufacturing the
concentrates, KO is also primarily responsible for marketing its brands, which includes
running advertising and promotional campaigns. Bottling companies are generally
independent of the Coca-Cola Company, though some are either partially or completely
owned by KO.
KO is now one of the largest corporations in the world, with a global workforce of over
90,000 and revenues of $31.9 billion in revenues in 2008.[6] Over the years, the brand
equity of the Coca-Cola trademark, as well as that of other KO-produced brands, has
established KO as a prominent figure in the non-alcoholic beverage industry and allowed
the company to keep both revenues and profits high.
Sales and income data,
2004 2005 2006 2007 2008
in millions
Net sales $21,742 $23,104 $24,088 $28,857 $31,944
Net income (profits) $4,847 $4,872 $5,080 $5,981 $5,807
Units sold, in billions 19.8 20.6 21.4 22.7 23.7
Contents
1 History and Corporate Overview
1.1 Quarterly Earnings
1.2 Bottlers
2 Products
2.1 Carbonated Soft Drinks
2.2 Non-carbonated Soft Drinks
3 Trends & Forces
3.1 The Global Economic Recession Threatens Overall Demand
3.2 New Aversion to Soda Threatens Main Business
3.3 Integrated Bottler Strategy Increases Flexibility
3.4 Commodity Cost Fluctuations Affect Margins
3.5 Dollar Affects International Performance
4 Domestic Competition and Market Share
4.1 Coke vs. Pepsi
4.1.1 Global Footprint
4.1.2 Diversified Product Offering
4.2 Dr Pepper Snapple Group (DPS)
4.3 Coca-Cola Company Must Grow Its Coffee and Tea Lines
5 International Competition
6 References
Quarterly Earnings
Q1 2009
In the first quarter of 2009, the Coca-Cola Company posted revenues of $7.169 billion, a
3% decrease from Q1 2008 figures; net income fell 10% to $1,348 billion.[7] Although
sales volumes actually rose 7% during the quarter, the Coca-Cola Company was
negatively impacted by the dollar's strengthening against the euro, Brazilian real,
Mexican peso, and South African rand.[8]
Q2 2009
In the second quarter of 2009, the Coca-Cola Company posted revenues of $8.267 billion,
an 8.6% decrease from Q2 2008 figures; net income grew 43% to $2.037 billion.[9]
Although the company managed to grow worldwide case volume by 4% (with especially
important increase of 33% in India and 14% in China), adverse fluctuations in the foreign
exchange caused the decrease in revenue. On a currency neutral basis, revenues grew by
4% during Q2 2009, as pricing remained constant during the year. The growth in net
income is deceptively large, as the 2008 figure includes an $843 million, or $0.40 per
share, charge due to to changes in the company's accounting policy of its equity
investments in its bottlers. Ignoring this charge, net income would've fallen by 12%.[9]
Q3 2009
In the third quarter of 2009, the Coca-Cola Company posted revenues of $8.044 billion, a
4.2% decrease from Q3 2008; net income rose 0.2% to $1.920 billion.[10] Worldwide
unit case volume grew 2% (lead by a 7% increase in Latin America and a 37% increase
in India), but overall revenues declined as a result of a stronger US dollar compared to
most foreign currencies.[11] Strong unit case volume growth in Latin America (7%) and
the Pacific (6%) was offset by decreases in South and Eastern Europe (declined 13%) and
North America (decreased 4%). Mexico, India, China, and Vietnam saw volume
increases of 9%, 37%, 15%, and 12% respectively since Q2.[12] North America was
affected by shifting the July 4th holiday to Q2 and by a double-digit decline in Dasani
water, which is representative of slower growth in the water industry as a whole.[13]
Bottlers
Bottling and canning companies are typically separate from the Coca-Cola Company’s
main concentrate manufacturing business. However, KO does maintain ownership
interests in many of its bottlers, ensuring that the relationship between the two parts of
the Coca-Cola system remains close. Unlike rival Pepsico (PEP), Coca-Cola Company
will likely not make bids to purchase any of its bottlers because a consolidated company
would not offer the same cost cutting synergies as it does for Pepsico (PEP).[14] Since
Coca-Cola realizes a smaller percentage of total sales in the US than does Pepsico (PEP),
it has much less to gain from a consolidated company.
Some of the Coca-Cola Company's principal bottlers are:
Coca-Cola Enterprises (CCE) (NYSE: CCE), which is the largest member of the Coca-
Cola bottling network by volume. CCE accounts for 80% of all domestic Coca-Cola sales
and 18% of all sales worldwide.[15] KO retains a 31.6% share of CCE stock, as well as
two of its thirteen board seats.
Coca Cola Femsa S.A.B. de C.V. (KOF) (NYSE: KOF), the second-largest bottler in the
Coke system, produced 2 billion unit cases of beverages in 2007. KO owns 32% of Coca
Cola Femsa S.A.B. de C.V. (KOF), which has a strong presence in Central and South
America.[16]
COCA COLA HELLENIC BOTTLING CO (CCH) S.A. (NYSE: CCH) is KO's fourth-
largest bottling company, selling 1.81 billion cases in 2007. CCH has a large market
presence in Europe, Asia, and Africa with its operations spread among 26 different
countries. KO currently owns 23% of CCH's stock.[17]
Products
The Coca-Cola Company produces over 400 brands of non-alcoholic beverages,
including carbonated and non-carbonated beverages, such as ready-to-drink juices, coffee
drinks, tea and bottled water. Of these over 400 brands, there are more than 3,000
different beverage products. [18] Most of KO's beverage portfolio is composed of CSD,
though the company has been expanding into the non-CSD category in response to a shift
in consumer demand and a greater emphasis on healthy options.
Carbonated Soft Drinks
Carbonated soft drinks are the single largest component in the Coca-Cola Company's
collection of beverages, accounting for around 78% of total volume sold in 2008. [19]
Within the CSD category, KO offers other sugared drinks and diet drinks. Of all CSD
sales, beverages bearing the Coca-Cola or Coke trademark make up 82% of total
volumes.[20]
The Coca-Cola Company's major CSD offerings (>$1 billion in annual sales) include:
Coca-Cola
Diet Coca-Cola
Sprite
Fanta
Barq's Root Beer
Coke Zero
Introduced in 2005, Coke Zero is the most significant of KO's new innovations. This
beverage is marketed as a "calorie-free" version of Coca-Cola Classic, omitting the diet
label in an attempt to appeal to new demographics. This brand alone accounted for nearly
on third of all 2006 growth for beverages bearing the Coca-Cola trademark.
Most of KO's carbonated soft drinks come in several varieties with different flavors,
caloric values, etc.
KO also offers energy drinks such as TaB and Full Throttle, which are carbonated but are
aimed at different demographics, putting them in a special category of their own.
Non-carbonated Soft Drinks
The remaining 26% of KO's total volume is composed of non-carbonated soft drinks,
which include a variety of beverages such a fruit juices, waters, sports drinks, and teas.
This non-CSD segment has been showing higher growth rates than the CSD category,
resulting from higher demand for healthy alternatives to traditional CSD. [21]
The Coca-Cola Company's major non-CSD offerings (>$1 billion in annual sales)
include:
Dasani bottled water
Glaceau VitaminWater
POWERade sports drinks
Minute Maid and Minute Maid To Go juices
Aquarius sports drinks
Nestea
Sokenbicha
Trends & Forces
The Global Economic Recession Threatens Overall Demand
In 2008 and 2009, the global economy has fallen into a recession. Not just the United
States but countries from all over the world have felt the impacts of the 2008 Financial
Crisis. This may be a problem for Coke, which derives approximately 75% of its sales
from outside North America [22]. Still, the company has positioned itself well in
international markets both organically and through acquisitions, such as that of Chinese
juice maker Huiyuan for $2.4 billion. [23]
New Aversion to Soda Threatens Main Business
74% of the Coca Cola Company's products are classified as carbonated soft drinks,
making it particularly sensitive to changes in demand for CSD. [24]
Consumer demand for CSD has been negatively affected by concerns about health and
wellness. This is true across most of KO's markets.
There has been an increase in the number of regulations regarding CSD in the United
States in response to the heightened desire for healthy food consumption.
In 2006, many state public school systems banned the sale of soft drinks on their
campuses. [25]
The Center for Science and Public Interest proposed that a warning label be placed on all
beverages containing more than 13g of sugar per 12-oz serving. This proposal would
affect all non-diet, full calorie drinks produced by KO. [26]
These factors have driven a shift in consumption away from CSD to healthier
alternatives, such as tea, juices, and water.
Within the CSD segment consumers have been moving away from sugared drinks, opting
instead for diet beverages, which do not generally contain any sugar or calories.
Though KO has been somewhat slow to respond to this shift in consumer preferences, it
has recently begun to increase its development of both diet CSD and non-CSD beverages.
KO is faced with the task of balancing the risk of new innovations with the low growth
rates of established brands, a predicament for manufactures throughout the beverage
industry.
Integrated Bottler Strategy Increases Flexibility
After CEO Neville Isdell was brought out of retirement in 2004 to revive the then
flagging beverage maker, one of the first areas that he targeted for improvement was
KO's frayed relations with its extensive network of bottlers. Since consolidating all
company-owned bottlers into the Bottling Investments division, Isdell has continued to
increase KO's interest in its bottlers through stake purchases or outright buyouts. This
strategy represents a weakening of the division between KO's production and distribution
operations. Isdell believes that by combining production and distribution operations the
company will have enhanced its ability to quickly respond to changing market conditions.
In KO's 2007 Q3 Analyst call, Isdell credited the outright purchase of Coca-Cola Bottlers
Philippines (CCBPI) for double-digit volume growth in that country. Additionally, KO
has signed new agreements with many of its bottlers which allow them to distribute
drinks produced by other companies. For example, Coca-Cola Enterprises (CCE) now
distributes AriZona, a ready-to-drink tea made by Ferolito, Vultaggio & Sons, an
American iced-tea company. Isdell sees these agreements as another way of taking
advantage of the rapidly growing non-CSD market.
Commodity Cost Fluctuations Affect Margins
References
↑ Coca-Cola 2008 Annual Review
↑ Coca-Cola 2008 Annual Review
↑ International Sales Boost Coca-Cola's Results
↑ KO 2008 10-K Pg. 14
↑ Coke set to buy Glaceau for $4.2 bln
↑ Coca-Cola 4Q profit down on charges, strong dollar.
↑ KO 2009 10-Q
↑ KO 2009 10-Q
↑ 9.0 9.1 9.2 The Coca-Cola Company 2009 Second Quarter and Year-to-Date Results.
↑ KO Q3 2009 10-Q, p.4
↑ KO Q3 2009 10-Q, p.41
↑ The Coca-Cola Company Q3 2009 Earnings Call transcript, Seeking Alpha
↑ KO Q3 2009 10-Q, p.38
↑ Fitch: Coca-Cola will not buy its biggest bottlers.
↑ [www.thecoca-colacompany.com/investors/pdfs/2007_annual_review.pdf Coca-Cola
2007 Annual Review p. 9].
↑ |Coca Cola Femsa Ownership Breakdown
↑ Coca-Cola Hellenic Shareholder Structure
↑ Coca-Cola 2008 Annual Review
↑ Coca-Cola 2008 Annual Review
↑ Beverage Digest 2008 Market Share Report
↑ Coca-Cola 2008 Annual Review
↑ KO 2008 10-K Pg. 14
↑ Coca-Cola Company Offers To Buy Huiyuan Juice Group
↑ Coca-Cola 2008 Annual Review
↑ New York Times. "Bottlers Agree to a School Ban on Sweet Drinks." 5 April 2006
↑ Center for Science and Public Interest
↑ Corn Prices.
↑ Beverage Digest 2007 Market Share Report
↑ Beverage Digest 2007 Market Share Report
↑ Starbucks, Pepsi take bottled coffee overseas.
↑ PEP 2008 10-K
↑ DPS 2008 10-K pg. 106
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