Coca-Cola (KO) is currently the world leading Company in the market for non-alcoholic beverages. Over the dividend history, Coca-Cola has had its operation over a business model that is tremendously strong. Financial analysis shows that its dividends have been on the rise for 54 consecutive years and still counting. Therefore, Coca-Cola was awarded the Dividend Aristocrat due to its rising dividends for 25+ years and Dividend King due to its rise in dividends for 50+ years. The tremendous rise in the dividend growth can be attributed to the fact that the Company operates a business model that is recession resistant with a wide economic moat and major competitive advantages.
However, it is sad to note that many people hold the notion that Coca-Cola is slowly losing its fizz and that its good days are way behind it. For the past 11 consecutive years, soda sales have been continuously on the drop. The financial reports for the years 2015, especially proved this point when the operating profits dropped by 10 percent and the total revenues saw a drop of 4 percent. The question is, is it true that Coca-Cola is actually on the verge of breaking down? Considering the immense room for growth that is available, this might not be the case. The Company holds a dominant position in the market and is still hopeful of experiencing an increase of $300 billion by 2020. We will review the Company’s current positioning and look into detail its current and future financial health.
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Basic Statistics
Coca-Cola has been in play in the beverage sector for over 130 years during which it has received major growth. Approximately 1.3 million Coca-Cola drinks are consumed every minute. The Company has expanded its operations to over 200 countries in which it enjoys over 1.9 billion sales of their products per day. The report for the 2015 fiscal year shows that KO experienced a net income of $7.4 billion, net operating revenues of $44 billion with a market capitalization of $176 billion.
The growth of the Company has also seen an extension of the product lineup. Some of the products have been developed through acquisition and others internally. There are several drinks that do not bear the Coca-Cola logo yet the Company owns them. The leading brands by the Company include Simply, Minute Maid, Minute Maid Pulpy, Powerade, Aquarius, Schweppes, Coca-Cola, Fanta, Diet Coke, Sprite, Coca-Cola Zero, Dasani, Fuze Tea among others. This broad portfolio of products has resulted in a diversified model of operation and consequently attracted several investors.
Coca-Cola has been very effective at improving the metrics that can be attributed to the success of the business. The Company’s earnings per share have seen a growth from$0.74 to $2.00 between the years 2000 and 2015. This growth translates to a CAGR equivalent to 6.9 percent. Making a comparison from 1985, the EPS of the Company has compounded at a 10.2% CAGR, which translates to high rates of growth in the earnings. This massive growth has consequently resulted in major returns for the Company’s shareholders. Over the Company’s history, Coca-Cola has been a major investment that has delivered returns exceeding the S&P 500 Index.
It is a good thing to note that the growth prospects for Coca-Cola are very robust. The future of the Company is promising. However, there are a couple of things that need to be kept in mind. First, the Company should focus on organic growth which will be driven by Coca-Cola’s still portfolios and expanding the beverage market. The market for the prior sugary sodas by Coca-Cola has been on the decline. For this reason, the Company should consider the growth prospects that come with going organic.
Without a doubt, the Company’s still products are set to benefit with the current trend where the consumers are shifting to the healthier options like diet soda. Consumers are transitioning because of the dietary concerns that come with the sugary sodas. Also, considering that the Company’s bottling operations are divesting, the managers should consider restructuring the business. Finally, it might seem that the potential markets have all been exploited. However, this is not the case. Maybe it is the time that Coca-Cola penetrated into international markets.
Other drivers of growth include operational shifts from bottling. The management might feel like settling for an organic production is on its own not sufficient. For this reason, there are other strategic actions that the Company could consider that will help boost the shareholder returns. These actions include focusing on the core business models, which has a major say on the returns that the business draws. However, it is important to ensure that this model is as streamlined and simplified as possible. Also, management can focus on boosting efficiency through an aggressive mode of production. As far as this strategy is concerned, the key is re-franchising the Company’s bottling operations.
The vertical and horizontal analysis of the Company shows positive financial growth and practices, which proves that there is hope for future growth. Also, the liquidity ratio shows that Coca-Cola is in a sound financial position that can meet its current obligations without causing adverse impacts on its operations. All in all, it is evident that Coca-Cola is well positioned to maintain its leading rank in the beverage market. With proper management, it is hopeful that even better returns and profits will be realized in the coming years.
References
Coca-Cola Company, (2017). Our Company . Retrieved March 26, 2017, from, http://www.coca-colacompany.com/
The Coca-Cola company. Who We Are. CocaCola Journey . (2017). Retrieved March 19, 2017, from http://www.coca-colacompany.com/careers/who-we-are-infographic
