Coca-Cola (KO) has become one of the most successful American companies, with the #1 brand name around the world. Even in movies set in the poorest countries, it is not unusual to spot cans of Coca-Cola. KO has pursued a global strategy since the early days of its 126-year history.
KO drinks are divided into 2 broad categories, sparkling beverages and still beverages. Sparkling beverages are the carbonated ones that most people are familiar with, starting with Coca-Cola and Diet Coke, the two top brands in the US, and also include energy drinks. The newer lines of still beverages with higher growth rates include juices (like Minute Maid, which was acquired almost 50 years ago), enhanced waters, coffees, teas, etc.
Coca-Cola worldwide revenue grew 5% to $46.5 billion in 2011 and comparable EPS was $3.84, up 10%. Full-year revenue grew 33% reflecting the acquisition of Coca-Cola Enterprises (CCE) North America operations which is expected to produce annualized savings of $550-$650 million by 2015. Volume growth was strong around the world highlighted by key markets such as North America, Japan and Germany with double-digit growth in emerging markets India and China. China volume grew 13% in 2011 and in 9 of the last 10 years that business delivered double-digit growth.
In December 2011, Aujan Industries, one of the largest independent beverage companies in the Middle East (with headquarters in the United Arab Emerates), said KO will acquire 50% of Aujan's beverage business. The $980 million transaction, the largest investment by a multinational firm in the Middle East's consumer goods sector, will allow Aujan to accelerate international growth and give KO a significant stake in a leading still beverage businesses in the Middle East. Aujan revenues exceed $850 million. In all fairness, KO authorized an Israeli bottler in 1969 and Israel has become a country with one of the highest per capita consumption of KO drinks in the world.
In November 2011, Coca-Cola India, the country's leading beverage company, said KO will invest $2 billion over the next 5 years in the Indian market. India ranks among the top 10 markets globally and is the largest market in the Eurasia and Africa Group. KO said the market is immense and is expected to become one of the top 5 markets by the end of this decade. Already KO has invested $2 billion in India after re-entering the country in 1993.
In September 2011, KO announced a new Russian investment program of $3 billion over the next 5 years when it opened a plant in the Rostov region. KO, along with its local bottling partner, will invest more than $3 billion in Russia through 2016.
These announcements are a continuation of similar announcements of investments made around the world. In the 1930s, KO drinks were sold in Latin America, Europe and even China. Coca-Cola began its long term sponsorship of the Olympics in 1932. Stalin hated Coca-Cola, which he considered it to be the epitome of capitalism, so its entry into Russia was delayed until recent years.
Global per capita consumption of Coca-Cola 8-ounce drinks averaged 43 drinks in 1990, 67 in 2000 and 89 2010. Mexico had the highest figure in 2010 of 675 (the US had a more moderate 394). On the other hand, India's figure was only 11, China was 34 and Russia was 69. Countries with huge populations in growing economies have enormous growth potential for KO.
Its finances are exceptional. Share repurchases totaled $2.9 billion in 2011 and KO is forecasting share repurchases of $2.5-$3.0 billion in 2012. As of December 31, 2011, KO had a portfolio of 1,257 million Treasury shares. The cost was $31.3 billion with a market value of $87 billion. By way of comparison, the market cap for KO of $156 billion is one of the largest in the world. The annual dividend was just increased for the 50th consecutive year, to $2.04, making KO a Double Dividend Aristocrat (2 consecutive streaks of 25 year increases). Only a handful of companies have longer streaks of raising dividends.
The long term growth trend will continue. Increased earnings from acquiring CCE assets will boost earnings for a few years. Growth of nonalcoholic drinks, especially for still water, will raise earnings. Much of future growth will come from substantial growth in countries with large populations that have low per capita consumption. For stockholders, a major question is, how long will it take to increase the dividend to $3.00? It took 8 years for the dividend to double (an increase of $1 per share). The next increase of $1 should take less than 8 years from a larger base. The stock has almost doubled in the last 7 years and is poised for more capital appreciation. Higher dividends and stock prices make investors happy.
Coca-Cola -- 10 years
Disclosure: I am long KO.
