This isn’t the story of a brash tech startup — this about a solid 126-year-old soft drink company, Coca-Cola (KO). This long-term total return stock might not be out to set the world on fire, but KO continues to grow year after year, with a nice dividend kicker as well.
At this point in its life, KO operates in more than 200 countries under 400 different brands and 2,000 different products. That’s some serious expansion from its humble one-product beginnings. On the other hand, KO has stuck to its knitting: beverages.
The company has faced two key challenges recently. The first is that in developed economies, where sweetened drinks are becoming less popular, KO sales are declining. That has meant changing the Coca-Cola branding and adding new, healthier options to its product line. This move seems to be paying off.
The second challenge has been to stay growing and profitable in the global marketplace. With a strong dollar and weakening developing economies, this has been an uphill battle for Coke.
More than 54% of the company’s projected growth is in emerging markets, and 75% of its sales already come from international markets. However, emerging markets have had a tough time of it recently, and that means less money for people to buy “luxuries” like a bottle of Coke. It also means that the Coke they buy is worth less when converted back into dollars for KO.
But KO is not only aware of these problems, but it’s actively doing something about them.
There are nine sub-categories of the drinks market — including water, juice and sports drinks — and KO ranks as the No. 1 or No. 2 top brand in all but two. And it showed in the latest domestic numbers. North America was the only market that grew in the most recent quarter, up 3%. That’s likely due to non-carbonated beverage sales.
As for the strong dollar, some of that is offset by the fact that prices for commodities like aluminum, sugar and corn syrup are lower, which allows for KO to make up some of the lost profits. KO also is committed to a $3 billion cost-cutting program to keep operations as lean as possible during this period of transition.
This quarter was certainly not inspirational, but KO is in this for the long haul; it’s not trying to impress Wall Street on a quarterly basis.
The takeaway here is that KO is on the right track toward its long-term goals — and the goals that management has set seem to helping the company move forward.
That might not be an incredible elevator pitch, but this company is like its new product line — not so much in it to give you a punch of short-term energy, but a good opportunity to find healthy, long-term refreshment.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
