The Coca-Cola Story in a Warren Buffett Style

Coca-Cola needs no introduction, but we would begin with the acknowledgement that it is an integral part of our daily lives. This much-loved company’s heritage of innovation, growth and value creation has been crafted for over 133 years now, which has turned coca cola into the market pioneer in the beverage industry. Moreover, Coca-Cola is among the most admired and best-known trademarks in the world. If you were not aware of this fact- Read on for some more!

DID YOU KNOW?

• On May 8, 1886, a store in Atlanta served the first Coca-Cola.
• The first newspaper ad announced Coca-Cola as a “Delicious and Refreshing Beverage.”
• In a situation where all the Coca-Cola was manufactured since the beginning were to pour down the famous Niagara Falls at its regular pace of 1.6 Mn gallons each second, it would flow for over 82 hours.
• Thirsty customers across the world savour Coca-Cola Company products approximately 1.7 Bn times each day.
• The Coca-Cola Company asked bottle manufacturers to submit designs for a bottle for Coca-Cola that was so distinctive that it could be recognized by feel in the dark or identified lying broken on the ground.
• The Coca-Cola Company commenced advertisements on TV on the Thanksgiving Day of 1950.
• Coca-Cola is one of the only brands with the worldwide presence and ability to sponsor the two biggest sporting events in the world- Olympics and FIFA.

The Contour Bottle over the years (Source: Coca-Cola’s Booklet)

The Coca-Cola Company

An American MNC, manufacturer, retailer, and marketer of non-alcoholic beverage concentrates and syrups, the Coca-Cola company is best known for its flagship product Coca-Cola, which is believed to have been invented in 1886 by pharmacist John Stith Pemberton in Atlanta, Georgia.

The Company has a profound history of acquisitions- Minute Maid, Thums Up, Barq’s, Huiyuan Juice Group and Costa Coffee being a few. On the trading front, the Company has been a publicly traded company since 1919, with its stock listed on the New York Stock Exchange.

Let us browse through the latest updates of the Company.

Coca-Cola’s Solid Third Quarter 2019 Results

On 18 October 2019, the Company released its third quarter results for FY19 for the period ended on September 27, 2019, reporting strong revenue growth and value share gains globally. It also continued to execute on its key strategies:

• Reported net revenues (USD 9,507 Mn) grew 8% and organic revenues (non-GAAP) grew 5%, driven by innovation, revenue growth management and improving execution;
• Operating margin, which included items impacting comparability, was 26.3% versus 29.8% in the prior year;
• EPS grew 37% to USD 0.60. Comparable EPS (non-GAAP) slumped by 2% to USD 0.56.
• YTD cash from operations was reported at USD 7.8 billion, up 37%. This was catalysed by the solid underlying growth, working capital schemes and the apt timing of tax payments and fulfillments. YTD free cash flow (non-GAAP) was reported at USD 6.6 Bn, up 41%.
• Coca-Cola maintained gaining value share in the overall nonalcoholic ready-to-drink beverages.

Recent Activities At Coca-Cola

The Company has been capitalizing heavily on prospects for growth via expanded revenue growth management abilities and enhanced execution- boosting availability and distribution of significant SKUs being a key initiative. In Q319, globally, the growth in immediate consumption packages outperformed the future consumption by almost 6 points.

Across the world, trademark Coca-Cola has increased retail value 6% YTD via paced innovation and enhancing price/pack architecture in the market (the US market being the leading contributor to retail value growth).

In FY19, Coca-Cola leveraged the leader, challenger, explorer structure to profitably grow smart water in India, the country where it is now the second-leading premium water brand (since the initial launch in 2018).

The company recently notified about its plans to bring in new fans into the energy drink category in 2020, with the much-awaited US launch of Coca-Cola Energy. Coca-Cola Energy Cherry (a flavor available exclusively in the US) and Coca-Cola Energy, along with their zero-calorie equivalents will be available countrywide in 12-oz. sleek cans commencing in January next year.

Coca-Cola has made great advancement on its World Without Waste goals. In the next 5 years, it aims to eliminate the equal of a minimum of 1 Bn virgin PET plastic bottles (from its existing supply chain).

The Coca-Cola and Warren Buffett Story

Now that we understand the solid historic and current stance of the Coca-Cola company, we would shift this discussion to an investing forum. And when it comes to discussing investments, shares and portfolios, who else to consider but the investing Oracle, Warren Buffett, the American businessman, investor, Chairman and CEO of Berkshire Hathaway.

Before we link these two renowned names that surround us, one should be aware that Mr Buffett’s company, Berkshire Hathaway owns ~9.4% of Coca-Cola.

Now that we have your attention, let us graze over Mr Buffett’s views on the Company, and his strategies:

Way back in 1988, Mr Buffett bought over USD 1 billion of Coca-Cola shares, which at the time, was perhaps the largest position in his portfolio. Interestingly, this was the time when a share market crash has hit the Coca-Cola hard along with other companies. Till date, this is believed to be one of the top holdings of Berkshire Hathaway.

But why did Mr Buffett made such a huge investment in such a dicey time? The answer seems fairly simple- he was determined that Coca-Cola is a good corporation, held decent value, was prepared to recover and had the potential to withstand competition. This is a great learning for investors- to focus on tapping situations wherein a business’ value surpassed its market price.

Over time, Mr Buffett's investment in Coca-Cola was believed to have grown by approximately sixteen times over the subsequent years when accounting for dividends, marking an annualized gain of almost 11%.

A Berkshire Hathaway Shareholder Letter from 2018, Mr Buffett admitted that he made USD 624 million just from the Coca-Cola dividend. What’s the most consistent element here- Reliability? Industry experts and investors have time-and-again vouched that Coca-Cola is a historically reliable dividend stock.

However, a section of experts believe that the stock is often debated to be overpriced, but that is likely to due to the threats to the business, a complex and dynamic consumer market, paced global health consciousness, growing competition, change in retail, political and cultural climates being few of them.

The Coca-Cola Stock Performance

After the close of the trading session on 2 December 2019, (NYSE:KO) quoted USD 53.75, up by 0.66%. The Company has a market capitalization of USD 230.29 billion. The stock has a P/E ratio of 29.9x, and its current dividend yield is 2.98%.

With the holiday season in and Christmas around the corner, we would like to leave you with another interesting fact-

The Coca-Cola Company began its Christmas advertising in the 1920s to lift the sales during the comparatively slower winter months. illustrator Haddon Sundblom painted a Santa that was both wholesome and realistic and was tagged as the modern interpretation of St. Nick. The Company used this big, red, jolly vision of Santa for over 30 years!

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