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Investment Overview for Coca Cola (NYSE:KO)
Below are key drivers of the Coca-Cola Company that present opportunities for upside or downside to the current Trefis price estimate:
Coca-Cola Family Gross Profit Margin
- Coca-Cola Gross Profit Margin : Margins declined substantially in 2011 due to acquisition of Coca-Cola Enterprises'(CCE) North American bottling operations. Moreover, higher cost of goods in recent years caused the gross profit margin to fall from 64.4% in 2008 to 60.9% in 2011 and 60.3% in 2012. If the commodity prices remain high and the margins deteriorated to 58%, we could see the Trefis price estimate revised downwards by 5%.
The Coca-Cola Company is the world’s largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups. The company sells these syrups and concentrates to bottlers who, in turn sell the finished product. Some of the most famous and valuable brands include Coke, Diet Coke, Sprite, Fanta, Minute Maid, Powerade, Dasani etc. In 2010, Coca-Cola Co completed the acquisition of North American operations of Coca-Cola Enterprises. The company's market share in the Liquid Refreshment Beverage (LRB) market was 34.0% in the U.S. during the same period.
The company primarily derives its value from the Coca-Cola brand (Coke). This is the flagship brand of Coca-Cola and has established itself as the most famous soft drink worldwide.
The Coca-Cola (Coke) brand has a high market share in global carbonated soft drink market
Coca-Cola has worldwide brand recognition and commands a volume share of about 17.0% in the US and about 22.6% in the international carbonated soft drinks market. The share has remained relatively stable over the past few years, indicating Coca-Cola's ability to withstand competition. The size of the global market (billion cases) has witnessed slow growth in recent years amounting to approximately 37.5 billion cases in 2012. With a large market size and share, the Coca-Cola brand contributes most value to the value of the company's stock.
Soft drink companies adapting to changing consumer needs
Soft drink consumption is on a decline in developed countries as consumers switch to healthier alternatives such as juices, Ready-to-Drink (RTD) teas, RTD coffee, water mixers etc. Moreover, soft drinks are prone to higher taxation due to their unhealthy nature. Hence, volume consumption is on a decline in the U.S. and Europe. Developing nations, on the other hand, offer tremendous potential in terms of volume growth. Soft drink consumption ( per capita) in countries like China, India and Brazil is still only a fraction of what it is in the developed world.
Soft drink manufactures are taking steps to integrate bottlers into the business
Pepsi's recent acquisition of a bottling company and The Coca-Cola Company's decision to acquire Coca-Cola Enterprises' North American bottling operations indicate that soft drinks manufacturers are realizing the importance of in-house bottling. This can potentially add flexibility, cost savings and result in improved supply chain for the company's products. Moreover, with its own bottling operations, Coca-Cola signed an agreement with Dr Pepper Snapple in 2010 which will see the company selling Dr Pepper Snapple's beverage concentrates as finished products in specific territories in the U.S. for 20 years.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
See more on: DCF Methodology
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