A Trefis cash-flow analysis finds that The Coca-Cola Company‘s Minute Maid orange juice brand is significantly more valuable than rival PepsiCo‘s Tropicana juice. Primary reasons include Minute Maid’s higher international market share and better profit margins.
Coca-Cola (NYSE:KO) and PepsiCo (NYSE:PEP) are the two biggest global soft-drink manufacturers. They compete across nearly all drink categories, including orange juice. We estimate that Minute Maid constitutes about 8% of our stock price estimate for Coca-Cola, or $11 billion out of the company’s total value of $138 billion. Tropicana also constitutes close to 8% to PepsiCo’s stock, but we think the business is worth about $8.4 billion based on PepsiCo’s estimated total value of $106 billion. Our analysis follows below.
Minute Maid leads abroad
Tropicana leads the U.S. fruit juices & energy drinks market with a unit share of about 9% compared to 7.8% for Minute Maid. In unit terms, the U.S. juice and energy drink market totaled an estimated 4.7 billion cases in 2009.
But Minute Maid is far ahead of Tropicana in the international market, which totaled 9.9 billion cases in 2009. Minute Maid accounted for nearly 13% of the international market compared to about 5% for Tropicana. We expect Minute Maid’s international share to stay roughly flat during our forecast period. You can drag the trend-line in the chart below to create your own Minute Maid share forecast and see how it impacts Coca-Cola’s stock.
Minute Maid has better margins
Minute Maid’s gross profit margins were about 64% in 2009, compared to 53% for Tropicana. Our analysis applies company-wide profit margins to each divisions. Thus Minute Maid’s margins reflect those of the Coca-Cola Company’s margins as a whole. The same goes for Tropicana and PepsiCo. [1]
Thus a combined impact of higher margins and international market share, results in higher cash flows for Minute Maid compared to Tropicana making it a more valuable business.
You can see the complete $60 Trefis stock price estimate for The Coca-Cola Company here.
You can see the $67 Trefis stock price estimate for PepsiCo here.
Notes:
1. Estimation methods for the market share and market size figures mentioned in this article are described in detail in our PepsiCo and Coca-Cola company models at www.trefis.com.
