Coca-Cola Benefits from Rising Minute Maid Revenues

KO: The Coca-Cola Company logo
The Coca-Cola Company

The Coca-Cola Company (NYSE:KO), which competes with PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group (NYSE:DPS) in the beverage market, is the world’s largest manufacturer, distributor, and marketer of non-alcoholic beverage concentrates and syrups.

Minute Maid contributes about 8% to our $56.45 estimate for Coca-Cola’s stock value. The brand was purchased by Coca Cola in 1960 and is the world’s largest maker of fruit flavored drinks and juices. Lemonade and orange juice continue to be Minute Maid’s leading products.

Going forward, we expect sustained growth in Minute Maid’s U.S. revenue per case, reaching a figure of $1.96 by the end of our forecast period. Our analysis follows below.

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How Minute Maid impacts Coca-Cola’s stock
Minute Maid is one of Coca-Cola’s more premium brands. We estimate that Minute Maid’s revenue per case in the U.S. rose from about $1.51 in 2005 to $1.70 in 2009, higher than other Coca-Cola brands.

You can modify the chart below to see how Minute Maid’s per-case revenues impact Coca-Cola’s stock price:

Coca-Cola is increasingly integrating bottlers in its business

Soft drink manufacturers are increasingly moving their bottling operations in-house. PepsiCo recently acquired a bottling company, while the Coca-Cola Company decided to buy the North American bottling operations of  Coca Cola Enterprises. Coca-Cola’s revenues from bottling investments grew from about 17.8% in 2005 to about 26.4% in 2009.

Bottled beverages sell for much more than bulk concentrate, which should sustain growth in revenue per case for Minute Maid and other Coca Cola brands.

Imported oranges may drive juice prices up

At the end of 2006, 80% of the orange juice consumed in the U.S. came from oranges grown in Florida. But as more U.S. citizens move to Florida, real estate developers and citrus growers are increasingly competing for scarce land. As a result, U.S. citrus imports have been on the rise.

Minute Maid now imports most of the oranges used in its juices from Brazil. Going forward, this trend will likely push juice prices upward, along with Minute Maid’s revenue per case.

You can see the complete $56.45 Trefis price estimate for Coca-Cola’s stock here.