After Middle East, Coca Cola Invests in Expansion at Home

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

Coca Cola (NYSE:KO) will invest more than $3 billion in the U.S. alone in the coming year, according to the company’s Chief Executive Mr. Muhtar Kent. [1] Mr. Kent also sounded optimistic about the U.S. recovery and said that the country has a bright future ahead. Coca Cola enjoys a very strong brand recognition within the country, so an improved economic environment could really help the company in the long run. Recently, the company also invested $980 million buying a stake in Aujan Industries in the Middle East. Coca Cola currently competes with companies like Pepsi (NYSE:PEP) and Dr. Pepper Snapple Group (NYSE:DPS) and other domestic players.

See our full analysis for Coca Cola

Kick Starting With Auburndale Plant

Coca Cola will invest $99 million to expand its Auburndale plant in Florida. This time the investment is to set up another juice production line for its “Simply” brand of products. [2] The company buys most of its oranges locally from the Florida and thus enjoys an excellent relationship with the state government. So far, the company has invested more than $350 million in the plant.

Increased investment can be a harbinger of the market conditions the company expects in the coming time. The “Simply” brand of products fall under the Minute Maid division and the move goes well with our estimates that Minute Maid’s market share will increase in the coming time. We also expect an increased focus on products perceived to be ‘healthy’ or ‘natural’ by the public.

Company Will Get Benefits

At a time when the economy is struggling with unemployment, the increased investment by Coca Cola in the region will bring 60 new jobs to the area. The average pay is estimated to be more than $35,000. During the expansion, the company will also hire 300 construction workers. The move will see Coca Cola receiving $400,000 in government incentives for road infrastructures related to expansion. At the same time, the company will also receive $180,000 in tax rebates and benefits for its contribution towards job creation. [2]

Middle East Expansion

Coca Cola agreed to buy 50% equity of Aujan Industries in a deal worth $980 million. The deal also includes a 49% stake in the company’s bottling and distribution business. With this, Coca Cola will have a greater presence in a region in which it has struggled historically. Aujan Industries has revenues of more than $850 million and is amongst the top 100 companies of Saudi Arabia. Coca Cola Inks Deal to Guzzle Middle East & Africa Growth

We estimate a $75 price for Coca Cola, which is about 7% higher than the market price.

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Notes:
  1. Coca-Cola CEO Says U.S. Investment in 2012 to Top $3 Billion, Bloomberg, December 10, 2011 []
  2. Coca-Cola Expanding Auburndale Plant With $99 Million Investment, TheLedger.com, 21, 2011 [] []