Question.3236 - Research Paper on Coco Cola Company
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Overview of Coca Cola Company It's not surprising that Coca-Cola, probably the world's most recognized product (and certainly its most popular soft drink) has spawned a wide variety of popular stories about its origin, its effects, and the ingredients used in Coke's famous "secret formula:" Most of these tales, such as the ones about Coca Cola dissolving teeth, its supposed contraceptive powers, or the assertion that 1985s New Coke debacle was a Machiavellian gambit to divert attention from a change from the original formula, are baseless. But the most frequently heard story, that Coca-Cola originally contained cocaine, is, technically speaking, true. Coca-Cola was invented in 1886 by John Pemberton, an Atlanta, Georgia, pharmacist. Pemberton was actually trying to concoct a headache remedy, but once he mixed his special syrup with carbonated water, and a few customers tasted the result, he realized that he had the makings of a popular soda fountain beverage. The name Coca-Cola was coined by Pemberton's bookkeeper, Frank Robinson, who also wrote out the new name in the expressive script that has become Coca Cola's signature logo. Though the Coca-Cola Company apparently would rather not talk about the origin of its name in detail, it's clear that Robinson derived "Coca-Cola" from two of the drink's ingredients: cola from the cola nut, and extract of coca leaf, also the source of cocaine. Cocaine was a common ingredient of nineteenth-century patent medicines, and by the standards of the day Coca-Cola contained a minuscule amount that probably had no effect on its consumers. Still, by the early 1890s there was a rising tide of anti-cocaine sentiment, and Atlanta businessman Asa Candler, who acquired the Coca Cola Company in 1891, steadily decreased even the tiny amount of the drug in the recipe. There is some evidence that the only reason Candler kept putting even minute amounts of coca extract in the drink was the belief that to omit it entirely might cause Coca Cola, by then besieged by mitators, to lose its trademark. In any event, Coca-Cola was completely cocaine free by 1929. Coca-Cola was said to cure many diseases, including headaches, impotence, and the powerful morphine addiction. Three versions of Coca-Cola were on the market by 1888, sold by three separate companies. One company, Candler, purchased exclusive rights to the Coca-Cola formula from Woolfolk Walker, John Pemberton, and Margaret Dozier to cut out the competition. This made the first big break in Coca Cola history. Candler incorporated The Coca-Cola Company in 1982, and began marketing the product. The drink achieved the status of national icon for the USA by its 50th anniversary. Bottles of Coca-Cola were sold starting in 1894, and cans in 1955. The first bottle was sold in Vicksburg, Mississippi. In 1899, Chattanooga, Tennessee became the first site of a Coca-Cola bottling company. In Pemberton's original formula, he added five ounces of coca leaf (cocaine) per gallon of syrup. Candler claimed that he altered the formula and only added a tenth of the amount. Coca Cola once contained an estimate of nine milligrams of cocaine per glass. It wasn't until 1903 that it was removed from the drink altogether, replacing it with coca flavoring. "New Coke" came out in 1985 after Coca-Cola attempted to change the original formula. Most consumers preferred the taste of the original Coca-Cola, and many ceased purchasing the product until the company switched back to the original formula. It was renamed Coca Cola Classic to show consumers that the drink had reverted back to its original formula. By the 21st century, Coca Cola history took another leap in the market. In 2005, the company launched "Diet Coke", sweetened with artificial flavors. Later in 2005, it announced "Coca Cola Zero", sweetened with aspartame and acesulfame potassium. Since then, the company has produced other products containing the same Coca-Cola formula with minor differences. Coca Cola is now being sold around the world, in more than 200 different countries. The Coca- Cola Company now sponsors an assortment of events, including the "Olympic Games", and "NASCAR". In England, it is the primary sponsor of "The Football League". It is also featured in several television shows including "The Gods Must Be Crazy." Coca Cola history has come a long way since Pemberton invented the original recipe, and continues to grow by leaps and bounds. It is no surprise that it is one of the leading soft drinks of the market (Ezine article, 2013). The name Coke appeared in popular usage as a short form of Coca-Cola just before World War I but was often applied as a generic term to any cola drink (and used by Coca-Cola's competitors, including the now long-defunct Koke Company) until 1940, when the U.S. Supreme Court ruled that the name Coke rightfully belongs to the Coca-Cola Company. In financial circles, Coca-Cola has been one of the strongest and most reliable trading stocks, showing a steady return in all of its years of existence but one. According to Warren Buffet, one of the world's richest men, has always touted Coca Cola as an essential in one's stock portfolio. Coca Cola 2012 Financial Statements From Bloomberg Businessweek http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=KO&dataset= incomeStatement&period=A&currency=native (Dollar amounts in millions except per share amounts or as otherwise specified.)” Balance Sheet of Coca Cola From Bloomberg Businessweek “http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=KO&dataset =balanceSheet&period=A&currency=native (Dollar amounts in millions except per share amounts or as otherwise specified.) Cash Flow Statement From Bloomberg Businessweek “”Businessweehttp://investing.businessweek.com/research/stocks/financials/financials.asp?ticker =KO&dataset=cashFlow&period=A&currency=native (Dollar amounts in millions except per share amounts or as otherwise specified.)” Summary of Coca cola Financial Statements The Coca-Cola Company reported unaudited consolidated earnings results for the fourth quarter and full year ended December 31, 2012. For the quarter, the company reported net operating revenues of $11,455 million compared to $11,040 million a year ago. Operating income was $2,183 million compared to $1,956 million a year ago. Income before income taxes was $2,377 million compared to $2,216 million a year ago. Net income attributable to shareowners of the company was $1,866 million or $0.41 diluted per share compared to $1,657 million or $0.36 diluted per share a year ago. Non-GAAP net operating revenues were $11,465 million and non-GAAP operating income was $2,483 million compared to non-GAAP net operating revenues of $11,037 million and non- GAAP operating income of $2,239 million a year ago. Non-GAAP income before income taxes was $2,725 million and non-GAAP net income attributable to the shareowners of the company of $2,047 million or $0.45 diluted per share compared to non-GAAP income before income taxes of $2,408 million and non-GAAP net income attributable to the shareowners of the company of $1,821 million or $0.39 diluted per share a year ago. For the year, the company reported net operating revenues of $48,017 million compared to $46,542 million a year ago. Operating income was $10,779 million compared to $10,173 million a year ago. Income before income taxes was $11,809 million compared to $11,458 million a year ago. Net income attributable to shareowners of the company was $9,019 million or $1.97 diluted per share compared to $8,584 million or $1.85 diluted per share a year ago. Net cash provided by operating activities was $10,645 million compared to $9,474 million a year ago. Purchases of property, plant and equipment were $2,780 million compared to $2,920 million a year ago. Non- GAAP net operating revenues were $48,032 million and non-GAAP operating income was $11,250 million compared to non-GAAP net operating revenues of $46,554 million and non- GAAP operating income of $11,069 million a year ago. Non-GAAP income before income taxes was $12,217 million and non-GAAP net income attributable to the shareowners of the company of $9,217 million or $2.01 diluted per share compared to non-GAAP income before income taxes of $11,838 million and non-GAAP net income attributable to the shareowners of the company of $8,944 million or $1.92 diluted per share a year ago. For 2013, the company expects underlying effective annual tax rate of 24.0%. The company estimates net interest will come in as an expense ranging between $30 million and $50 million for the full year 2013. The company expects the cash flow growth rate to be more in line with its earnings growth rate. For the quarter, the company reported asset impairments charges of $16 million due to other-than-temporary declines in the fair values of certain cost method investments compared to $17 million a year ago. Ratio Calculation & Analysis From Bloomberg Businessweek “http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=KO” The Coca-Cola Company (KO) and PepsiCo Inc. (PEP) are wonderful businesses that have generated attractive returns for investors over the years. For example, during the last decade, both companies had an ROE average of about 30 percent. And I sure enjoy drinking the soda from both companies, but if I had to choose one stock to invest in, which one would it be? Let's find out. Valuation My first observation is that Coke's market cap is $60B higher than Pepsi and while Coke has a PEG ratio of 2.57, Pepsi's is 48% higher, at 3.81. I think Pepsi's PEG is too high for now, primarily because the market expects a lower earnings growth rate relative to Coke. Specifically, over the next five years, the market expects earnings per share to grow 7.77 percent for Coke and 4.86 percent for Pepsi. Since Coke is expected to grow its earnings at a higher rate, the market is awarding the company with higher trading multiples. For example, for each $1 Coke generates in revenue, the market awards it with $3.90 in enterprise value, while Pepsi is awarded only $2.01 in enterprise value for each $1 of revenue it generates. From a valuation standpoint alone, in my opinion, Coke looks more attractive because of the following two reasons: 1. A higher earnings per share growth potential 2. Solid bullish sentiment from investors who are willing to pay a higher premium for Coca- Cola relative to Pepsi Financial Strength As far as financial strength goes, in fiscal year 2011 Coke had $14B in cash and cash equivalents and $13.6B in long-term debt, giving the company $1.03 in cash for every $1 in long-term debt. Its working capital for the same period was $1.2B. With further analysis, I calculated Coke's working capital per share to be $0.27, thus the stock is currently trading at about 142x its working capital per share. For fiscal year 2011, Pepsi had a negative working capital of $713M, which means that first, it had insufficient funds to meet its short-term liabilities, and second, its working capital per share was negative $0.46, while Coke's was a positive $0.27 as calculated earlier. If a company's current liabilities exceed its current assets, then it may run into trouble paying back short-term creditors. I went back as far as fiscal year ending 2008 for Pepsi's financials and 2011 was the only year it accumulated a negative working capital during that four-year period. Could this signal red flag for Pepsi? We would have to wait for fiscal year ending 2012 results to make a better forecast. As of the last annual report, Coke has a quick ratio of 0.92, which means the company does not have enough cash to cover current liabilities since it owns $0.92 in assets the company can turn in to cash almost immediately for every $1 it owes in current liabilities. Pepsi, on the other hand, has a quick ratio of 0.75. Please note that because inventory may take months to sale and turn into cash it was excluded from the quick ratio calculation. Regarding inventory turnover, Pepsi is much more efficient as it clears its inventory about every 21 days, while it takes 24 days for Coke. Pepsi and Coke collect their receivables every 36.3 and 36.7 days, respectively. Although the companies clear their inventory every 21 or 24 days, they collect their receivables every 36 days, which indicates there is still room for improvement to collect cash at a faster rate. As of my most recent quarter analysis, Pepsi's debt to equity ratio is about 37 percent higher than Coke, 1.37 versus .99, which means investors are taking a higher risk when investing in Pepsi. If these stocks were to be evaluated exclusively on the debt to equity ratio, it would not be a concern because both earn high returns on equity. However, in this case, Coke's debt to equity ratio is less risky. Final Thoughts Analyzing historical data, Pepsi tends to announce stock splits within a few months after Coca- Cola's stock splits, with the exception of 1992. Therefore, it may be possible the company will announce a stock split in the next couple of months. Back to my original question; if I had the option to invest in only one of the two companies, I would select Coke for the previously stated reasons. Which one would you choose and why? Coca-Cola’s Key Statistics From: http://www.barchart.com/profile.php?sym=KO&view=key_statistics ? Strong full-year global volume growth of 4%, in line with our long-term growth target and led by brand Coca-Cola, up 3%. Global volume grew 3% in the quarter, driven by international volume growth of 4% and North America volume growth of 1%. ? Full-year reported net revenues grew 3% and comparable currency neutral net revenues grew 6%, in line with our long-term growth target. Fourth quarter reported net revenues grew 4% and comparable currency neutral net revenues grew 5%. ? Full-year reported and comparable currency neutral operating income both grew 6%, in line with our long-term growth target. Fourth quarter reported operating income grew 12% and comparable currency neutral operating income grew 14%. ? Currency was a 3% headwind on comparable net revenues and a 5% headwind on comparable operating income for the full year. ? Full-year reported EPS was $1.97, up 6%, and comparable EPS was $2.01, up 5%. Fourth quarter reported EPS was $0.41, up 14%, and comparable EPS was $0.45, up 15%. ? Full-year cash from operations was up 12%. ? Evolution of global bottling system continues, with bottler-led consolidation announced in Japan and Brazil, and a majority interest in our Philippine bottling operations sold to Coca- Cola FEMSA (transaction completed in January 2013). Forecast of several key variables Share price forecast From: http://markets.ft.com/research/Markets/Tearsheets/Forecasts?s=KO:NYQ Earnings & Sales Forecast From: http://money.cnn.com/quote/forecast/forecast.html?symb=KO OTHER INFORMATION PERFORMANCE HIGHLIGHTS The Coca-Cola Company reported worldwide volume growth of 4% for the full year and 3% in the quarter. The Company reported solid growth for the full year in key developed markets, including North America(+2%) and Japan (+2%). Europe volume declined 1% for the full year, reflecting ongoing uncertain macroeconomic conditions. In addition, the Company delivered strong volume growth in key emerging markets such as Thailand (+22%), India (+16%) and Russia (+8%) for the full year. Our China business delivered 4% volume growth for the full year, cycling double-digit growth in the prior year, and was impacted by the further effects of a slowing economy, poor weather and a later Chinese New Year. Solid growth continued in countries with per capita consumption of Company brands less than 150 eight-ounce servings per year, with volume up 7% for the full year. For both the full year and the quarter, we grew global volume and value share in nonalcoholic ready-to-drink (NARTD) beverages, with volume and value share gains across nearly every beverage category. Further, our immediate consumption volume grew a solid 5% globally in 2012, leading to transaction growth of 5%, driven by focused in-store activation efforts and cold- drink equipment expansion. In addition to increasing the total placement of our branded cold- drink equipment to more than 14 million units as of the end of 2012, our global system remains focused on innovations in cooler design, cost efficiency and effectiveness, and sustainability. We have achieved a 40% to 50% improvement in energy efficiency in new equipment placed today compared to equipment placed in 2000, and we maintain our commitment to placing HFC-free units around the world. Worldwide sparkling beverage volume grew 3% for the full year and 1% in the quarter. This represents approximately 550 million incremental unit cases in 2012, or the equivalent of adding 13.2 billion new servings to our global business. We grew volume and value share in global core sparkling beverages for the full year and in the quarter, led by brand Coca-Cola and reflecting a balanced portfolio approach to growth in the core sparkling beverage category. Worldwide brand Coca-Cola volume grew 3% for the full year, with growth across diverse markets, including India (+33%), Thailand (+31%), Russia (+20%), the Philippines(+8%), Brazil (+3%) and Mexico (+3%). In addition, Fanta volume grew 5% and Sprite volume grew 4% for the full year, as we activated global marketing campaigns in locally relevant ways such as the Fanta Playcampaign, now in nearly 200 markets, and the Sprite Uncontainable GameNBA partnership. Worldwide still beverage volume grew 10% for the full year and 9% in the quarter, with growth across beverage categories, including packaged water, ready-to-drink tea and coffee, juices and juice drinks, sports drinks and energy drinks. Excluding the impact of acquisitions, still beverage volume grew 8% for the full year and 7% in the quarter. We grew global volume and value share in still beverages and delivered volume and value share gains across nearly every still beverage category. Ready-to-drink tea volume grew 14% for the full year and 16% in the quarter, with continued strong performance of key brands such as Gold Peak and Honest Tea in North America, Ayataka green tea inJapan and Fuze Tea, which we continued to expand across many markets worldwide during the year. Packaged water volume grew 12% for both the full year and the quarter, driven by our focus on innovative and sustainable packaging and immediate consumption occasions. Our PlantBottle TM PET packaging is now present in 10 countries that represent more than 50% of our global packaged water business. Energy drink volume grew 20% for the full year and 12% in the quarter, driven by growth across our global portfolio of energy brands, with burn now available in 75 countries. In 2012, I LOHAS water and Ayataka green tea in Japan became our fourth and fifth new billion-dollar brands since the announcement of our 2020 Vision, building on our strong portfolio of brands across beverage categories, occasions and geographies. Recommendation regarding the future of Coca-Cola Coca-Cola is one of the most recognized brands around the world. Their global expansion and market capitalization has been studied by businesses the world over. Coke has been able to purchase numerous smaller soft drink companies in all areas of the soft drink market and with over 3,500 different products they own over half of all soft drinks sold. Coca?Cola is one of the world’s most widely recognized brands. The company even claims that Coke is the second most understood word on the planet after OK. Its most famous drink, ‘classic’ Coke, goes back over a hundred years, its image evoking the American lifestyle perhaps more strongly than any other product. The company expanded from its American roots following the Second World War, when 64 bottling plants, which were built round the world to supply US troops, became the infrastructure on which a global empire was built. Coca-Cola’s current portfolio of alliances is very strategically oriented. It has been designed for efficiency and profitability with minimal capital investment. Looking at the Alliance Constellation Map, it is clear that Coke could institute horizontal integration by buying up its bottling partners, or pursue vertical integration by controlling its suppliers and diversifying its brand portfolio. So far, Coca-Cola’s portfolio has been designed to limit the costs of expanding internationally in rapid fashion. As the world’s beverage markets mature, the company will ultimately invest in changing its alliance portfolio to maintain high profitability. Doing so will undoubtedly help Coca-Cola remain the world’s largest beverage provider, and one of the most recognized brands in the world. References: Ezine ariticle, 2013. Brief History of coca cola company. Retrieved 17 th of Feb, 2013 from http://ezinearticles.com/?Coca-Cola-in-History---A-Brief-History-of-the-Company&id=1656044 Bloomberg Businessweek Retrieved from ”Businessweehttp://investing.businessweek.com/research/stocks/financials/financials.asp?ticker= KO&dataset=cashFlow&period=A&currency=native From Bloomberg Businessweek Retrieved from “http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=KO&dataset =balanceSheet&period=A&currency=native From Bloomberg Businessweek Retrievedfrom ”http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=KO&dataset =incomeStatement&period=A&currency=native” From Bloomberg Businessweek, 2013. Retrieved from ön Feb 17, 2013 from “”http://investing.businessweek.com/research/stocks/financials/ratios.asp?ticker=KO (2012, 11). Coca Cola Analysis (Accounting). StudyMode.com. Retrieved 11, 2012, from “http://www.studymode.com/essays/Coca-Cola-Analysis-Accounting-1224748.html” Coke Vs. Pepsi: The Winner Revealed, Retrieved on Feb 17, 2013 from “http://seekingalpha.com/article/893611-coke-vs-pepsi-the-winner-revealed” The Coca-Cola Company Reports Full-Year and Fourth Quarter 2012 Results, Retrieved on Feb 17, 2013 from: “http://announce.ft.com/Detail/?DocKey=600-201302120730BIZWIRE_USPRX___BW5812-1” Coca Cola: Future Strategic Alliance Objectives and Strategy Overview Recommendations, Retrieved on Feb 17, 2013 from “http://seven-thirty.blogspot.in/2011/04/coca-cola-future-strategic-alliance.html” The Global Business Environment: Meeting the Challenges, Janet Morrison Retrieved on Feb 17, 2013 from “http://www.palgrave.com/business/morrisongbe3/students/casestudies/3%20A%20bright%20fut ure%20for%20Coca%20Cola.pdf”More Articles From Finance
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