Wednesday, September 28, 2016

Neo-Coke is starting to taste better than old Coke.

Just my thoughts on owning/buying KO.

“Put money in Coca-Cola (KO) if you like dead money.” “Americans aren’t drinking sodas anymore. KO won’t survive the next century.” These are a couple of comments I have been reading about KO on SA. But just how true is it?

In a recent report by Fortune magazine titled “Soda Consumption falls to 30-Year Lows in the US by John Kell, total soda volume fell 1.2% in 2015 compared to .9% in 2014. The biggest losers were Diet Pepsi (-5.8%), Diet Coke (-5.6%), Pepsi Cola (-3.2%), Mountain Dew (-2.8%), and Coke (-1%).  

Source: http://fortune.com/2016/03/29/soda-sales-drop-11th-year/

Although Pepsico (PEP) was the biggest loser the market mainly ignored it because PEP is a diversified food and beverage company owning everything from cereals to sodas to snack foods. KO, however, makes the majority of its money from sodas. KO is not as diversified as PEP which gives credence that KO is suffering short term. However, is KO really “dead money?”

This article will discussion KO’s acquisitions and make a qualitative (that’s right I went there) argument that KO is not dead money nor will it disappear in a century. Rather “Neo-KO” will taste a lot better than old Coke.

For starters, KO is not simply a soda company. It owns many orange juice, tea, water, and sports drink brands. Including simply orange, minute maid, Dasani, Vitaminwater, and powerade. However, these don’t make as much money as KO’s soda brands. Depending on the year these smaller brands bring in 30-40% of KO’s profit.

Thus, the birth of Neo-Coke. If you look at KO’s acquisitions for the last 3-4 years, you can see a trend that KO is making a true commitment to stop relying on sodas and switch to a more diverse number of brands to make its profit. In other words, old Coke was a house held up by one hand. Neo-Coke is a house held up by numerous hands.

On 2012, KO acquired half of Aujan Industries for ~980 Million USD. Aujan is the owner of the Rani and Barbican brands. Rani was launched in 1982 and became one of the most popular drink in the middle east. Rani is a mixture of smooth juice and real fruit “chunks.” Barbican is a non-alcoholic flavored malt drink popular with the younger crowds who love the taste of beer but not allowed to consume alcohol. Aujan brands are so popular KO invested an additional 500 Million to capture the middle east and North Africa (MENA). KO is working on building a stronghold in MENA.  

On 2014, Acra Continental and KO acquired the majority of Tonicorp, a dairy produce company in Ecuador. Why? “Consistent with our 2020 Vision to be one of the leading companies in each ready-to-drink non-alcoholic beverages category, we constantly aim at offering a portfolio that allows meeting the Ecuadorians needs. The investment in the Holding Tonicorp will allow us to keep innovating in new market segments and confirm our commitment with the country”, stated Louis Balat, General Manager of Coca-Cola de Ecuador S.A

Source: http://www.arcacontal.com/presscenter/press-releases/ac-and-coca-cola-close-acquisition-of-tonicorp.aspx

On April, 2015, KO acquired Xiamen Culiangwang Beverage Technology, Ltd for ~400.5 Million USD. Culiangwang specializes in multigrain health beverages as well as snacks, biscuits, and cereal. In 2014, Culiangwang unaudited profit was 193 Million Yuan up 17% from 2013, 164.9 Million Yuan. As stated by the WSJ, china’s soda industry has only risen 5.2% while its nonalcoholic sales grew 14%. The Culiangwang acquisition was not to control the chinese market but get its foot in the door (besides just selling sodas).

Source: http://www.wsj.com/articles/coke-acquires-chinese-maker-of-multigrain-drinks-1429273291  

On June 12, 2015, KO acquired 16.7% partnership with Monster (MNST) for $2.15 Billion. I won’t go into this deal. With all the articles published on SA it would be like beating a dead horse.  

On June, 2016, KO acquired ADeS soy-based beverage business from Unilever for ~575 Million. ADeS is known for its natural soy milk brands as well as its flavored soy drinks (apple, pineapple, oranges, peach, and “tropical fruit.” ADeS brands are currently available in Brazil, Mexico, Argentina, Uruguay, Paraguay, Bolivia, Chile, and Columbia. ADeS sold 56.2 Million unit case in 2015 and made a net revenue of $284 Million USD. KO has announced its intention to expand ADeS to the rest of its territories.
On July 4, 2016, Coca-Cola Beverage Africa (CCBA) opened for its first day of bottling and distribution. CCBA will distribute 40% of all KO beverage volume in Africa. This was a company formed from KO, Sabmiller (SAB), Coca-Cola Sabco, and the Gutsche Family Investments (GFI). This is only the first phase of the agreement. Phase I countries are South Africa, Namibia, Kenya, Uganda, Tanzania, Ethiopia, Mozambique, Ghana, Mayotte, Comoros and Nigeria.

Phase II countries are Botswana, Swaziland and Zambia.

In Phase III, CCBA will become a new company with the following ownership: SAB 57%, GFI 31.7%, KO 11.3%.

Observations

These are my observations on KO’s acquisitions
  1. Instead of repatriating international monies, KO is using it to fund acquisitions and expansion.
  2. Besides the MNST deal, KO is buying or partnering with the best of the best non-soda companies around the world.
  3. KO is locking down the middle east and all the countries south of the US.
  4. KO is tapping China and Africa for its next growth potentials.

Limitations

  1. How will this help my dividends and dividend increases?
  2. KO is profiting internationally but how are they going to bring it back without face a huge tax?
  3. Are any of these products coming to the US?  

Future

These are predictions or guesstimation of KO’s future with ratings!

  1. Probably: More non-soda acquisition or partnership. Maybe something to do with kombucha. That’s what you kids are drinking these days right?
  2. Maybe: KO goes the PEP route and buys a food company. There have been conspiracy theories about KO buying Kelloggs (K).
  3. Probably: KO Mars/KO Space. Fact of the matter is there are too many people on earth and not enough jobs. Blame technology, illegal aliens, obama, gop, whatever. People with too much time on their hands are dangerous. The only solution is to colonize another planet. Once Elon Musk conquers Mars and workers start arriving in droves; they’ll need something to drink on the job/after a long day of work. Just my 2 cents.  

Conclusion: Calm down with the KO dying off in the next century. KO is making an effort to diversify their brands to different regions and doing so successfully.

3 comments:

  1. I would not be surprised if they started going the non drink route withen 10 years for further diversity. Just my opinion

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