6 Things You May Not Know About Coca-Cola

By DeusXFlorida (Flickr: Coca-Cola)

On Oct. 15 beverage giant Coca-Cola (NYSE: KO  ) released its quarterly earnings with "revenue that came in slightly lower than expectations and earnings that were slightly ahead of what was expected." As you may expect, the case volume of the healthier non-sparkling beverages such as bottled water exceeded the growth of its traditional sparkling beverages such as brand Coca-Cola . However, doing a little research beyond the latest earnings report revealed six interesting things you may or may not know about Coca-Cola.

1. Coca-Cola distributes competitor's products.

In your local restaurant you may notice that the Coke fountain or freestyle machine may contain a dispenser or button for a Dr. Pepper Snapple Group (NYSE: DPS  ) product. There is a reason for that. In 2010, Coca-Cola acquired the North America arm of bottling partner Coca-Cola Enterprises (NYSE: CCE  ) leaving Coca-Cola Enterprises with operations solely in Europe. As part of the deal, Coca-Cola inherited a licensing deal which included distribution of Dr. Pepper Snapple Group products throughout North America via such avenues as vending and freestyle machines. This agreement with Coca-Cola started in 2010 will last 20 years .

2. Coca-Cola is less about the syrup.

Part of what used to make Coca-Cola an appealing investment lies in the fact that the largest portion of its operating revenue came from syrup distribution. Syrup or concentrates represent the high margin aspect of its business.  It simply leaned on its bottling partners to foot the bill for the infrastructure, producing the lower margin "finished product" in the bottled beverages you see on store shelves. In 2008, concentrates represented 54% of Coca-Cola's operating revenue.  The 2010 purchase of Coca-Cola Enterprises' North American assets inverted the business mixture. As of 2012, the concentrates represented 38% of Coca-Cola's operating revenue.  Coca-Cola's heavier involvement in selling its finished products partially explains the decline in operating margins over the past five years.

KO Operating Margin TTM Chart

KO Operating Margin TTM data by YCharts

3. Coca-Cola can underperform for the long-term.

Many investors probably make the assumption that a purchase in Coca-Cola shares will automatically result in market beating returns. In the chart below you can see that had you purchased shares of Coca-Cola stock at the beginning of 1998, a time period leading up to the dot com crash, you would have underperformed the market from that time forward. This also serves as proof that return is a function of price paid. Watching for a good point of entry is important with any investment.

KO Total Return Price Chart

KO Total Return Price data by YCharts

4. Warren Buffett does not serve on the board of directors.

Warren Buffett's holding company Berkshire Hathaway (NYSE: BRK-B  ) owns 400 million shares of Coca-Cola, 9% of the outstanding shares. However, Warren Buffett does not hold a seat on the company's board of directors, probably due to his hands off nature of owning a business; interestingly, his son Howard G. Buffett sits on the board. Howard Buffett manages Buffett Farms a commercial farming enterprise. His extensive experience in the agricultural industry can serve Coca-Cola well as they expand into emerging and developing nations where garnering fresh water and basic resources can pose a challenge. 

5. Coca-Cola's most heavily penetrated market is NOT the United States.

The United States actually ranks No. 4 with 401 servings per person in 2012 according to Coca-Cola's annual review book. The top honor actually belongs to Mexico with 745 servings per person in 2012 followed by Chile with 486 servings and Panama with 416 servings . Over the past five years, Coca-Cola's bottler in the Latin American region, Coca-Cola Femsa (NYSE: KOF  ) thrived due a robust Latin American  economy, bottler consolidation , and popularity of Coca-Cola's products . Coca-Cola Femsa grew revenue 61% during that time exceeding Coca Cola's revenue growth of 49% and translating into a total return that beat the mother company and the S&P 500. Investors need to tread cautiously going forward. Coca-Cola Femsa analysts recently downgraded the stock due to worries about overexpansion and the resulting debt. Moreover, the bottler recently expanded into the Philippines, an area outside its normal operations. Finally, the deceleration of the Latin American economy doesn't bode well for Coca-Cola Femsa.

KO Revenue TTM Chart

KO Revenue TTM data by YCharts

6. Coca-Cola still has room for expansion.

Last year, Coca-Cola's annual review cited several countries with below normal consumption in terms of servings per person including China and Nigeria. With only 39 and 26 servings consumed per person respectively, the company still possesses room for expansion.  The Pacific and Eurasia & Africa regions experienced the highest level unit case volume growth of 3% and 9% respectively year to date .

Foolish takeaway
A vast and complicated business lies behind the bottle of Coke you buy at the convenience store. Currently the stock trades at 19 times earnings, right on par with the market, and yields 3% annually in dividends as of this writing. With dividends the company represents a good low risk income stock for retirees or people who don't want to take on a great deal of risk. If you want robust growth you may want to look elsewhere.

Here's elsewhere!
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Read/Post Comments (9) | Recommend This Article (19)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 19, 2013, at 8:59 PM, humantripod wrote:

    If you had bought 100 shares of common Coca Cola stock in 1988 it would be worth $126,804 dollars today.

    If you had bought the shares in 1970 you would be a millionaire today. It's still a good investment.

  • Report this Comment On October 20, 2013, at 2:17 AM, DevonShire123 wrote:

    Other things you may not know about Coca-Cola. Aspartame is toxic and will kill you. BPA in the bottles and cans gives you cancer and will kill you. There's an anti-puke additive in Coke, because without it your body would immediately throw up after 1 can, because of the sugar amount in it. The CC corporation is a member of the Council on Foreign Relations, a group committed to world government and human population reduction. Coke is doing its part to lower population by killing its consumers. WAKE UP.

  • Report this Comment On October 20, 2013, at 8:33 AM, madscientistdave wrote:

    I'm not surprised that Mexicans drink more Coke than Americans (per capita). They still use cane sugar to sweeten their Coke instead of the loathsome high-fructose corn syrup we use here. It tastes better, it's just that simple.

  • Report this Comment On October 20, 2013, at 10:25 AM, stockdissector wrote:

    Hi humantripod,

    Even if you buy shares at an expensive price you can still enjoy a decent dividend (currently 3%) even though you may under perform the market. I bought shares close to the current price and I doubt that I will out perform at this point. However, I do believe I can capture a healthy future dividend stream due to Coca-Cola's priority to boost dividends over share repurchases. The company has boosted dividends for 51 years straight now. So yes, I agree with you Coca-Cola is still a good investment.

    Fool on!

    William Bias

  • Report this Comment On October 20, 2013, at 11:44 AM, lilyvonshtupp wrote:

    I dont trust anyone that drinks Pepsi. They are just not right, somehow.

  • Report this Comment On October 20, 2013, at 11:59 AM, stockdissector wrote:

    To add to my point above...Coca Cola still represents a good low risk income stock.

  • Report this Comment On October 21, 2013, at 7:34 PM, sagitarius84 wrote:

    The long-term growth for Coca-Cola will be driven by increasing consumption in emerging markets such as China, India, Russia etc, where average consumption per user is really really low:

    http://www.dividendgrowthinvestor.com/2013/09/coca-cola-ko-c...

    Full Disclosure: Long KO and PEP (they have a good snack business)

  • Report this Comment On October 22, 2013, at 8:14 AM, stockdissector wrote:

    Hi sagitarius84,

    Long-Term growth may be driven by increasing consumption in emerging markets however, soda excise taxes in places like Mexico may put the skids on carbonated soda growth in those markets. This indicates that the healthy lifestyles movement is alive and well globally.

    Appreciate your readership!

    Fool on!

    William

  • Report this Comment On October 22, 2013, at 2:18 PM, FoolTheRest wrote:

    @DevonShire123-

    Shhh! The others who receive Mel Gibson's newsletter have already vanished. We don't want to be next!

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