5 System-Strategic Initiatives Will Drive Coca-Cola Forward


Coca-Cola  (NYSE: KO  )   has one of the most prestigious brands in the world, Coca-Cola. It is considered the ultimate universal beverage brand, and it has the leading position in the American soft drink market. Coca-Cola has around 42% market share in the soft drink market, while PepsiCo  (NYSE: PEP  )  has stayed in second place with a 31% market share. Dr. Pepper Snapple (NYSE: DPS  ) comes in at third place as it owns around 16% of the total American market.

Right after Coca-Cola reported its fourth-quarter and full-year earnings results, its share price dropped by as much as 3.9% to around $37.40 per share. To restore its growth momentum, Coca-Cola is committed to five strategic system priorities which include accelerating sparkling growth, expanding its portfolio, increasing media investments, winning at the point of sale, and investing in the next generation.

Coca-Cola's five strategic system priorities
 First, Coca-Cola plans to accelerate the growth in its sparkling beverage business, led by the Coca-Cola brand. With its Share a Coke program, the company has successfully increased household penetration, increased immediate consumption volume, and improved brand love scores. Second, Coca-Cola will expand its $11 billion still-beverage brands portfolio. It has also been working diligently to grow its $4 billion juice and juice drink brands, and establish a scalable formula for further value creation in new still brand categories.

Third, Coca-Cola has committed to raising its media spending by $1 billion by 2016 to drive long-term profitable growth. The fourth priority is to win at the point of sale by working with the company's global marketing partners to improve execution. Coca-Cola will invest more than $50 billion to enhance the company's competitive position in markets worldwide. Coca-Cola considers 2014 to be the year of execution at the point of sale, which begins with its globally famous Coca-Col brand. Last but not least, any great plan needs great people. Coca-Cola has inspired its next generation leaders to "hire the best, retain the best, train the best, and manage with the best." 

Partnership with Green Mountain accelerates Coca-Cola's growth
Back in 2009, Coca-Cola outlined its 2020 Vision of doubling system revenue while increasing system margins. By 2020, the company expects to grow its servings to more than 3 billion a day and plans to become No. 1 in the non-alcoholic ready-to-drink business in every market and every category. Thus, value share and volume share would grow significantly, boosting the company's free cash flow and total shareholder returns. 

Coca-Cola has entered a 10-year partnership with Green Mountain Coffee Roasters and invested $1.25 billion to take a 10% stake in the company to establish an additional revenue stream from the single-serve cold beverage system market. Sodas and other product categories such as enhanced waters and sports drinks will see significant sales benefits from this deal. 

My Foolish take
Coca-Cola is the most expensively valued among the three big soft drink players at nearly 16.1 times its forward earnings. PepsiCo and Dr. Pepper Snapple have lower forward earnings valuations at 16 and 14, respectively. However, Coca-Cola deserves the highest valuation due to its global-leading position in the soft drink market, the ongoing execution of its five strategic initiatives, and its consistently rising dividends. With a decent dividend yield at 3.3%, Coca-Cola fits well into long-term investment portfolios. 

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