6 Interesting Stories from the Coca-Cola System, Green Mountain Coffee Roasters, and PepsiCo

Interested in investing in Coca-Cola, Green Mountain Coffee Roasters, and PepsiCo? These recent developments may serve as a good starting point in your research.

Mar 10, 2014 at 3:36PM

This week's beverage industry headlines revealed some interesting happenings for Coca-Cola (NYSE:KO) and its bottlers Coca-Cola Enterprises (NYSE:CCE) and Coca-Cola Hellenic (NYSE:CCH) along with homemade beverage company Green Mountain Coffee Roasters (NASDAQ:GMCR) and snack and beverage giant PepsiCo (NYSE:PEP). These stories provide an interesting jumping off point for researching these companies.

Coca-Cola news
Coca-Cola recently announced the closing of the $1.25 billion investment in Green Mountain Coffee Roasters. Coca-Cola will purchase roughly 16.7 million shares of Green Mountain Coffee roasters for $74.98 per share, according to Coca-Cola's press release. Green Mountain Coffee Roasters will buy back some of the newly issued shares under its current "$1.1 billion share repurchase authorization" to reduce the dilution effect on its existing owners. Green Mountain Coffee Roasters will utilize some of the proceeds to develop a Keurig Cold system, eventually enabling people to mix a homemade glass of Coca-Cola products. 

In other news, Coca-Cola improved nine points on Oxfam's "Behind the Brands" sustainability scorecard and subsequently landed in the third spot according to the newsletter Bakery and Snack. Coca-Cola was only bested by food and beverage conglomerates Unilever and Nestle. None of the companies did so well, according to the article, with Coca-Cola only scoring 38 out of a possible 70. Nestle's score clocked in at 45 out of 70. 

According to Beverage Daily, John Brock the CEO of Western European Coca-Cola bottler Coca-Cola Enterprises told a group at a conference in Florida that still beverages aren't the happening thing in Europe like they are in America. The company's product mix leans toward 87% in sparkling volume. However, he would still like to acquire still brands but doesn't want to pay too much for them. Brock emphasized that private labels dominate the still brands business in Europe where no particular name brand dominates according to the presentation. 

Another Coca-Cola distributor, Coca-Cola Hellenic, faces product defect allegations in Nigeria according to Beverage Daily. The Socio-Economic Rights and Accountability Project or SERAP, a Nigerian not-for-profit organization reported the company and its local bottling partner to the United Nations. Specifically they face accusations of "rusty bottles crown corks," "rusty cans," and "foreign particles" in products in addition to not implementing a policy to remove out of date items from retailers' shelves. Coca-Cola Hellenic denies any wrongdoing. 

Green Mountain Coffee Roaster's new allies
Green Mountain Coffee Roasters added the Canadian chocolatier, Laura Secord, to its long list of K-Cup allies. The agreement with Laura Secord will last five years. The first line of hot chocolate K-Cups will come out this fall which includes an "intense and creamy hot chocolate variety." More hot chocolate varieties will come out in the latter part of 2015. Notably the products will be distributed online, in grocery stores, and retail -- specifically the chain of Laura Secord stores in Canada. 

PepsiCo has it under control
PepsiCo's presiding director of the Board of the Directors Ian Cook essentially told activist investor Nelson Peltz that the company has things under control and that the company will ignore Peltz's proposal to split the company's snack and beverage business to merge with Mondelez. Cook said, "I am writing to advise you that the board and management are comfortable and in complete alignment in rejecting your proposal." Interestingly, he also said "In short, the board and management have concluded that the financial engineering you propose erodes value for shareholders rather than creates value." Astute investors should pay particular attention to this last statement. PepsiCo possesses a mastery of marketing and selling of the two different types of products under various "demand occasions." Breaking up the snack and beverage businesses would provide severe disruption to the company's operation, culture, and relationships with client companies such as Yum! Brands and Buffalo Wild Wings. That last quote also emphasizes the one dimensional nature of the proposal: "financial engineering." 

Things to look out for
Coca-Cola's investment in Green Mountain Coffee Roasters will probably benefit the shareholders of the latter company more due to its relatively small size in terms of revenue.   However, it also gives Coca-Cola a new avenue of growth for its sparkling beverage business despite its relatively small accretion potential. People will still prefer prepackaged sodas for the foreseeable future due to the convenience factor.

Look for Coca-Cola Enterprises to make a non-sparkling acquisition in the near future and for the company to give continued focus on sparkling beverages over the midterm at least. This may prove detrimental as the healthy lifestyles movement continues to make an impact globally. Investors in Coca-Cola Hellenic need to eye this product defect issue in Nigeria as it could morph into a PR nightmare for the entire Coca-Cola system.

Investors should also look for Nelson Peltz to pack up his proverbial toys and go home while selling his PepsiCo stake in the process. Over the long-term PepsiCo shareholders will fare better without his influence. Feel free to add all these companies to your Motley Fool Watch List.

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William Bias owns shares of Coca-Cola and Mondelez International. The Motley Fool recommends Buffalo Wild Wings, Coca-Cola, Green Mountain Coffee Roasters, PepsiCo, and Unilever. The Motley Fool owns shares of Buffalo Wild Wings, Coca-Cola, and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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