Today, the Coca-Cola Company (Coca-Cola) remains the most valuable beverage corporation in the world with a market capitalisation of US$ 300 billion.
Despite the emergence of thousands of new beverage brands, Coca-Cola, as a corporation, is a solid leader, dominating the global space of non-alcoholic ready-to-drink (NARTD). In addition to the iconic Coca-Cola, it owns a massive beverage portfolio of 200 brands in key categories such as sparkling flavours (Sprite and Fanta), coffee (Costa), water, juices, energy drinks, and others. Collectively, the company had served 2.2 billion drinks each day in 2023.
Source: Q3 2024 Investor Overview
Here, I’ll summarise 7 key findings of Coca-Cola from its annual reports. They are as follows:
1. Business Models
Coca-Cola runs two lines of businesses: “Concentrate” and “Finished Products”.
“Concentrate” refers to operations where Coca-Cola would supply beverage bases and syrups to authorised bottlers. These bottlers would then use these supplies to manufacture Coca-Cola’s finished products and distribute them to retailers, which would then sell to consumers. Currently, Coca-Cola partners with 200 bottlers worldwide where its top 5 bottlers had produced up to 42% of its total worldwide unit case volume in 2023. The top 5 bottlers are as follows:
“Finished Products” refers to operations where Coca-Cola shall manufacture and package the finished products and sell them directly to retailers, distributors and wholesalers. Revenues from finished products would include its own bottling operations, direct sales to customers from Costa Limited’s retail stores, and fountain syrup sales to fountain retailers and wholesalers.
2. Brand Portfolio
Coca-Cola owns 200 beverage brands which are categorised in:
a. Sparkling Soft Drinks
b. Juices, Dairy, and Plant-Based Beverages
c. Water, Sports, Coffee and Tea
d. Emerging (including alcoholic drinks)
3. Revenue
The following are factors that impacted Coca-Cola’s revenues in 2012-2024:
2012-2015: Coca-Cola recorded a marginal decline in revenues from US$ 48.0 billion in 2012 to US$ 44.3 billion in 2015. This is because its sales volume growth was “effectively” cancelled out by weakening of currencies in Latin America, Europe and Africa against the US Dollar.
2016-2018: Coca-Cola recorded a larger decline in revenues from US$ 44.3 billion in 2015 to as low as US$ 34.3 billion in 2018. This is because it had “re-franchised” bottling territories over the United States in that three-year period.
2019-2024: Coca-Cola achieved growth in revenues, up from US$ 34.3 billion in 2018 to as high as US$ 47.1 billion in 2024. This is attributed to sales volume growth and better pricing, product, and geographical mix in its initiatives, offsetted by the weakening of currencies in Latin America, Europe, Africa and Asia Pacific.
The graph and table below depict Coca-Cola’s revenues and factors which impacted its revenue growth in that period.
4. Margins
Coca-Cola maintains gross margin, operating margin, and net margin at 60+%, 20+% and 20+% in 2014-2024. Net income to shareholders dipped from US$ 9.0 billion in 2012 to US$ 6.5 billion to 2016. In 2017, Coca-Cola had recorded substantially high income tax due to the one-time tax transition tax resulting from the Tax Reform Act signed in that year. This resulted in a substantial fall in net income to US$ 1.2 billion in 2017. Since then, net income had improved from US$ 6.4 billion in 2018 to US$ 10.6 billion in 2024.
Figures are Sourced from Coca-Cola’s Annual Reports
5. Capital Allocation
In 2015-2024, Coca-Cola generated US$ 96.4 billion in operating cash flows. It was 89.3% of its total cash inflows brought in for that ten-year period. Of which, Coca-Cola had paid out 67.5% of its cash inflows to reward its shareholders in dividends. The remaining cash was allocated into a series of capital expenditures, net business acquisitions and net share buybacks in that period.
Figures are Sourced from Coca-Cola’s Annual Reports
6. Efficiency Ratio
Coca-Cola had reduced its debtor days from 35.4 days in 2014 to 27.2 days in 2023. It means it had become more efficient in collecting cash from its customers. In the period, its inventory days had increased from 63.3 days in 2014 to 87.2 days in 2023. It indicated that Coca-Cola was less efficient in selling its inventories as the number of days its inventories were stuck had increased. Coca-Cola raised its creditor days from 42.6 days in 2014 to 110.2 days in 2023. As such, it had reduced its cash conversion from 56.1 days in 2014 to 4.2 days in 2023. This means that it does not need to reserve working capital as its business operations could be funded by its suppliers.
7. Valuation
Excluding 2017, Coca-Cola’s P/E Ratio averages at 27.25 in 2015-2024. Meanwhile, its average gross dividend yield in that ten-year period is 3.07% per year. As an investor, net dividend yields would be calculated by excluding 30% withholding tax.
Conclusion:
Coca-Cola was resilient with 200 beverage brands in its portfolio. Since the re-franchising of the bottling plants, Coca-Cola had achieved higher sales and net income to shareholders in the past six years. With continuous positive operating cash flows, it was able to pay out higher dividends. The key lies in currency fluctuations as its beverages were available across 200 nations. Hence, as investors, it is about weighing its pros and cons and current valuation before investing in it.
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