Coca-Cola (KO, Financial) has been suffering from declining consumer interest for carbonated soda. This in turn is affecting its sales. Coca-Cola’s recent third quarter results failed to meet analysts’ estimates on top line. However, its bottom line performance came in line with the market estimates. Looking ahead, the company remains upbeat to enhance its execution in many markets that could gear up its sales momentum in the fourth-quarter and into 2015.
Performance across the globe
The company is seeing improved results across the world, where it executed its strategic priorities well. It has been consistent with its price pack strategies supported with amplified media venture, high quality marketing programs like "Share a Coke" and advanced execution. These strategic moves are driving its sales in North America and Asia-Pacific operations such as China and India. These markets are certainly bright spots for the company as volumes are growing at a double digit growth rate in these regions.
In addition, the company remains on track to restructure its global supply chain. This also includes enhancements of its manufacturing footprints in North America. Also, it is investing in technologies to efficiently rationalize its operations across the world. The simplification and rationalization of its operation model should enhance its speed and quickness, while reducing its operating expenses significantly over the time.
Alongside, Coca-Cola is aggressively working for its direct marketing investments. It should help the company to bring more discipline in its direct marketing operations and improve its efficiency going forward. Also, the company plans to invest in marketing programs and innovation that are required in order to refresh and deliver sustainable net revenue growth in the future. The company expects these actions to boost its margins and accelerate its return on investment capital over the coming years.
Moves such as these will certainly resurrect its declining sales in the regions such as United States, Europe and Japan. These actions should withstand its growth amidst tough macro headwinds in these regions. Also, it should help the company to compete with its competitors like PepsiCo (NYSE: PEP). PepsiCo does carry an advantage of diversified product portfolio. Its recent results outpaced the street estimates. Its revenue and earnings grew 2% and 7% respectively, whereas its snack category registered a growth of 3%. However, PepsiCo also had soft results from America.
Hence, Coca-Cola should work aggressively with its growth strategies. Also, it should enhance its execution more effectively that should help the company to remain in the race. Coca-Cola is also investing in brand to improve both Sparkling and Still categories notably juice and juice drinks in North America. It is also making significant investment in value-added dairy portfolio in profitable categories. This balanced approached should fuel up its bottom line performance in the future.
Mergers and acquisitions to drive its category growth
Coca-Cola does carry an advantage with its consistent effort of building relationship with many small players in the industry. It has effectively leveraged its partnership model with the companies such as Keurig Green Mountain (GMCR, Financial), Monster (MNST, Financial) and FairLife. These partnerships should enhance growth for its categories in the future. Also, these partnerships will assist the company to strengthen its presence in the geographic segmentation with in-depth concentration on each market segment.
Ending remarks and valuations
Coca-Cola is certainly a good pick. It is aggressively enhancing its execution strategy in North America that should accelerate its performance in the current quarter. The analysts expect its earnings to grow at CAGR of 3.83% for the next five years. This indicates reasonable growth for the company in the future. Moreover, the stock is cheap with the trailing P/E of 24.18 and forward P/E of 20.81 that highlights potential growth prospects for the stock in the future. In fact, it has profit and operating profit margins of 17.41% and 24.09% respectively for the trailing twelve months. Its balance sheet carries total cash of $23.74 billion, while its total debt stands at $41.8 billion. It has operating cash flow of $10.81 billion and leverage free cash flow of $5.73 billion.
