Putting some fizz back into consumer goods stock Coke

The Coca-Cola Company is an American multinational beverage corporation and manufacturer, retailer, and marketer of nonalcoholic beverage concentrates and syrups. New York based consumer goods stock analyst, Bill Schmitz of Deutsche Bank, says The Coca-Cola Company is shaking up its business model to adapt to changing times. It’s still one of the world’s top beverage stocks.

The Coca-Cola CompanyFirst served in 1886, Coca-Cola predates the Baby Boomers. But its heyday, in terms of growth, was tied to the Boomers.

There was a time when it seemed that Coca-Cola, like rock music or the “big three” U.S. TV networks, would remain forever in the foreground of popular taste. But times change.

For some time now in developed economies, consumers have been turning away from carbonated soft drinks and instead choosing sports drinks, juices and other non-carbonated beverages. For a while, Coca-Cola Co. (NYSE─KO) was able to offset flat or declining volumes in developed markets with strong growth in developing economies.

However, as Deutsche Bank analyst Bill Schmitz notes, that’s no longer the case. The company, he says, is “finally adjusting to the new normal,” one in which growth is slowing everywhere – even in developing markets.

Management’s response, he says, has been to act as its own activist shareholder, shaking up the business model of one of the world’s top beverage stocks to adapt to changing times.

Health and wellness is a strong and growing theme among consumers, which has in turn dimmed the outlook for soft drink sales growth. This is what Coca-Cola must adapt to.

In many emerging markets, Mr. Schmitz notes, value has become more important than volume, the company is honing its cost discipline and is investing more in non-carbonated drinks, and “brand building is trumping bottling and production optimization.”

That’s a whole series of seismic shifts. However, the analyst says, Coca-Cola is on the right path. Analysts’ estimates, he states, have “largely done declining” and the company has been making strategic investments to reignite growth.

At this point, Mr. Schmitz says, Coca-Cola has three different strategies, each tailored to different markets. For so-called frontier markets, it’s concentrating on volume. For developed markets, management is focusing on “value realization and profit maximization.” In developing markets, it has adopted a balanced approach: a mix of both.

Mr. Schmitz maintains both his “buy” recommendation and target price of $48. 


Investor’s Digest of Canada, MPL Communications Inc.
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