Stock of the day 09/02/2015 – The Coca-Cola Company

For years it was ‘always Coca-Cola’; the switch in slogan to ‘Open to Suggestions’ perhaps captures the change in fortunes for the company ahead of its Q4 2014 earnings release on Tuesday.

It was a mixed year on the markets, especially in the second half, but Coca-Cola did manage to make gains on its starting price of $41.14. It quickly hit a low of $36.90 at the end of February before seeing steady growth until mid-July. From then on the road was a lot rockier for the soda-giant, as it pivoted between $39.44 at the start of August to $43.96 in October, back down to $41 by November, only to reach its yearly high of $44.99 at the end of that month, before falling once more to $40 in mid-December. It then managed to open 2015 at $42.29; it is now trading at $41.63 ahead of the release tomorrow.



It will be an interesting quarter for Coca-Cola, as the company attempts to deal with the sector-wide problems plaguing the soda-industry. As health-consciousness is on the rise, the consumption of carbonated drinks in the US is on the decline, with volume sales falling for the 10th year in a row for the industry. Currently revenues have been steadied by a rise in prices that saw US carbonated drinks cost 3.8% more in the fourth quarter of 2014; however, this is only tenable whilst consumers feel the benefits of things like cheap oil and slowly increasing wages. Any change in this trend will hit companies like Coca-Cola, alongside PepsiCo and the Dr Pepper Snapple Group, hard unless the sales issue can be rectified.

Due to this, there will be extra scrutiny on those Coca-Cola ventures that are different from the carbonated drinks sector, or are attempting to address the health concerns that are so readily associated with such beverages. The two major new products for Coke are Fairlife milk and Coca-Cola Life: the former contains 50% more protein and less sugar than normal milk, and Coke are hoping this will entice customers to spend more than double the current price of the white stuff; Life, on the other hand, is still very much in Coke’s wheelhouse, but contains less sugar and lower calories that its traditional product, complete with a ‘healthy’ green package.

The rollout of these products, especially Life, will be eyed carefully to see if they can compensate for issues with other products. Coke has seen success with its non-carbonated beverages, as Gold Peak team Fuze tea and I Lohas mineral water join the 20 Coca-Cola beverage brands that cross the $1 billion mark in revenue, so any movements towards an increase of these products may be received well by investors. The company also became the largest shareholder in Keurig Green Mountain, with a 16% stake, as it partners with the coffee company on Keurig Cold, a home carbonation technology that utilises sachets instead of bulky bottles. This area is on the rise as it allows customers to have more certainty over what is in their carbonated drinks, so Coke will be hopeful after the success of this move.

However, there is a looming issue for Coca-Cola, and it has been the bane of many companies this earnings season: the stronger dollar. Coke is expected to be the latest US multinational to be hit by this trend, and with the company generating most of its profits overseas the dominant greenback may be a big burden for Coca-Cola. With this in mind, the consensus among analysts is earnings per share of $0.42 and revenue of $10.76 billion, not a pretty picture compared to $0.46 and $11.04 billion respectively last year. Coke has seen flat or decline sales in the past 7 quarters, so its performance on the markets will likely be down to how well it has managed these declines rather than the absence of declines whatsoever.