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Coca-Cola (KO) Underperforms: Will It Turn Around in 2017?
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The Coca-Cola Company (KO - Free Report) , once a darling to dividend investors, has been struggling to boost sales in the wake of weak demand in certain emerging and developing markets and shift in consumer preference. Further, management’s lapses in adapting to changing market preferences dealt a blow to the stock, which underperformed the broader sector while DOW rose over 13% in 2016.
With 500 brands, including four of the top five sparkling drink franchises worldwide, namely, Coca-Cola, Diet Coke, Fanta and Sprite, the company holds a unique market position.
However, the rate of growth is slowing down. The company’s recent dividend hike was just 6%, compared to 8% in 2015 and 9% in 2014.
The company’s share price lost 2.3% in 2016, underperforming 3.4% growth of the broader consumer staples sector. The beverage giant also faces weak volume growth as consumers are increasingly shifting to healthier products, rejecting many of the core ingredients that include sugar, which dominates most of the company’s product ingredients.
Also, severe macroeconomic challenges in certain international markets and the stronger U.S. dollar have impacted quarterly results for the cola giant, which generates about half of its sales abroad.
Nevertheless, the company has responded to the changing needs by coming up with products like Zero Sugar Coca-Cola.
Will the Stock Turn Around in 2017?
As we enter 2017, it is to be borne in mind that Coca-Cola is a legendary dividend growth stock. The company has raised its dividend for 54 consecutive years, consistently boosting returns for investors.
Investments & Diversification: Coca-Cola is making investments in newer platforms to boost sales and profits over the long haul. The company acquired a stake and signed a deal with Monster Beverage Corporation (MNST - Free Report) in Jun 2015 to expand distribution of the latter’s products. This will allow Coca-Cola to compete more effectively in the global energy category.
Coca-Cola has also signed a distribution agreement with Suja, a high growth organic cold-pressed juice company, to gain traction in this new market. In China, the company has invested in the plant-based protein drinks platform through the acquisition of the beverage business of China Green Culiangwang Beverages Holdings.
In early 2016, Coca-Cola acquired 40% stake in Chi Limited, Nigeria's leading value-added dairy and juice company. These strategic investments will help the company expand in the non-alcoholic beverage industry.
Coca-Cola’s purchase of Unilever's (UL - Free Report) soy-based beverage business, known as AdeS, with the help of its largest Latin American bottler Coca-Cola Femsa SAB (KOF - Free Report) , is one major portfolio diversification step that most shareholders should appreciate.
Refranchising: Coca-Cola is presently undergoing a number of transformations. Its drive to refranchise nearly all of its North American bottling operations by the end of 2017 is also on track. This will make Coca-Cola as an asset-light business focused on concentrates and the marketing of its 500-plus global brands. The company aims to get rid of the capital-intensive distribution business by refranchising its bottling territories around the world.
Marketing Efforts: The company focused on incremental media investments in 2014 and 2015 to fund brands globally. Also, Coca-Cola adopted aggressive marketing campaigns like Share a Coke to accelerate the top line. The company’s disciplined quality advertising investments led to improved volume growth in 2015 in North America. The trend was maintained in 2016 as well.
Leadership Shakeup: In May 2017, Chief Operating Officer James Quincey will succeed Muhtar Kent as CEO, with Kent continuing as Chairman.
The recent appointment of James Quincey as Coke's new CEO suggests that the company aims to bring about a change in its strategies to drive growth and beat the market.
Hence, we are optimistic about this Zacks Rank #4 (Sell) company’s revamped approach for attaining higher growth and margins.
Image: Bigstock
Coca-Cola (KO) Underperforms: Will It Turn Around in 2017?
The Coca-Cola Company (KO - Free Report) , once a darling to dividend investors, has been struggling to boost sales in the wake of weak demand in certain emerging and developing markets and shift in consumer preference. Further, management’s lapses in adapting to changing market preferences dealt a blow to the stock, which underperformed the broader sector while DOW rose over 13% in 2016.
With 500 brands, including four of the top five sparkling drink franchises worldwide, namely, Coca-Cola, Diet Coke, Fanta and Sprite, the company holds a unique market position.
However, the rate of growth is slowing down. The company’s recent dividend hike was just 6%, compared to 8% in 2015 and 9% in 2014.
The company’s share price lost 2.3% in 2016, underperforming 3.4% growth of the broader consumer staples sector. The beverage giant also faces weak volume growth as consumers are increasingly shifting to healthier products, rejecting many of the core ingredients that include sugar, which dominates most of the company’s product ingredients.
Also, severe macroeconomic challenges in certain international markets and the stronger U.S. dollar have impacted quarterly results for the cola giant, which generates about half of its sales abroad.
Nevertheless, the company has responded to the changing needs by coming up with products like Zero Sugar Coca-Cola.
Will the Stock Turn Around in 2017?
As we enter 2017, it is to be borne in mind that Coca-Cola is a legendary dividend growth stock. The company has raised its dividend for 54 consecutive years, consistently boosting returns for investors.
Investments & Diversification: Coca-Cola is making investments in newer platforms to boost sales and profits over the long haul. The company acquired a stake and signed a deal with Monster Beverage Corporation (MNST - Free Report) in Jun 2015 to expand distribution of the latter’s products. This will allow Coca-Cola to compete more effectively in the global energy category.
Coca-Cola has also signed a distribution agreement with Suja, a high growth organic cold-pressed juice company, to gain traction in this new market. In China, the company has invested in the plant-based protein drinks platform through the acquisition of the beverage business of China Green Culiangwang Beverages Holdings.
In early 2016, Coca-Cola acquired 40% stake in Chi Limited, Nigeria's leading value-added dairy and juice company. These strategic investments will help the company expand in the non-alcoholic beverage industry.
Coca-Cola’s purchase of Unilever's (UL - Free Report) soy-based beverage business, known as AdeS, with the help of its largest Latin American bottler Coca-Cola Femsa SAB (KOF - Free Report) , is one major portfolio diversification step that most shareholders should appreciate.
Refranchising: Coca-Cola is presently undergoing a number of transformations. Its drive to refranchise nearly all of its North American bottling operations by the end of 2017 is also on track. This will make Coca-Cola as an asset-light business focused on concentrates and the marketing of its 500-plus global brands. The company aims to get rid of the capital-intensive distribution business by refranchising its bottling territories around the world.
Marketing Efforts: The company focused on incremental media investments in 2014 and 2015 to fund brands globally. Also, Coca-Cola adopted aggressive marketing campaigns like Share a Coke to accelerate the top line. The company’s disciplined quality advertising investments led to improved volume growth in 2015 in North America. The trend was maintained in 2016 as well.
Leadership Shakeup: In May 2017, Chief Operating Officer James Quincey will succeed Muhtar Kent as CEO, with Kent continuing as Chairman.
The recent appointment of James Quincey as Coke's new CEO suggests that the company aims to bring about a change in its strategies to drive growth and beat the market.
Hence, we are optimistic about this Zacks Rank #4 (Sell) company’s revamped approach for attaining higher growth and margins.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
(Looking for the Best Stocks for 2017? Be among the first to see our Top Ten Stocks for 2017 portfolio here.)