The legendary investor Warren Buffett once famously said that Coca-Cola (KO), the world’s biggest soft drink maker, has such a strong business model that a ham sandwich could successfully run the company.
It’s still true. The company benefits, for example, from an unmatched global distribution network. Last year Coke followed the lead of its arch rival PepsiCo (PEP) by purchasing the North American operations of its bottler, Coca-Cola Enterprises, eliminating conflicts of interest between the two companies.
Meanwhile, Coke is expanding its already well-established operations overseas. It has slotted investments of $20 billion for four main developing markets over the next nine years — Africa, Mexico, Russia, and China.
The effort already is paying off. Coke reported a 13 percent increase in net operating revenue for Latin America in the second quarter from a year earlier. And it registered a 15 percent gain in its Eurasia and Africa unit.
As the middle class grows in emerging markets, its new members will almost certainly drink more Coke beverages.
Coke does face some obstacles. The economy’s weakness will likely curb consumer spending. The company said it will lift its prices by 3 percent to 4 percent in the North American market during the second half of the year, following a 1 percent to 2 percent increase in the second quarter.
Standard & Poor’s analyst Esther Kwon has a five-star buy rating on Coke shares. She expects the company’s sales to soar 33 percent this year, helped by the inclusion of North American bottling operations for the first full year and, less importantly, by higher prices, international volume growth, and dollar weakness.
“We still see KO having an attractive relative international footprint, particularly in faster-growing emerging markets, and capability to generate strong free cash flow, which we
believe will be returned to shareholders through dividends and stock repurchases,” Kwon writes.
The company next reports around Oct. 18.
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