KO Analysis Adam Herbert

KO: The Coca-Cola Company

Analysis Highlights Summary
The Coca-Cola Company, KO, is one of the largest drink company in the
Revenues: DOWN
world. They offer over 3,800 different beverage choices around the
globe. The continual decline in soft drink sales continues to hurt the
Net Income: DOWN company overall.

PART 1 Growth
Sales Growth: NEGATIVE
Revenues have and are expected to continue to fall by an average of
Returns: DECREASING 2.54% per year through 2018. The overall decrease in Revenue from
2012 to 2018 is 16.69%. Revenues fell by 3.70% in 2015 and are
forecasted to fall by 2013% in 2016 and 2.57% in 2017 and 2018.
Revenues will continue to fall as soda consumption continues to
decline. Coca-Cola is facing issues concerning some of its ingredients,
such as aspartame, that have been linked to cancer and other ailments.
This bad publicity and continual decline in new customers will continue
to cause revenues to shrink.

PART 2 Historical Operating Expenses and Projected Statements

Competitors
The Historical Operating Expenses were 39.39% of Sales. It is expected
grow by an average of 3.5%. Revenues are falling and Operating
Anheuser-Busch InBev SA Expenses are expected to grow. In my opinion the company is
increasing its expenses in an attempt to increase its revenues, but it
Dr. Pepper Snapple Group does not appear to be achieving the desired effects.
Inc.
PART 3 Projected Financials and Competition

The Return on Sales is projected to continually decrease through the

2018. It currently averages 20.99%, but is expected to be at 17.58% in
2018. This can be attributed to the firms shrinking revenues. Return on
Assets is also expected to decrease with the increasing balance in Asset
accounts and a fall in income. This is expected to be on average around
7.88%. The Return on Equity is a different story. From 2012 to 2014 we
see ROE fall from 27.39% to 23.31%, but then it jumps to 28.59% in
2015. I project it fall to 26.38% in 2016 and slowly rise to 26.53% in
2018. This may be seen as a positive for some, but in reality
Shareholders Equity is just decreasing at a faster rate than Net Income.
With assets increasing and equity decreasing, liabilities must be
increasing. This is not good from the Liquidity standpoint.
KO Analysis Adam Herbert

I chose Dr. Pepper Snapple Group Inc. and Anheuser-Busch InBev SA as competitors with my firm. Dr.
Pepper is more of a direct competitor with many of the same products under a different name as Coca-
Cola. I chose Anheuser-Busch because it competes in the market of beverage sales along with these two
companies. I considered PepsiCo, but I felt that it was too diversified of a company overall to be compared
with just a beverage company. I felt AB (Anheuser-Busch) was a good competitor because it is facing
similar decline in sales in the beer industry. From the financial ratios AB appears to be doing very well with
a steady increase in ROA and very strong upward trend in EPS. This is very good, especially when compared
to Coca Colas data. Dr. Pepper also appears to be faring pretty well when compared to Coca-Cola with a
strong, steady ROS and an increasing ROE.

KO FINANCIAL RATIOS
RETURN ON SALES 24.59% 24.50% 20.27% 21.68%
RETURN ON ASSETS 10.54% 9.58% 7.74% 8.18%
RETURN ON EQUITY 27.39% 25.80% 23.31% 28.59%
EPS $ 2.00 $ 1.94 $ 1.62 $ 1.69

DR PEPPER SNAPPLE GROUP INC FY 2012 FY 2013 FY 2014 FY 2015

ROS 27.68% 42.91% 29.32% 28.58%
ROA 5.84% 10.16% 6.47% 6.14%
ROE 17.40% 28.58% 18.44% 19.63%
EPS 4.4 8.72 5.54 4.96

ANHEUSER-BUSCH INBEV SA FY 2012 FY 2013 FY 2014 FY 2015

ROS 16.31% 9.04% 17.53% 18.85%
ROA 7.05% 7.61% 8.51% 8.61%
ROE 27.59% 27.40% 30.65% 35.00%
EPS 2.96 3.05 3.56 3.97
KO Analysis Adam Herbert

STOCK PRICE

PART 4 Recommendations and Conclusions

In the short to intermediate term, I see the price of the

stock continuing to rise. I currently feel that it is
overpriced, but that it will continue to perform well for
the next few years. I think that in the long run the stock
will drop off and lose a good amount of value in a
relatively short period of time, mainly due to the falling
revenues as well as the fall in consumption and
popularity of soft drinks. In one year I see the stock
trading for around $46/share, in two years for around $49/share, and in three five years for around
$30/share. I would buy with the intent to sell in the next couple of years. I would not recommend holding
for the long term due to my projection of a significant price drop. The firms stock has been growing
recently, reaching some of its highest numbers ever, but I feel that this cannot be sustained. According to
the Wall Street Journal soft drink sales hit their 10th year of decline in 2015, but non-alcoholic beverage
sales rose 2.2%. This is coming from bottled water gaining in popularity. Coca-Colas main products are
soda and soft drinks, with only a few being bottled water in comparison. Coca-Cola may need to reconsider
its overall plan concerning its product line. In a recent article by the Consumerist, Coca-Cola has
announced plans to revamp its design scheme for its soft-drinks in an effort to create brand-unity. This
attempt is being meet with negativity from consumers. This isnt good for a product that is already slowly
losing popularity. These two views support my conclusion. Another opposing view, written by
SureDividend.com, argues that it doesnt matter that soda sales are in decline because Coca-Cola will
continue to increase its market share, thus offsetting this loss. This will lead to higher Net Income, Stock
Prices, and an increase in dividends. I am still, however, sticking with my projections of significant stock
price drop in the long term and a good stock to buy and sell in the short to intermediate term.

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