Increasing revenues have been a big challenge for The Coca-Cola Company KO for the last few quarters amid lower demand for carbonated soft drinks or CSD.
The beverage giant is leaving no stone unturned to boost revenues. The company is working on strategic initiatives in order to make its portfolio a total beverage company. This is mostly via improved marketing and innovation, focus on driving revenues by improved price/mix, digital focus, and productivity initiatives toward driving margins. However, the top line needs to show sustained improvement.
Meanwhile, the company’s shares have underperformed the industry it belongs to on a year-to-date basis. The stock has returned 9.7% compared with the industry’s gain of 13.3%.
Innovations, Productivity Improvements and Cost-Saving Efforts Bode Well
Coca-Cola’s total sales decreased 14% in the first nine months of 2017. In fact, the company’s total sales decreased 15% year over year in the third quarter, marking the 10th consecutive quarterly decline in revenues.
Sales of the company’s carbonated beverages are suffering due to increasing health consciousness among consumers. Accordingly, Coca-Cola is trying to reinvigorate the category by providing increased marketing support through innovations and strong integrated campaigns. Coca-Cola is also pursuing investments in newer revenue platforms to boost long-term sales and profits.
The recent approach in this field by Coca-Cola has been the launch of Coca-Cola Zero Sugar, replacing Coke Zero, in the United States in Aug 2017. Coke Zero Sugar globally grew high single digit in the third quarter.
Again, Coca-Cola made an important addition to its portfolio beyond sparkling soft drinks with the acquisition of Topo Chico premium sparkling mineral water brand in the United States in the third quarter of 2017.
Apart from these sales building strategies, Coca-Cola has been doing well to boost its profit level on the back of improved productivity and better market execution. Despite generating lower profits, the company’s earnings of 50 cents per share in the third quarter improved 2% year over year, helped by ongoing productivity efforts. Lower SG&A expense (down 20%), higher gross margin (up 170 basis points or bps), and higher operating margin (up 404 bps) helped it come up with better numbers.
Moreover, the company is on track to achieve total annualized productivity saving target of approximately $3.8 billion by 2019 from the initiatives takes under this program since its beginning.
Additionally, Coca-Cola had a nice dividend yield of 3.23% (as of Nov 29) that grew regularly. The company has increased its dividend for 55 consecutive years, including the 8%, 6% and 6% dividend hikes in 2015, 2016 and 2017, respectively. Share buybacks continue to be significant, as it helps companies increase earnings per share with a reduced share base.
Coca-Cola currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
A few better-ranked stocks in the Consumer Staples sector are Pilgrim's Pride Corporation PPC and Tyson Foods, Inc. TSN, each sporting a Zacks Rank #1 (Strong Buy), and Hormel Foods Corporation HRL, with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Pilgrim's Pride is expected to register 62.7% EPS growth this year.
Tyson Foods has an expected EPS grow rate of 9.4% for this year.
Hormel Foods is expected to register earnings growth of 4.6% this year.
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