Keurig Kold: Down But Not Out For Coca-Cola

What does this mean for Coca-Cola?

This means that Coca-Cola and its shareholders lost a means for carbonated soda volume expansion, at least for the time being. On the one hand, pursuing this initiative could have actually hurt Coca-Cola’s brand at the current price point. I don’t think this represents a crippling blow to Coca-Cola in and of itself. Coca-Cola still remains the No. 1 beverage company in the world. Coca-Cola can still pull the pricing lever and research new products and packaging methods as well as cost cutting measures to maximize shareholder value.

Other challenges at Coca-Cola

Coca-Cola isn’t without its share of challenges, such as muted volume in carbonated beverage growth and the strong dollar. Last year, the company saw its reported revenue and free cash flow decline 4% YOY. As a mature company, Coca-Cola resorts to financial engineering tactics, such as selling bottling assets, in an effort to lower overhead and increase margins. In the most recent quarter, Coca-Cola’s long-term debt equated to 107% of stockholder’s equity. I like to see companies with long-term debt at 50% or less of stockholder’s equity.

Conclusion

I still think the company deserves a spot in your portfolio as a dividend holding. Last year Coca-Cola paid out 71% of its free cash flow in dividends, which is acceptable for a mature company. Coca-Cola demonstrates an ability to consistently increase its dividends. In February, Coca-Cola increased its dividend for the 54th consecutive year. Currently, the company pays its shareholders $1.40 per share per year translating into a yield of 3%. Coca-Cola’s P/E ratio of 28 versus 24 for the S&P 500 makes the company a little pricey. Investors may not want to commit too many of their investing dollars in Coca-Cola and could benefit from waiting for a price correction before adding shares.

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William Bias (stockdissector) owns shares in Coca-Cola. He is not a financial advisor. Always seek a second opinion and do your own research.

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Comments

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Joe Economy 4 years ago Member's comment

Great article, thanks. The market place always has a way of weeding out poor value for money products and the Keurig coffee machine is a good example of that. Home brew coffee machines are a great idea but the pricing had to be right to make it a good option. Soda stream machines on the other hand have always appealed to the convenience factor of the consumer. After all, who wants to schlep heavy bottles of soda home every time they shop? In terms of Coca Cola, sure its a loss for them that Keurig has flopped but I wouldn't be too worried for Coca Cola. with revenues of approximately $43bn last year and a market cap of about $195bn the execs over at Atlanta, GA won't be losing too much sleep I imagine.

William Bias 4 years ago Author's comment

Hi Joe Economy,

I agree 100%. Thanks for your readership!

William

Oil Baron 4 years ago Member's comment

Personally, I'm a fan of Soda Stream and everyone I've recommended it to, loves it. I think $SODA will do well. But I have to say, I'm impressed #Keurig is issuing refunds. It's of course the smart move from a customer retention perspective, but many companies wouldn't have bothered.

Ayelet Wolf 4 years ago Member's comment

Yes, but a LOT of customers likely won't have their receipts anymore and/or gave the item as a gift. They'll be out of luck and pretty angry to boot.

Oil Baron 4 years ago Member's comment

I would think with a machine that expensive, a serial number would be enough to prove ownership.

Cynthia Decker 4 years ago Member's comment

Nope, both are needed: http://www.drinkmakerrefundprogram.com/

William Bias 4 years ago Author's comment

I think all receipts should be e-mailed. This is proof of that necessity.

Alexa Graham 4 years ago Member's comment

While obviously how to get your money back was not the point of the article, it seems to me, having the actual unit with a unique serial number should be proof enough. I know I rarely keep receipts.

Dhaval Shanischara 4 years ago Member's comment

Most food and beverage companies are like rubber bands, even with enough stretching and twists and turns, they will bounce back, and i expect nothing less from Coca-Cola, especially since they belong in an oligopoly and have many more products to rely on. Great read.

William Bias 4 years ago Author's comment

I appreciate your readership!

William