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COCA-COLA'S PROBLEMS

I'm a "Boomer," and my generation could have been called the Coke generation. Our parents
started every day with a cup of coffee, and they drank either coffee or water during the day.
Most meals were accompanied by either water, or iced tea.

But Boomers loved Coca-Cola. Most of our parents limited our consumption, much to our
frustration. Even in progressive homes, as children we were usually only allowed one, or at most
two, bottles per day. We chafed at the controls, and when we left home we started drinking the
sweet cola as often as we could.

It didn't take long before we supplanted our parent's morning coffee with a bottle of Coke (or
Diet Coke in more modern times.) We seemingly could not get enough of the product, as bottle
size soared from 8 ounces to 12 to 16 and then quarts and eventually 2 liters! Portion control
was out the window as we created demand that seemed limitless.

Meanwhile, Americans exported their #1 drink around the world. From 1970 onward Coke
was the iconic brand standing for all things (mostly good) American. We saw ads of people
drinking Coke in every imaginable country. International growth seemed boundless as people
from China to India started consuming the irresistible brown beverage.
My how things have changed

Last week Coke announced third quarter earnings, and they were down 14%. The CEO admitted
he was struggling to find growth for the company as soda sales were flat. U.S. sales of
carbonated beverages have been declining for a decade, and Coke has not developed a successful
new product line - or market - to replace those declines.

Coke is a victim of changing consumer preferences. Once a company that helped define those
preferences, and built the #1 brand globally, Coke's leadership shifted from understanding
customers and trends in order to build on those trends towards defending & extending sales of its
historical product. Instead of innovating, leadership has overly relied on promotion and tactics
which helped the brand grow 30 years ago. They kept to their old success formula as trends
shifted markets in new directions.

Coke has begun losing its relevancy. Trends have long been moving in new directions.
Healthfulness has led customers to decide they want less of this calorie rich, nutritionally starved
drink. And as concerns have grown over "artificial" products, such as sweeteners, customers
have moved away from even low calorie "diet" colas. What Coke once stood for - healthfulness,
vitality, spirit, ingenuity, youthfulness - is no longer true.
COCA-COLAACHIEVEMENT AWARDS

As part of the Single Source Cold Beverage Agreement with the Students' Union, Coca Cola

provides awards to recognize academic achievement and student leadership skills, and to assist

with financial needs.

Ten awards will be offered each year, and are open to all FULL-TIME

students (both undergraduate and graduate students). Applicants should also indicate on their

application if they currently live in residence.

Each Coca Cola Student Achievement Award consists of a one thousand dollar ($1000.00)

monetary prize.

The application for 2013/2014 Coca-Cola Achievement Awards will open on November 4th.

Please check back at this time. The deadline to submit an application for 2013/2014 Students'

Union Awards is November 29, 2013 at 4:30 p.m.


SHARE MARKET POSITION

oca-Cola (KO) is the gold standard in the beverage industry.


The company is the largest seller of non-alcoholic beverages in the world.
Coca-Cola operates a tremendously strong business model. This is evident in their
dividend history.
With 54 years of consecutive dividend increases and counting, Coca-Cola is
a Dividend Aristocrat (25+ years of rising dividends) and a Dividend King (50+
years of rising dividends).

Coca-Cola is one of 18 businesses with 50+ years of consecutive dividend


raises. Click here to download your free detailed Dividend Kings Excel
Spreadsheet so you can see other businesses with strong and durable competitive
advantages like Coca-Cola.
This level of dividend growth would not exist unless the company operated a
recession resistant business model with distinct competitive advantages and a wide
economic moat. Coca-Cola is truly deserving of its spot on the blue chip stocks
list.
That being said, there are some that believe that Coca-Colas best days are behind
it. Soda sales have dropped for 11 straight years. Fiscal 2015 fanned this flame, as
investors watched total revenues fall 4% and operating profits drop by 10%.
In short, many believe that Coca-Cola is on the decline. This is not the case.
In fact, the company still has plenty of room to grow. The beverage industry is
expected to increase by $300 billion between 2015 and 2020, and the company
continues to hold dominant market share.
This article examines Coca-Colas growth potential and market share in detail.
Historical Growth
Coca-Cola can trace its humble beginnings to Atlanta, Georgia, where the
companys first soda was created by John S. Pemberton to be sold at the small
local pharmacy called Jacobs Pharmacy. The year was 1886.
In the first year, nine drinks per day were sold, a far cry from the operations of
todays company.
The companys accountant, Frank Robinson, thought that the two Cs would look
well in advertising and named the product Coca-Cola. Mr. Robinson is also
credited with creating the famous cursive Coca-Cola logo, which is still in use
today.

Source: The History of Coca-Cola


The company rapidly began to grow, quickly surpassing many significant business
milestones.
1887: The first use of coupons to purchase Coca-Cola
1898: Coca-Cola moved to their first independent headquarters, which they quickly
outgrew. The company had to move to larger headquarters five times in the next
twelve years.
1909: The Coca-Cola Bottler magazine begins publication
1930: The Coca-Cola Export Corporation was incorporated to help distribute and
market the companys product in international markets
1936: Coca-Cola celebrates its 50th anniversary
Fast forward to today, and Coca-Cola is a true giant in the beverage industry. With
more than 130 years of serving customers, the company has scaled up to an
impressive size. Almost 22,000 Coca-Cola beverages are consumed every second.
Here are a few other statistics on the companys massive scale:
Products sold in more than 200 countries
More than 1.9 billion daily servings of Coca-Cola products
$44 billion of net operating revenues
$7.4 billion of net income
$176 billion market capitalization (as of January 12, 2016)

Source: Coca-Cola Investor Relations


As Coca-Cola has grown, so has their product lineup.
Although Coca-Cola has the third most valuable brand valued at $73 billion in the
world according to Interbrand, they own many other products that have been
developed internally or through acquisition.
Many people are surprised to learn that many of their favorite drinks are owned by
the Coca-Cola company, even if they do not explicitly bear the Coca-Cola name.
Source: Coca-Cola Investor Relations
Coca-Cola now has 20 brands with over $1 billion per year in sales. This diverse
product portfolio creates significant operational diversification, and insulates the
company from any downturns in interest for any single one of their product.
These 20 $1 billion+ brands are:
Minute Maid
Minute Maid Pulpy
Simply
Del Valle
Powerade
Glaceau Vitamin Water
Aquarius
Ayataka
Coca-Cola
Fanta
Sprite
Diet Coke
Coca-Cola Zero
Georgia Coffee
Schweppes
I LOHAS
Dasani
Bon Aqua
Gold Peak
Fuze Tea
Even better, 14 of these 20 brands are stills.
Still drinks (non-carbonated beverages such as water, juices, and teas) have been
very popular in recent years because of growing concerns surrounding the health
effects of sparkling products (often sugary sodas). The significant potential that
exists in Coca-Colas portfolio of stills will be discussed in detail later in this
article.
Coca-Colas broad portfolio of products has given the company a very diversified
business model, which has handsomely rewarded investors. The company has
generated significant free cash flow that has been returned to investors in a very
shareholder-friendly manner.
In the past 5 reported fiscal years, more than $39 billion of capital has been
returned to Coca-Colas investors through a combination of dividends and share
repurchases. A breakdown is shown in the following slide.

Source: Coca-Cola Investor Presentation, slide 48


Coca-Cola is on pace to continue this trend, with an increased dividend in fiscal
2016 and more than $2 billion of share repurchases.
Historical Returns & Sources of Future Growth
Fundamentally, Coca-Cola has done a fantastic job at improving metrics that are
commonly associated with business success.
Between 2000 and 2015, the company has grown earnings-per-share from $0.74 to
$2.00, which is equivalent to a CAGR of 6.9%.
Looking back even further, Coca-Colas EPS in 1985 was $5.51. However, due to
a series of stock splits, each shareholder of Coca-Cola stock in 1985 would
effectively own 48 shares today. This means that 1985s EPS measured in todays
number of shares would be $0.11 (which is $5.51 divided by 48). Doing the math,
Coca-Cola has compounded EPS at a CAGR of 10.2%, a very high rate of earnings
growth.
This growth in the underlying business has translated to phenomenal returns for
Coca-Colas shareholders. Historically, the company has been a tremendous
investment, delivering returns well in excess of the S&P 500 Index.
Source: Yahoo! Finance
Fortunately, Coca-Colas growth prospects are robust. The companys future
growth will largely be driven by three factors. The factors are:
1. Organic Growth, driven by expansion of the beverage market and Coca-Colas
stills portfolio
2. Business Restructuring (Coca-Cola is divesting of its bottling operations)
3. Penetration in International Markets
Each of these growth factors will be discussed in the next sections.
Organic Growth Prospects
With a declining industry backdrop, it might be difficult to identify organic growth
prospects for Coca-Cola. However, they certainly exist, and are two-pronged in
nature.
The first expected driver of Coca-Colas organic growth will be through the
increased market penetration of the companys stills portfolio.
Already, Coca-Colas strong set of assets ensures that consumers keep coming
back to purchase more products. This is especially true for their sparkling products,
but I have no doubt that the company can use their industry expertise to drive
growth in stills.

Source: Coca-Cola Investor Presentation, slide 5


Coca-Colas stills products will inevitably benefit from the major trend of
consumers switching to healthier choices in the food & beverage industry. Of
particular concern to Coca-Cola is the transition of consumers due to the dietary
concerns surrounding sugary sodas.
Coca-Cola has identified this trend and is working to aggressively accelerate the
growth of their stills portfolio through internal innovation, M&A, and global
expansion.