The Coca-Cola Co (NYSE:KO) is one of those stocks that have been adversely affected by the global economic environment. This is why the company has increased its focus on cost-cutting and undertaking strategic initiatives that would contribute to long-term growth. These include refranchising in North America, investment into marketing and building new revenue platforms. Some of these initiatives have already started to yield results for KO, as it saw volume growth during the first three quarters of 2015.
In recent months, the carbonated beverage industry has taken a hit, owing to a rise in health concerns and cross category competition. Coca Cola has particularly been affected, due to increased competition in the industry. The main concern of the consumers is the use of artificial sweeteners, which may result in obesity. This has also affected the sugar-free beverage segment negatively. Furthermore, the levy of additional taxes on artificially sweetened beverages has also weighed in on sales volume.
Being a multi-national company, Coca Cola gains more than 50% of its revenues from outside the US. This means that, much like other big companies, KO has also suffered losses due to negative currency movements. What makes this problem even worse is the increasing affect that this has had on yearly earnings. In 2013, negative currency movements resulted in a 4% decline in profits, 6% in 2014 and are expected to be 8% in 2015. Added to this, the international sales by KO are also affected due to the changing political conditions in Ukraine and the Middle-East.
Fortunately, it is anticipated that this situation is temporary and would change overtime. Once the economic conditions improve and economies start to recover, Coca Cola can once again regain control over its market. However, unlike many other companies, KO does not plan to minimize its business activities and wait for the conditions to improve. In fact, the company has stepped up its marketing campaigns and become more innovative. This includes changing the packaging, using new equipment and routes- to-market.
Additionally, the company has also realized that health conscious drinks are here to stay and it has begun marketing some of its own. Furthermore, each region has a different type of drink, depending on the preferences of consumers in that region. Apart from making changes to its own products, Coca Cola has been busy making deals with new and upcoming beverage makers. The company recently entered into a partnership with Keurig Green Mountain and Monster Beverage Corporation. This way, the company would be able to diversify its business into a more profitable and sustainable one.
Improving Operational Efficiency
However, The Coca-Cola Co (NYSE:KO) has not remained blind to the fact that it needs to grow more efficient. Currently, the company is undergoing a cost-reduction program that was initiated by the management in 2012, for a period of 4-years. As per the plan, KO would optimize its global supply chain, make global marketing campaigns more effective and gain an operating expenses leverage. If successful, the program is expected to save the company around $600 million annually.
Fortunately, for shareholders, KO still has a strong capital position. Additionally, the company plans to use this advantage to initiate share buyback programs and increase its dividends. KO expects to repurchase shares worth $2.5 billion in 2015 alone, apart from increasing its dividend payouts by 8%.
Despite all the negatives, Coca Cola is headed in the right direction to improve its financial position. Additionally, if the company continues on its current plans, it would soon be able to report growth in revenues and operating margins. However, negative currency movements and the overall condition of the industry is something that investors should keep in mind, when dealing with KO.