By: Matt Rego
It seems as though The Coca-Cola Co has been in a bit of a slump over the past couple of years, after continued falling demand for soda in the US and several earnings misses. Additionally, with 51% of its total sales coming from outside the US, a strong Dollar has certainly hurt earnings and future guidance for the company. However, Coke did report fourth quarter earnings on February 10, 2015 and it just met analysts’ estimates. During the fourth quarter 2014, Coke posted adjusted earnings per share of $0.44 on revenue of $10.872 billion. Analysts were estimating earnings per share of $0.421 on revenue of $10.758 billion. However, Coke’s fourth quarter earnings in 2014 still were lower than its fourth quarter 2013 earnings. That being said, Coke continues to diversify away from its flagship soda brands into a variety of other drinks. One such drink Coke is continuing to invest heavily in is coffee, more specifically, Keurig Green Mountain Coffee.
In a disclosed SEC filing, it was made known that Coke decided to purchase an additional 6,378,286 shares of Keurig Green Mountain Coffee, the maker of the successful single serve coffee machines, on February 11, 2015. Prior to the recent increase in its stake in the coffee company, Coke had a total of 19,489,730 shares or 12% ownership in Keurig Green Mountain. After its purchase just days ago, Coke now has a total of 25,868,016 shares or 16% control of the company. The continued increase of its stake rekindled the debate that Coke could ultimately make a move to take over the entire company at some point down the road. The prospect of Coke possibly taking over Keurig Green Mountain would give Coke a huge advantage in the home brewed coffee market through the company’s Keurig brand, which continues to see growth.
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This comes during a time in which Coke is scrambling to revive its once vibrant business model and continuing to diversify. The company’s latest idea is to get into the milk business by offering premium milk that is infused with various vitamins and healthy supplements, despite the fact that the average American is drinking less milk than they did even 10 years ago. Aside from the premium milk idea, the company is slashing costs to help keep earnings afloat, as can be seen with Coke’s announcement in January to cut 1,800 jobs.
Despite profit worries, analysts and “smart money” still back Coke
While there still may be some issues for Coke currently and on the horizon, Wall Street still backs the stock with an average rating of “neutral” by 15 analysts. Five rate the stock a “strong buy”, two rate the stock a “buy”, seven analysts rate the company a “hold” and one analyst rates the company a “sell”, as of this writing. Just recently, Stafford Daily reports that Coke has been the subject of bullish investments with a net flow of $31.78 million, most likely in the wake of better than expected earnings.
Overall, Coke continues to be backed by Wall Street and traders, but there still are some risks. For one thing, the strong US Dollar is a concern for profits, questions still remain around the premium milk entity, and ability to revive downward trend of American cola consumption. That being said, after a continued stake increase of Keurig Green Mountain to 16% and an earnings just beating estimates, investors are rewarding the company.