The Coca Cola Company (ticker: KO) is a consumer staples sector beverage giant that produces and sells a huge amount of different drinks from categories such as carbonated soft drinks, water, juices, teas, etc.

Company Overview           

Coca Cola is, by market capitalization, the biggest company in the beverage industry. It owns more than 500 unique brands that it sells across the globe. Its most important products are from the carbonated soft drinks segment, but other business units, such as water and sports drinks, have grown into major revenue sources as well.

During Q2 Coca Cola was able to grow its organic revenues by 5% year over year. This growth was based on higher prices per unit as well as higher volumes, the underlying growth momentum therefore is compelling.

Growth Prospects       

Coca Cola has an excellent long-term growth track record. The company, which was founded roughly 130 years ago, has delivered excellent shareholder returns in the past. More recently Coca Cola’s earnings per share growth was relatively weak, though. This can be explained by the fact that Coca Cola reorganized its operations. The company has, for example, refranchised its US bottling businesses.

Since the refranchising is done, results will likely improve going forward. This is due to the fact that Coca Cola will not endure any one-time costs for refranchising and reorganizing any longer, and on top of that the refranchising allows Coca Cola to grow its margins significantly. During the most recent quarter Coca Cola was able to grow its operating margin by 300 base points year over year.

Coca Cola’s management forecasts earnings per share growth of 8%-10% for 2018. For a non-cyclical company from the consumer industry that is a highly attractive growth rate. This year’s profit growth will be impacted by tax rate changes, so beyond 2018 earnings per share growth will likely be somewhat lower than 8%. We forecast a long-term earnings per share growth rate of ~7%.