What did I think last time?
Back on May 1, I wrote about why I still own Coca-Cola Company (KO) and why even though it is one of my larger positions, I might buy more. Back then the quarterly dividend had just been raised to $0.37 in another of what has become KO’s typical 2-cents-a-quarter dividend hike. Revenues were declining in part because of the refranchising efforts. Management gave guidance that it expected EPS to decline 1% to 3% for the year and that they expected 10% to 19% headwinds to revenue from refranchising. Generally I saw that KO was responding to changing consumer tastes and reconfiguring itself to produce higher margins but with lower revenues. To me, it looked like the dividend and the typical increase was in no danger, but that careful monitoring of the situation would be required.
I include the above graphic to illustrate how KO is working to re-image itself. In a world where less soda will be consumed, KO is switching from being a soda company to a beverage company. The calculation is that people will always have to consume beverages of some sort, and KO wants to be a major provider of those beverages.
What new information do we have now?
On July 26, KO released its Q2 earnings report. In many ways Q2 was a good quarter. KO’s EPS beat expectations by a penny and revenues beat expectations by $50 million. The share price initially spiked in response to the news, but since then it has returned to the more gradual upward trend that started back in the early spring.
A deeper look at what produced these positive numbers shows lots of signs of improvement. Unit case volume was even despite economic issues in various Latin American markets contributing to a 1% decline in volumes. Organic revenues, which have the effects of refranchising, restructuring and currency fluctuations removed, grew at mid-single-digit levels. The refranchising effort looks to be wrapping up as North America is now settled. That should remove the 16%+ hit on…