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The Coca-Cola Company (KO), with a market cap of $189.26B, is the world’s largest non-alcoholic beverage company. The Coca-Cola Company has one of the widest moats in the consumer beverage industry with its diversified brands and extensive distribution network. KO had reached a new 52 week high of $42.70 in the last trading day after reporting a better than expected Q1, 2013 profit on April 16, 2013.
Q1, 2013 Earnings
KO reported net income of $1.75B, or 39 cents per share, down from $2.05B, or 45 cents per share, a year earlier. Excluding one-time items, earnings were 46 cents per share, beating analysts’ average estimate of 45 cents.
Worldwide sales volume grew 4 percent, but revenue slipped 1 percent to $11.04B, which was negatively impacted by currency exchange rate and the sales lost through the refranchising of some other bottler assets. KO’s global sparkling portfolio grew 3%, led by brand Coca-Cola (3% growth), Fanta (6% growth), and Sprite (5% growth). Two-thirds of global volume growth was contributed by sparkling brands. As for the still beverage, the global volume increased by 6% for the quarter with growth across most still beverage categories.
Monster Beverage (MNST), formerly Hansen Natural Corporation, has successfully emerged as the world’s second-largest energy drink company behind privately held Red Bull. Despite the recent gain, MNST is underperforming with 7.67% YTD as of April 11, 2013 compared with the NASDAQ with a 11.48% advance. Monster Beverage had been hampered by safety claims over its energy drinks in the past few months, but now it may be due for a very bullish run.
Gaining Market Share
According to a note from SunTrust, Nielsen data showed Monster Beverage made market share gains and accelerated its growth rate in March. Prior, Nielsen convenience store data also showed that the energy drink category was up 6% for the four weeks ended February 16, 2013, while MNST outpaced the group at +7.4% and resumed its share gains.
On April 8, 2013, MNST’ Board of Directors had authorized a new share repurchase program for the repurchase of up to $200 million of the company’s outstanding common stock. There was no availability remaining under the previously authorized $250 million share repurchase program. Based on the last closing price of $55.86 on April 11, 2013, up to 3.58 million shares can be repurchased. MNST currently has 165.55 million total shares outstanding.
With the market trading at a multi-year high, it may be a good time for smart investors to review their holdings and perhaps take some profits. It is also a good time to review stocks with low beta and strong cash flow to reduce the volatility. PepsiCo (PEP) surfaces when it comes to strong cash flow and low beta. However, taking a deeper look, PepsiCo’s cash flow may not be cheap with current valuation.
For 2012, PepsiCo delivered EPS directly on target. The capital spending was 4% of net revenue for 2012, below our target of 4.5%, a 20% reduction from 2011 CapEx investment level. Inventory days had decreased, and payables days had increased. Overall, the company had a healthy cash flow for 2012.
Increasing Operating Cash Flow
Excluding the pension and restructuring cash outflows, the management operating cash flow increased 20% or by more than $1.2B compared to 2011. This cash flow performance enabled the company to return $6.5B to PepsiCo shareholders through a combination of share repurchase and dividends, a 16% increase from 2011.
As for the productivity commitment, the management executed a comprehensive restructuring program and accelerated the company’s productivity efforts across the value chain. The organization is de-layered, and the efficiency is improved by reducing headcounts and rationalizing the supply chains to reduce costs and investment in fixed assets. As a result of these efforts, the company delivered in excess of $1B in productivity in 2012.
3 Large-Cap Defensive Stocks For Your Portfolio: Coca-Cola, Waste Management And Sysco [Seeking Alpha]
Three large-cap stocks with defensive nature will be presented in this article. The Coca-Cola Company (KO), Waste Management Inc. (WM) and Sysco Corporation (SYY) all have solid balance sheet and generate strong cash flow. These three companies can be reviewed to increase the dividend return and better withhold the potential market corrections as compared to other high beta stocks.
The Coca-Cola Company
The Coca-Cola Company is the world’s largest non-alcoholic beverage company, which owns or licenses and markets more than 500 non-alcoholic beverage brands, including Coca-Cola, Diet Coke, Fanta, Sprite, Dasani, Powerade and Minute Maid. KO has one of the widest moats in the consumer beverage industry, and the company is well positioned to take advantage of the strong international growth through its diversified brands and extensive distribution network. KO closed at $38.91 with 1.56% gain on February 7, 2013. KO had been trading in the range of $33.71-$40.67 in the past 52 weeks. KO has a low beta of 0.50. The current annual dividend yield is 2.62% for KO.
Analysts, on average, are expecting an EPS of $0.44 with revenue of $11.55B for the quarter ending in December, 2012. Analysts are also estimating an EPS of $2.00 with revenue of $48.14B for the fiscal 2012. In the last 4 quarters, KO had 1 positive surprise and 3 in-line results. KO is expected to announce the Q4, 2012 earnings on February 12, 2013 at 9:30AM.
The markets have been in a rally mode since the beginning of 2013. The S&P 500 closed above 1,500 for the first time in more than five years on January 25, 2013, as strong earnings continued to boost the index. Investors’ sentiment is very bullish, and the market is driven by extreme greed. Nonetheless, intelligent investors know that too much optimism may not be a good thing, as quoted from Warren Buffett, “Be fearful when everyone is greedy. Be greedy when everyone is fearful.” The central theme of this article is not to predict the market direction, but to review a list of high quality large-cap stocks that generate strong free cash flow while continuing to grow its revenue. So, when the tide turns, investors can still count on steady cash flows from these stocks with solid fundamentals.
|Company Name (Ticker)||Revenue, ttm||Quarterly
Revenue Growth, ttm (yoy)
|Levered Free Cash Flow, ttm||Diluted
|Cisco Systems, Inc. (CSCO)||$46.68B||5.50%||$9.27B||$1.55||2.60%|
|China Mobile Ltd. (CHL)||$86.83B||6.60%||$5.26B||$4.97||3.50%|
|The Coca-Cola Company (KO)||$47.60B||0.80%||$6.42B||$1.91||2.80%|
Source: Yahoo Finance