Coca-Cola CEO Muhtar Kent. Source: Coca-Cola.
Coca-Cola is going through a difficult phase, as sales growth has been below expectations during the last several years. However, CEO Muhtar Kent believes the company is on track to produce solid performance on the back of healthy industry fundamentals, rock-solid competitive strengths, and increased efficiency. Let's listen to what Mr. Kent has to say about the soft-drinks giant and its strategy to deliver sweet and refreshing growth over the long term.
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Industry fundamentals remain strongWhile Coca-Cola's growth has slowed down, Muhtar Kent believes that investors should not mistake a bump in the road for the end of an era. Emerging market economies have decelerated in recent years, and this is hurting industrywide growth. On the other hand, long-term expansion prospects still look remarkably attractive for the industry, in general, and Coca-Cola, in particular.
Many consumers in developed countries are moving away from traditional sodas due to health considerations, and this is generating concerns among analysts regarding the potential long-term impact of healthier nutrition habits on soda demand. However, in spite of this factor, the retail sales value of sparkling drinks has grown in emerging, developing, and developed countries in each and every year since 2010.
Also, sparkling drinks have remained stable as a percentage of total nonalcoholic, ready-to-drink industry sales, in the area of 30% from 2010 to 2014. This means that slowing industry growth is not category specific, so carbonated drinks sales should accelerate once industry demand picks up steam, once again. Over the long term, Coca-Cola should be able to capitalize on rising income levels and growing demand, especially from emerging markets.
Coca-Cola estimates that the average household around the world consumes 26 drinks per day. Among those 26 servings, only 1.4 are Coca-Cola brands. This means Coca-Cola still has enormous room for expansion over the long term.
Coca-Cola has extraordinary competitive strengthsIndustry conditions are important, but a company's competitive position within that industry can be even more determinant over time. Muhtar Kent believes Coca-Cola has what it takes to continue gaining share versus the competition in the coming years.
The company has an amazing portfolio featuring 20 brands making more than $1 billion each in global annual revenues. Coca-Cola is also increasing its investments in marketing and advertising to strengthen those brands to reignite sales, and results look quite promising. In the words of Muhtar Kent during the company's latest conference call.
Trimming fat and growing muscleCoca-Cola is going through a series of restructurings and cost cuttings to improve operational performance and profitability. The company plans to deliver $0.5 billion in cost savings in 2015, and $3 billion in annualized savings by 2019. Coca-Cola is also refranchising its bottling operations in North America in order to achieve higher efficiency, more flexibility, and an increased focus on customer demand.
Muhtar Kent explained during the CAGNY 2015 Conference:
The main game changer for Coca-Cola investors is the company's ability to deliver sustained sales growth. After all, cost cuttings can only take you so far in the context of stagnant revenues. However, it's good to know that management is running a tight ship and is focused on keeping operations as efficient as possible.
The article 3 Things Coca-Cola CEO Muhtar Kent Wants You to Know originally appeared on Fool.com.
Andrs Cardenal owns shares of Apple. The Motley Fool recommends Apple and Coca-Cola. The Motley Fool owns shares of Apple and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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