Cantillon Capital Management's key 1Q 2014 positions (Part 6 of 7)
Cantillon Capital and Coca-Cola
William von Mueffling’s Cantillon Capital Management’s saw one new position in its 1Q 2014 portfolio, in Sirona Dental Systems Inc. (SIRO), but no stake sales. Existing position increases included Fidelity National Information Services (FIS), W.W. Grainger Inc. (GWW), and Ambev SA-ADR (ABEV). Stake reductions included The Coca-Cola Co. (KO) and Waters Corp. (WAT).
Cantillon Capital Management’s position in The Coca-Cola Co. (KO) was reduced from 7% of the total portfolio last quarter to 3.03% in 1Q 2014.
Beverage company Coca-Cola owns or licenses and markets more than 500 non-alcoholic beverage brands, primarily sparkling beverages, but also a variety of still beverages such as waters, enhanced waters, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks.
The company recently increased its stake in Keurig Green Mountain Inc. (GMCR) to 16%, from 10% in February. With its core soda sales slowing, Coca-Cola is seeking growth in the coffee market and the upcoming home carbonation appliance business. Coca-Cola said in February that it would partner with Keurig on the Keurig Cold single-cup beverage system. According to a March report by Beverage Digest cited by newswires, total sales volumes for U.S. soda fell 3% in 2013—the lowest since 1995.
In 1Q 2014, The Coca-Cola Company posted worldwide volume growth of 2% for the first quarter and gained volume and value share in non-alcoholic ready-to-drink (NARTD) beverages. Net revenues declined 4% to $10.58 billion. Reported EPS (earnings per share) were $0.36, down 6%, and comparable EPS were $0.44, down 4%. Net income declined to $1.63 billion from $1.77 billion for the same period a year ago.
Coke said volume in developed markets was down 1%, impacted by the shift in the Easter holiday. But Japan and Australia saw volume increases, while North America was flat. China and Brazil volumes grew sequentially due to strong marketing campaigns centered around holiday programming and the FIFA World Cup. Worldwide sparkling beverage volume was down 1% for the quarter, while worldwide still beverage volume increased 8%, with solid volume growth across multiple beverage categories, including juices and juice drinks, ready-to-drink teas, packaged water, sports drinks, and energy drinks.
Coca-Cola said in February that it expects $1 billion in annual savings by 2016 via improvements in productivity, and these savings would be diverted to advertising and marketing.
The company said in its earnings release that it’s making meaningful progress across its five strategic priorities, the first of which is to accelerate growth of sparkling beverages led by the Coca-Cola brand. Second, the company expects to strategically expand the profitable still beverage portfolio. The third goal is to increase brand investments by up to $1 billion by 2016 through creating savings from supply chain optimization and using the company’s global marketing network. “This incremental productivity goal will further enable us to drive long-term profitable growth and momentum towards realizing our 2020 vision,” the company said. Fourth, management expects 2014 as the year of execution at the point of sale and highlighted the $50 billion in system-wide investments since 2010 to enhance its competitive position. Fifth, it said it will invest in the next generation of leaders, and the company plans to continue to “to hire the best, retain the best, train the best, and mentor the best.”
Coca-Cola returned $713 million in cash via net share repurchases in the quarter, and it expects to repurchase between $2.5 billion and $3.0 billion in shares by the end of the year. In February, the company’s quarterly dividend increased 9% to $0.305 per share, equivalent to an annual dividend of $1.22 per share.
Browse this series on Market Realist:
- Part 1 - Cantillon Capital Management’s 1Q 2014 investment strategy
- Part 2 - Cantillon Capital opens a new position in Sirona Dental Systems
- Part 3 - Cantillon ups its stake in Fidelity National Information Services
- Consumer Discretionary
- Consumer Staples