Coca-Cola Ratings Affirmed by Fitch
The rating agency Fitch Ratings has retained the debt ratings and the Issuer Default Ratings (IDRs) of The Coca-Cola Company (KO) and its subsidiaries. The outlook also remains stable.
Accordingly, Fitch has provided 'A+' ratings for Coca-Cola’s long-term IDR, bank credit facilities, senior unsecured debt. Further, the rating agency has given an 'F1' rating for the company’s short-term IDR and commercial paper (CP).
Fitch has also re-affirmed the ratings of Cola-Cola’s subsidiaries of Coca-Cola Refreshments USA, Inc. and Coca-Cola Refreshments Canada, Ltd. (:CCR). The rating agency has provided 'A+' ratings to their long-term IDR, senior unsecured debt and senior shelf.
Coca-Cola’s ratings reflect the company's ability to consistently generate considerable cash flow from operations. Cash from operations was $9.5 billion for both the full-year 2011 and full-year 2010. Cash from operations was up 7% in 2011, excluding the significant pension contributions made in the first quarter of 2011.
The company also repurchased $2.9 billion of shares in 2011, at the high end of the previous guidance of $2.5 to $3.0 billion. Coca-Cola also expects net share repurchases of an additional $2.5 to $3.0 billion for the full year 2012.
In addition, Coca-Cola hiked its quarterly dividend by 8.5% to 51 cents per share from 47 cents per share, reflecting confidence in the company's long-term cash flow. The increased dividend is payable on April 1, 2012 to shareholders of record on March 15, 2012.
The world's biggest beverage firm’s annual dividend of $2.04 a share amounts to a current yield of 3%, compared to a 2.7% yield existing at present. The yield provided by the shares of the company ranks second only to its rival Dr Pepper Snapple Group (DPS) among the nine dividend-paying companies in IBD's Beverages-Non Alcoholic group.
These increased returns are supported by strong cash flows, which provide a solid foundation for the distribution. However, the rating agency Fitch believes the company should also maintain its cash balance to provide support to its CP borrowings, instead of returning cash to shareholders.
In addition, Fitch expects Coca-Cola's operating income to grow in the low to mid-single digits in 2012, reflecting stable credit metrics and robust cash flow growth. Though Coca-Cola’s cost saving programs and ongoing restructuring activities related to the acquisition of Coca Cola Refreshments (:CCR) should benefit its operating income in 2012; Fitch, however, expects the company to emphasize reduction of its debt or else it will hurt its ratings negatively. Further, Fitch expects the company to refinance the approximate $2.0 billion and $1.5 billion of long-term debt due in 2012 and 2013.
Coca-Cola, which had posted outstanding fourth quarter and fiscal 2011 earnings of 79 cents and $3.84 cents per share, respectively, on February 7, competes with PepsiCo Inc. (PEP) and currently holds a Zacks #3 Rank. On a long-term basis, we maintain a Neutral rating on the stock, which translates into a short-term Hold rating.
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