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Still Beverages and a Sparkling Future

Brand image, North American still-beverage growth, and emerging-market carbonated-beverage growth support Coca-Cola's wide moat.

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We believe  Coca-Cola's (KO) brand-driven intangible assets and strong cost advantages as the largest beverage company in the world support its wide economic moat and long-term growth trajectory. The company has outlined ambitious targets in its 2020 Vision, including volume growth at a 3%-4% clip, revenue gains in the midsingle digits, and earnings before tax expansion of 6%-8%. Emerging- and developing-market gains drive the bulk of the top-line performance; while declining consumption of carbonated beverages in North America is a near-term headwind for Coke, we believe international markets will provide plenty of growth opportunities in the long term given lower per capita consumption levels. In addition, Coke’s dominant market position in many regions should support continued strong pricing actions.

Coke’s noncarbonated beverage portfolio also provides a key growth avenue. Volume from these products has climbed to about 26% of the company’s total from 20% in 2007, and we expect continued positive gains as consumers shift their preferences toward juices and other still beverages. Although  PepsiCo (PEP) holds the leading domestic market share with brands like Gatorade and Tropicana, Coke has carved its own niches both in the U.S. and internationally with products such as Simply Orange juice, Vitaminwater, and Minute Maid Pulpy (Coke’s first billion-dollar brand to emerge from China). As these brands gain traction, we forecast price increases and improved profitability.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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