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The Coca-Cola Company:
Earnings Growth Should Resume in 2018.

Once again, Ian Gendler shines the spotlight on The Coca-Cola Company (KO) in Market Focus, Value Line’s open-access newsletter providing unbiased insights on investments, the markets and the global economy.

“KO, a Dow-30 component is the world's largest beverage company. The Georgia-based corporation produces and markets over 500 nonalcoholic beverage brands through a network of company-owned and independent bottlers/distributors, wholesalers, and retailers. It employs approximately 61,000 individuals and has a market capitalization that exceeds $185 billion.

Coca-Cola's refranchising efforts are drawing to a close. The company completed the refranchising of its U.S. bottling operations last fall, and recently signed a letter of intent to sell its bottling business in Canada. (The latter transaction ought to be finalized in the second half of 2018.) This transition, which also has included initiatives in a number of key foreign markets, has contributed to stagnant profit performances in recent years, but should result in a higher-margin, capital-light business model moving forward.

Earnings growth should resume in 2018. The bottom line has been stuck in neutral since 2013, but ought to advance about 10% this year. Refranchising and other structural changes will again take a big bite out of revenues (likely 17%), but figure to be a relatively modest drag on operating income (2%). Meanwhile, price and mix improvements helped to drive last year's 3% advance in organic revenues (excludes refranchising, currency fluctuations, and other factors) and, backed by relatively benign economic prospects in the U.S. and overseas, the pace of growth stands a good chance of accelerating slightly in 2018. Too, incremental benefits from productivity initiatives and a modest reduction in the effective tax rate also should aid profits, though the bottom line advance is likely to be skewed toward the second half.

These shares are best suited for conservative accounts. Indeed, the issue carries our Highest rank (1) for Safety™ and gets a top score (100) for Price Stability. These attributes may well have some added appeal for investors concerned about the uptick in volatility exhibited by the broader equity markets of late. A 3.5% dividend yield is another plus.”

Editor’s Note: Ian Gendler, is Executive Director, Value Line Research, 551 Fifth Ave., FL 3, New York, NY 10176. www.ValueLine.com.


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