Coca-Cola in the Year 2020


There are few companies out there with so-called bulletproof businesses. I can't think of a single technology company that I could guarantee will be around in 20 years, or even 10. Industry dynamics, consumer preferences, government regulations -- all can make or break a business and can't be forecast more than a few years out (if that). One stock favorite of many, including Mr. Warren Buffett, has an ambitious goal in mind for the next seven years. It's not just a mission statement -- these guys are actually doing it.

20/20 vision
Finding unanimous opinions on any given stock is like finding a unicorn that makes a great martini -- it's rare. They do exist, though. In this case, I'm talking about Coca-Cola (NYS: KO) . Just look at what our CAPS community thinks: out of more than 6,500 people who submitted a call, 6,200 of them are bulls. I assume the other 300 are on Michael Bloomberg's mayoral staff.

With a couple of exceptions, nearly everybody has faith in this company. It sells a product that is as addictive as a cigarette but cheaper and doesn't come with a death warrant printed on the label. But what separates Coke from other megacaps such as Procter & Gamble (NYS: PG) is that Coke seems to have no interest in merely being the biggest soda maker around. Coke wants to up the ante... big time.

As part of Coca-Cola's "2020 Vision," management wants to double revenue by said date, and increase operational efficiencies all around. Now, normally this would sound like investor-day fodder along with complimentary hats and a "Coke" branded thumb drive, but Coke's actions actually back up its words.

Walk the talk
Coke's first big initiative in accomplishing its 2020 plan was to purchase the North American distributor of its products, CCE North America. It was a great move, consolidating efforts across multiple departments, creating economies of scale, and achieving further vertical integration.

Now, the company has announced major organizational change. Instead of North America, Latin America, Europe, Pacific, and Eurasia and Africa divisions, there will now be only two similarly sized geographic and organizational regions: Coca-Cola Americas and Coca-Cola International.

So what does it mean to consolidate into two instead of five divisions? The simple answer to this complex question: efficiency. The two divisions, as mentioned, will be similar in size, meaning that management initiatives will be similarly implemented across the entire company instead of five different plans for basically five different companies.

You two, fight to the death!
In what I consider to be a great executive decision from current CEO Muhtar Kent, the two new organizations will be helmed by company veterans. This is Kent and the board testing the waters for new Coca-Cola leadership five, 10, maybe even 15 years down the line. After all, Kent has only been chief since 2009.

The two leaders will be running enormous organizations which could be Fortune 500 companies on their own -- essentially a multiyear interview for the top spot. If you want to have strong conviction in your successors, why not give them a chance to show what they can do before you offer them the job?

Rivers of cola
Coca-Cola brought in over $46 billion in revenue for 2011. Compare that to aforementioned Procter & Gamble, with $82 billion in 2011 revenue. Small-business saboteur Wal-Mart (NYS: WMT) brings in almost half a trillion in revenue.

So in seven years, Coca-Cola expects to haul in more than modern-day Procter & Gamble's 26 "billion-dollar brands" combined, and around one-fifth as much as the world's largest retailer. That's no small task, folks.

But when you look at margins, Coca-Cola's growth seems within reach. Wal-Mart has a trailing profit margin of only 3.5%, Procter & Gamble boasts over 11%, but Coca-Cola washes everyone away with an 18% profit margin. Even if revenue doesn't hit $90 billion by 2020, it takes less top-line growth for Coke to achieve substantial bottom-line gains compared to the other two companies.

Theirs for the taking
With Coke's massive and still growing vertical integration and long-term management planning, I think this company could give investors substantial capital appreciation, a tough job for a $182 billion company. At 18 times forward earnings, it's not a steal, but this may be one of the few times I am willing to pony up for growth. I'd rather pay 18 times earnings for Coca-Cola than 15 times earnings for McDonald's (NYS: MCD) , which, as my colleague Nicole Seghetti points out in an article, has a tough road ahead even while being one of the most recognizable brands in the world.

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Fool contributor Michael Lewis owns none of the stocks mentioned. You can follow him on Twitter @mikeylewy The Motley Fool owns shares of Coca-Cola and McDonald's. Motley Fool newsletter services have recommended buying shares of Coca-Cola, Procter & Gamble, and McDonald's. Motley Fool newsletter services have also recommended creating a bull call spread position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Originally published