Acerca de KO:
«KO suffers from the «moving parts» problem, as in the past decade they first took over their bottling operations and then refranchised them. Thus you see revenue trend from $31B in 2009 to $48B in 2012 and it is now back to $32B. They have not seen a third of their business evaporate! It is simply a question of whether those low-margin bottling operations are included in the books or operated as separate entities.
If you look at Operating Income, that has been much steadier. It did peak at $10.8B in 2012, falling back to $8.6B in 2016, but it has risen nicely each of the last two years. And again, the bottling operations may be low-margin, but they contributed something to the income. So it is hard to make an apples-to-apples comparison unless you reach back ten years.
I am not thrilled by the KO debt. They added debt when they took over the bottlers, and added more debt through acquisitions. Yet somehow they forgot to clear that debt when they refranchised the bottlers! In 2009, KO had $5B of LT debt. Now they have $25B, for a company that is essentially the same size. It is like running across that star athlete from high school who now weighs 250 lbs. He may be the same person, but you cannot reasonably expect the same performance. Nonetheless, he might still beat me in a race…
The payout ratio is a little concerning, but not TOO bad. I don’t see how Morningstar is calculating those numbers, and thus would ignore them (and calculate them myself). I see $28B in Operating Income and $23B+ of Operating Cash Flow over the last three years combined. CapEx is around $5B, while the dividend is around $19B. This more-or-less works. I would love to see them open up a little more breathing room, perhaps restraining dividend growth for a few years to allow earnings to pull ahead, but I don’t see it as actively dangerous.
Part of the reason is that they still enjoy strong A1 credit. Even if they stumble, they can afford to borrow a lot more before they are at any risk of losing Investment Grade status. A company that is already highly leveraged like KHC does not enjoy that margin of safety.
In conclusion, I consider KO «top quality» and carry it on my watch list. If somebody is looking for a high-yield Consumer Staples company, I would recommend they consider KO, KMB, UL, or PEP (also strongly recommend PG, but its dividend has dipped below 3.0%). Analysts are expecting $2.00++ of earnings this year, so the payout ratio should be okay. Forward earnings growth projections of 7% may be optimistic, but even 3% would be sufficient to their needs. They should be fine. Not promising you great growth or great returns, but I would be shocked if they were to run into financial trouble in the next five years.»