Category Archives: Coca-Cola

Commentary: Could Pepsi become a Berkshire Brand?

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It‘s no secret that Warren Buffett is partial to Coca-Cola, after all he not only drinks 5 Cokes a day, but Berkshire Hathaway owns 400 million shares of Coca-Cola stock valued at roughly $16.5 billion.

“I’m one quarter Coca-Cola,” Warren Buffett has joked.

However, with Berkshire and 3G Capital having been rebuffed in their $143 billion bid for Unilever Plc, one important analyst thinks PepsiCo, Inc. might be a logical target for the expansion of Kraft Heinz.

Pablo Zuanic, the Senior Analyst covering the Food, Beverage, and Household/Personal Care sectors for Susquehanna Financial Group, thinks Pepsi might quench Berkshire and 3G’s thirst for acquisitions.

Zuanic’s bona fides as an analyst have seen him recognized by Institutional Investor as the #1 Latin American Food & Beverage analyst for two consecutive years, the #4 US Food Analyst, and the #3 US Food Analyst in their Alpha Poll of Hedge Funds.

PepsiCo, Inc., which has a market capitalization of almost $161 billion, not only has one of the most popular soft drink brands in the world, but also owns snack-maker Frito-Lay and juice company Tropicana.

Zuanic recently raised his Pepsi price target from $118 to $132 on speculation that Kraft Heinz could team with Anheuser-Busch for the bid. The stock is currently just over $112 a share.

It seems logical that a bid for PepsiCo would see the beverages added to Anheuser-Busch, and the snack foods added to Kraft Heinz.

Zuanic notes that in his opinion Pepsi shares trade at a substantial discount when compared to Coca-Cola.

“PEP shares have lost visibility and now trade at a 25% discount to KO on apples-to-apples comps.” writes Zuanic.

While a Berkshire and 3G Capital bid for Pepsi might be a possibility, don’t expect to hear Buffett say “I’m one quarter Pepsi,” anytime soon.

© 2017 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Howard G. Buffett to Step Down from Coca-Cola Board of Directors

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The Board of Directors of The Coca-Cola Company have announced that Howard G. Buffett, 61, will not stand for re-election to the Board at the Company’s Annual Meeting of Shareowners in April 2017.

The move comes as Coca-Cola Company announced that its Board of Directors has approved unanimously the recommendation of Chairman and Chief Executive Officer Muhtar Kent for changes to the company’s senior leadership structure. Under the new structure, company veteran James Quincey, President and Chief Operating Officer, will succeed Kent as CEO, effective May 1, 2017. Kent will continue as Chairman of the Board of Directors.

According to a statement issued by Coca-Cola, Buffett has chosen to retire from the Board to focus more time on his work as Chairman and CEO of the Howard G. Buffett Foundation, which focuses on advancing sustainable agricultural practices and conflict mitigation throughout the world.

“I’ve enjoyed my more than 17 years of combined service to the boards of Coca-Cola Enterprises and The Coca-Cola Company and have the utmost respect and admiration for the work the Company is doing to sustainably grow its business around the world,” Buffett said. “Under the long-time leadership of Chairman and CEO Muhtar Kent, joined recently by President and COO James Quincey, the Company has exciting plans for the future and is poised to deliver even greater value to its many stakeholders in the years to come.”

Buffett joined The Coca-Cola Company’s Board of Directors in December 2010 and has served as a member of the Public Issues and Diversity Review Committee since 2011. From 1993-2004 he served as a director on the Board of Coca-Cola Enterprises, Inc., which at the time was the largest bottler of Coca-Cola beverages in North America and Western Europe.

In addition to his role with the Howard G. Buffett Foundation, Buffett serves as President of Buffett Farms, a commercial farming operation in Nebraska, and, since 1993, has served as a director of Berkshire Hathaway Inc. From 1995 to January 2016, Buffett also served as a director of Lindsay Corporation.

© 2016 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Why Coca-Cola is one of Buffett’s “Forever Stocks”

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Berkshire Hathaway’s ownership of 400 million shares of the Coca-Cola Company (9.3%) is impressive, but what’s even more impressive is Berkshire’s annual return on its investment.

In 2014, Berkshire received $518 million in annual dividends on its Coca-Cola holdings, which brought its annual return, excluding unrealized gain, to over 40%.

Speaking of unrealized gain, the cost basis of the shares he purchased in 1988 and 1989 was $1.29 billion, a stake that is now worth a whopping $16.39 billion.

What was Warren Buffett’s Secret?

The key was buying Coca-Cola at the right price. An important lesson for any investor.

Buffett, who admired Coca-Cola all the way back to his boyhood days in Omaha, waited until 1988 to start amassing shares. At the time, the company was out of favor with Wall Street, but Buffett believed in the durability of the brand.

“I like wonderful brands,” Buffett explained at the 2013 Coca-Cola annual shareholders meeting. “If you take care of a great brand, it’s forever.”

At the same meeting he also gave insight into his investment philosophy.

“I’m the kind of guy who likes to bet on sure things,” Buffett said. “No business has ever failed with happy customers… and you’re selling happiness.”

Buffett, who drinks five Cokes a day, and recently proclaimed that he is “one quarter Coca-Cola,” is still high on the company. In fact, he played his ukulele and sang a version of Coke’s famous jingle I’d like to teach the world to sing in the film shown at the 2015 Berkshire Hathaway annual meeting.

Setting Your Sights on Forever

Not all stocks can be held forever. It certainly wouldn’t have been a good decision with RadioShack, but that’s where evaluating the quality of the company comes into play.

In Buffett‘s 1988 letter to shareholders, he forecast his long term goal for Berkshire’s new Coca-Cola stake, noting that “when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

That “forever” holding period in the case of Coca-Cola continues to pay huge dividends to Buffett and all of Berkshire’s shareholders.

© 2015 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.