Coca-Cola(US:KO) ZACKSยท2025-07-15 13:55Core Insights - The Coca-Cola Company is implementing a long-term refranchising strategy to shift bottling operations to local partners, allowing for a focus on brand building, marketing, and innovation while reducing capital-intensive production and distribution responsibilities [1][4] Financial Performance - In Q1 2025, Coca-Cola reported a 130-basis-point increase in comparable operating margin, indicating the effectiveness of its refranchising strategy [2][9] - The exit from the Philippines bottling operations and a local focus contributed to enhanced profitability, despite slight dilution in top-line metrics [2][9] - The Zacks Consensus Estimate for Coca-Cola's earnings implies year-over-year growth of 3.1% for 2025 and 8.3% for 2026, with earnings estimates remaining unchanged over the past 30 days [12] Operational Strategy - Coca-Cola's refranchising strategy not only improves capital efficiency but also maintains close alignment with bottling partners through joint planning and execution [4][9] - The company's local bottling system helps mitigate risks associated with trade disruptions and shifts in consumer sentiment, while also supporting local economies by creating jobs [3] Competitive Landscape - Coca-Cola's asset-light bottling model has been adopted in various forms by competitors like PepsiCo and Keurig Dr Pepper, although Coca-Cola remains more focused on local partnerships [5][6][7] - PepsiCo employs a hybrid bottling strategy that retains more control over key operations, which may limit margin expansion compared to Coca-Cola's model [6] - Keurig Dr Pepper utilizes a mix of owned operations and third-party bottlers, allowing for efficient scaling but potentially limiting direct control [7] Market Performance - Coca-Cola's shares have increased by 11.6% year-to-date, outperforming the industry growth of 5.3% [8] - The company trades at a forward price-to-earnings ratio of 22.43X, which is significantly higher than the industry's 17.98X [10]