Bond Project: Coca-Cola Vs. Us Treasury Bond
Join now to read essay Bond Project: Coca-Cola Vs. Us Treasury Bond
The soda drink and bottled water industry in the US includes about 3,000 companies that manufacture and distribute beverages, with combined annual US revenue of $70 billion. Coca-Cola and PepsiCo hold more than 50 percent of the market, following strong consolidation in the past decade. The Coca-Cola Company is a leader in the beverage industry and it owns four of the top five soft-drink brands (Coca-Cola, Diet Coke, Fanta, and Sprite). Its other brands include Barqs, Minute Maid, POWERade, and Dasani water. In North America, it sells Groupe Danones Evian. Coca-Cola sells Crush, Dr. Pepper, and Schweppes outside Australia, Europe, and North America. The firm makes or licenses more than 400 drink products in more than 200 nations. Although it does no bottling itself, Coke owns 35% of Coca-Cola Enterprises (the #1 Coke bottler in the world); 32% of Mexicos bottler Coca-Cola FEMSA; and 23% of the large European bottler Coca-Cola Hellenic Bottling.
Financial Highlights
Net Operating revenues (million $)
28,857
24,088
Net Income (million $)
5,981
5,080
Shares Outstanding
2,313
2,348
Cash Dividend ($)
Stock Price History
52-Week Change
19.68%
S&P500 52-Week Change
-9.52%
52-Week High (18-Dec-07)
27.09
52-Week Low (29-Mar-07)
19.97
Demand for non-alcoholic beverages is driven by consumer tastes and demographics. The profitability of individual companies depends on effective marketing. Large manufacturers have economies of scale in production and distribution, with average annual revenue per production
worker close to $1 million. Small companies can compete by producing new products, catering to local tastes, or selling at lower prices. From 2007 to 2012, beverage industry growth is expected to be about 12%.
We decided to track a Coca-Cola bond with a maturity on November 15, 2026. It is a grade A corporate bond with a coupon of 6.950%. From the data we collected since February 19th, the bond price and YTM for the Coca-Cola bond have remained almost consistent. The bond sells at $111.73 and has a YTM of 5.923%. We compared this bond to a U.S. Treasury Bond (AAA rating) of the same maturity. The T-bond has a lot more volatility than the Coca-Cola bond. This bond’s price has fluctuated between $122 to almost $130, with a YTM varying from 4.1% to 4.7%.
Given the data above, it is obvious that Coca-Cola is currently outperforming the market, so it is unlikely that investors are worried about the safety of Coca-Cola’s bond. However, the YTM spread between the Coca-Cola bond and the T-bond is increasing with every day. Why?
Coca-Cola
Treasury
Price
Price
Spread
19-Feb
111.73
5.923
124.086
1.343
22-Feb
111.73
5.923
125.026
4.506
1.417
25-Feb
111.73
5.923
123.702
4.597
1.326
26-Feb
111.73
5.923
123.827
4.588
1.335
27-Feb
115.93
5.585
124.176
4.564
1.021
28-Feb
115.93
5.585
126.425
1.175
29-Feb
111.73
5.923
128.153
4.294
1.629
3-Mar
111.73
5.923
126.768
4.387
1.536
4-Mar
111.73
5.923
126.967
4.373
5-Mar
115.99
5.621
124.553
4.537
1.084
6-Mar
111.73
5.923
125.592
4.466
1.457
7-Mar
111.73
5.923
125.612
4.464
1.459