Post the decline in its market value by a fifth, AKO trades at 10x P/E, at a discount to its long term average and its peer set as a result of elevated commodity costs and challenging consumer environment. Embotelladora Andina SA is a Coca-Cola bottler in Latin America, producing a wide array of beverages including carbonated soft drinks, water, fruit juices, energy drinks, and sports drinks under various Coca-Cola brands. The company also sells non-Coca-Cola branded teas, juices, beers, and spirits. Embotelladora Andina S.A., together with its subsidiaries, produces, markets, and distributes Coca-Cola soft drinks in Chile, Brazil, Argentina, and Paraguay. It also offers fruit-flavored beverages, juices, sports and energy drinks, ice tea, and bottled water. Embotelladora Andina invested $1 million in 1999 in Chile to offer retailers carrying its beverages—the small sweet shops, kiosks, and bakeries, for example—training in new sales and marketing techniques.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company’s financial strength. Looking at the production results, Embotelladora Andina delivered a total of 873.6 million unit cases or 4,960 million liters of beverages in 2022, which is 5.5% higher than a year earlier. All markets experienced solid growth as consumption rates across Latin America recovered following the end of COVID-19 lockdowns. Unfortunately, the net margin was put under pressure by foreign exchange losses and the net income went down by 18.9% in Chilean pesos and by 18.6% in U.S. dollars.
In addition, the company has a solid dividend yield, and it seems that Class A ADRs offer much better value for investors at the moment. Class B ADRs currently trade at a 25.2% discount over Class A ADRs, but are entitled to only 10% higher dividends. Overall, I think that it was a decent year for Embotelladora Andina, and a net income of $147.8 million sounds relatively low for a company with a market capitalization of $2.22 billion as of the how to choose stocks for long term investment time of writing. Historically, both Series A and Series B shares are currently slightly above the median for the past 5 years in terms of P/E. We believe the gross margins could likely be squeezed, although modestly, as a result of a jump in sugar prices partially offset by a decline in PET prices. In addition, SG&A deleverage as a result of sticky fixed costs and higher marketing expenses is likely to lead to a decline in operating margins.
History of Embotelladora Andina S.A.
Embotelladora Andina SA has a cash-to-debt ratio of 0.37, which ranks worse than 66.35% of 104 companies in the Beverages – Non-Alcoholic industry. Based on this, GuruFocus ranks Embotelladora Andina SA’s financial strength as 6 out of 10, suggesting a fair balance sheet. If the stock price is significantly above the GF Value Line, it indicates overvaluation and a likely poor future return. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
To be fair, the dividend yield on both is likely to decline in 2023 as Embotelladora Andina paid a large extraordinary dividend in April 2022. The latest quarterly dividend for the Series A ADRs was $0.22 apiece which translates into a dividend yield of 7% on an annualized basis. In my view, the dividend yield levels will remain decent over the coming years as Embotelladora Andina is mandated by Chilean law to distribute at least 30% of its net profit as dividends.
- Seeking Alpha’s Dividend scorecard ascribes a ‘D-‘ rating demonstrating the uncertainty of the ability of the company to maintain its dividend levels.
- Overall, GuruFocus ranks the profitability of Embotelladora Andina SA at 8 out of 10, which indicates strong profitability.
- The growth was driven by 1.8% growth in volumes along with modest benefit of pricing actions.
- Cost of sales grew 3.7% in line with revenue growth as favorable benefits from a decline of PET prices were largely offset by higher labor costs and concentrate costs.
Embotelladora Andina was founded by Carlos Vial Espantoso and other Chilean and U.S. investors in 1946 with the exclusive license to produce and distribute Coca-Cola products in Chile. Four years later, the company made a transition from the individual bottle toward the 24-bottle case, and Coca-Cola distribution was extended from the traditional sales point to a wide variety of institutions. In 1960 it opened a new Santiago plant that also served as its headquarters. In addition, many local people preferred a noncola fruit drink called guaraná. Rio Refrescos was making and selling such a drink, but its brand was not as popular as those offered by rivals Companhia Cervejaria Brahma, S.A.
AKO.A Company Calendar
Embotelladora Andina, also known as Andina Bottling Co and Coca-Cola Andina, was founded in 1946 and focuses on the bottling and distribution of Coca-Cola (KO) products across Chile, Argentina, Brazil, and Paraguay. The company also produces bottled water, juices, iced tea, energy drinks, spirits, and wine among others. Also in 1995, the company, with the approval of Coca-Cola, entered Argentina by purchasing majority control of Embotelladoras del Atlántico, S.A.
In the case of Embotelladora Andina SA, the stock appears to be significantly undervalued, suggesting that the long-term return of its stock is likely to be much higher than its business growth. SG&A dollars grew 2.1% YoY as a result of higher distribution costs across regions and increase in marketing expenses within Chile and Paraguay partially offset by freight tailwinds and lower marketing expenses in Argentina. EBITDA margin grew 37 bps YoY driven by stable gross margins and SG&A leverage. However, EBITDA margins continue to remain near three-year lows as a result of higher input cost inflation eroding profitability. Net income declined 52% YoY primarily due to reversal in provisions in Brazil along with higher taxes.
Edasa opened a new Córdoba production facility in 1999 and shut down the Mendoza and Rosario plants in 2002, concentrating all drink production operations in Córdoba. The following year Edasa took over Cipet, thereby placing all business conducted in Argentina in Córdoba. Andina, in 2000, became the Coca-Cola bottler for three Brazilian territories in addition to Rio de Janeiro by purchasing them from the franchise holder for $74.5 million. But Brahma using inside bar forex trading strategy had created new problems for the Brazilian operation by becoming a distributor for rival PepsiCo. Shortly after, this competition grew even stronger when Brahma and Antarctica merged to form Companhia de Bebidas das Americas (AmBev). Embotelladora Andina entered Brazil in 1994 by purchasing 61.5 percent of Rio de Janeiro Refrescos S.A., the Coca-Cola bottler in the nation’s former capital, for $120 million, plus the assumption of $31 million in debts.
Jaime Said Demaría, the oldest, was a member of a family of Arab origin, prominent in business. During the 1960s and 1970s he directed the largest rayon factory in Chile. His cousin José Said Saffie was the most successful member of the clan, active in banking and real estate as well as industry.
Company Embotelladora Andina S.A.
Coca-Cola’s soft drinks accounted for 86.6 percent of Embotelladora Andina’s net sales in 2003. The company accounted for 66.8 percent of total soft drink sales by volume in its Chilean territory, 54 percent in its Brazilian territory, and 52.1 percent in its Argentine territory. In Chile, its soft drinks, aside from Coca-Cola products, were Quatro, NordicMist Ginger Ale and NordicMist Tónica, and Tai. In Brazil, in addition to Coca-Cola products, its soft drinks were Schweppes Club Soda, Tónica, and Citrus, and three guaraná drinks.
Volume growth remained strong particularly in Brazil and Paraguay which grew by 6% and 11% YoY while Chilean volumes remained flat and volumes in Argentina declined 5%. Brazil volumes decelerated sequentially from 10% to 6% with sales growth of 25% in cc terms decelerating to 10% as a result of decrease in volumes and moderating pricing actions. Argentina volumes remained volatile wherein Q1 volumes grew 3% YoY which we viewed as a step towards consumption recovery but declining Q2 volumes highlights that there is still limited visibility on recovery and remains fragile.
This is likely to be offset by low single-digit to mid single-digit volume growth expected in Brazil translating to high single-digit sales growth. Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable.
Coca-Cola, in 1996, purchased 49 percent of Vital S.A., Andina’s fruit juice and mineral water subsidiary, and 6 percent of Andina itself. The following year it purchased 5 percent more of Andina, increasing its ownership of the company to 11 percent. Embotelladora Andina also sold its agribusiness subsidiary in 1996 and repurchased Coca-Cola’s share of Vital in 1998. Looking at the dividend situation, payments for Series A ADRs over the past year came in at $1.94 per ADR, while those for Series A ADRs stood at $2.14 per ADR. This translates into dividend yields of 15.5% and 13.7% for Series A and Series B, respectively. As you can see, Series A ADRs offer a better bang for your buck in terms of dividend yield at the moment due to the significant difference between the price of the two classes of shares.
Overall, GuruFocus ranks the profitability of Embotelladora Andina SA at 8 out of 10, which indicates strong profitability. Embotelladora Andina booked strong sales in 2023 and the weaker U.S. forex.com broker review dollar since the start of 2023 could provide a boost to its financial performance this year. The company doesn’t look expensive in terms of P/E considering it was trading above 20x in 2019.
In addition, the 8-day strike at the company’s Cordoba plant also weighed in on the volumes with an estimated impact of ~1 mn cases. Cost of sales grew 3.7% in line with revenue growth as favorable benefits from a decline of PET prices were largely offset by higher labor costs and concentrate costs. Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business.