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The recession is dragging U.S. corporate sales down the toilet, so strong profits reports have been few and far between.
However, last week, Coca-Cola reported an impressive quarterly profit of $1.4 million, or 15 cents per share. That’s pretty good compared to the $1.8 million, or 19 cents per share loss Coke reported in the same period in 2007.
And that’s even after taking a $1 million, or 11 cents per share, loss on its fuel hedging program.
I’m not telling you this because I think Coke’s stock is a great buy, but to show how what’s happening across the Pacific Ocean continues to be the brightest spot in an otherwise gloomy global economic picture.
Profits From Abroad
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| Thanks to international sales, Coca Cola’s quarterly profit defied recession expectations. |
In Coke’s case, it didn’t make those profits in the U.S. In fact, its North American sales declined by 1 percent in 2008.
Case volume in the U.S. actually fell by 3 percent, but get this: Case volume was up by 2 percent in Europe, Mexico by 6 percent, Brazil by 7 percent, India by 28 percent and by a whopping 29 percent in China.
It isn’t rocket science, folks. Investing in the U.S. is dangerous, but the Asian economies are still growing like weeds.
The National Development and Reform Commission, China’s top economic planning agency, expects retails sales to increase by 14 percent in 2009. On top of that, disposable incomes in China have increased 118 percent over the last eight years and are still expected to double in the next five. That’s a whole lot of opportunity and profits for smart retailers.
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You don’t have to believe me. Look at what the people running Coca-Cola are doing. Last year, Coke spent $2.4 billion to buy Chinese juice company, Huiyuan Beverage.
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| Buoyed by Asian economic growth, Coca Cola plans to invest another $2 billion in China over the next three years. |
And that’s not all. Coke just announced that it is going to invest another $2 billion in China over the next three years to build new bottling plants, distribution centers, expand its sales force, and R&D facilities.
All told, Coke has already invested $1.6 billion since it first entered China in 1979. “Coca-Cola is proud to be a long term partner of China, and our commitment and confidence in China never wavers,” said Asian Coca-Cola CEO Muhtar Kent.
All that success isn’t lost on Coke’s competitor either.
- Pepsi is going to invest $1 billion of its own in China over the next four years.
- Japan’s Asahi Breweries just paid $667 million for a 19.9 percent stake in Tsingtao Brewery, China’s biggest beer company.
China — An Economic Port in the Storm
There are plenty of other retailers that are jumping on the Chinese bandwagon:
- Barbie goes to China. Mattel opened its six-story House of Barbie in Shanghai, its first stand-alone store in China. “There’s no reason why in five to 10 years, China shouldn’t be the biggest market in the world for us,” said Richard Dickson, Barbie’s general manager.
- Chinese love Apple. Apple is opening a second store in Beijing. You know why? Apple’s sales in China jumped by 49 percent in the last quarter.
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| Barbie dolls are all the rage in China. |
- Door-to-door? No problem. Even multi-level marketer Amway is kicking butt in China, where it increased its sales by 28 percent in 2008.
My point is pretty simple: You better take a long look at every stock in your portfolio and make sure that it has a well-defined and aggressive China strategy. For the next several decades, companies are going to fall into one of two categories: (1) companies that make a mountain of money from selling to China and (2) companies that get clobbered by their low-cost Chinese competitors.
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Make sure that your portfolio is full of China winners and not China casualties. How do you do that? Easy — take a close look at your company’s most recent annual report and look up the geographical breakdown of its sales.
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| Apple products — along with other U.S. goods — are hot commodities in China. |
What you want to own are companies that are both getting a significant amount of sales from Asia (at least 10 percent) and, more important, a trend of rising Asian sales.
Examples of American companies doing big business in China are Yum Brands (YUM), Phillip Morris International (PM), and Fuel Tech (FTEK).
That isn’t a rush-out-and-buy-today list. It is a list of companies that understand the opportunity in Asia, have established sales channels, and have bright futures because of that foresight.
The choice: Either get on the Chinese economic train or get run over by it.
Best wishes,
Tony
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