Coca-Cola or Kraft Heinz: Which Stock Takes the Cake?

In the world of consumer goods, few brands have as much global recognition as Coca-Cola (KO) and Kraft Heinz (KHC). Both are stalwarts of Warren Buffett's Berkshire Hathaway portfolio, with the former being its fourth-largest holding, and the latter ranking eighth. But which stock should investors consider buying today? Let's dive into the numbers to find out.

Recent Financial Performance

Before comparing the two, let's look at their most recent quarterly results. Coca-Cola generated $11.9 billion in revenue, representing a 0.8% decrease year over year, largely due to weakness in China. However, CEO James Quincey remains optimistic about the company's long-term prospects. Kraft Heinz, on the other hand, experienced a 2.8% revenue decline, mainly attributed to its struggling Lunchables brand and shifting consumer behavior.

In terms of net income, Coca-Cola reported a 7.6% year-over-year decline, while Kraft Heinz posted a net loss of $290 million, primarily due to a $1.4 billion impairment charge related to its Lunchables brand. However, when looking at free cash flow, Kraft Heinz generated $849 million, representing a 24.3% year-over-year decline.



Dividends and Share Repurchases

Both companies prioritize dividends and have maintained steady payouts. Coca-Cola, a member of the elite Dividend Kings club, has consistently increased its dividend for over 50 years. It offers a 3% dividend yield with a manageable payout ratio of 78%. Kraft Heinz, while offering a higher dividend yield of 5%, has not raised its payout in the past five years. Its payout ratio, adjusted for a one-time impairment, is around 52%.

Share repurchase programs, while utilized by both management teams, take a backseat to dividends. Coca-Cola has repurchased just 0.4% of its outstanding shares over the past three years, while Kraft Heinz has reduced its share count by 1.3%.

Valuation and Market Share

When examining stock valuations, Coca-Cola trades at a forward P/E of 22.7, while Kraft Heinz trades at a lower forward P/E of 10.7. Both stocks are trading below their five-year median forward P/E, suggesting a fair or cheap valuation.

Coca-Cola's market share in the nonalcoholic beverages industry remained relatively stable between 27.36% and 28.62% from Q3 2020 to Q3 2024. Kraft Heinz, however, experienced a decline in its market share within the packaged foods industry, from 9.08% in Q3 2020 to 8.77% in Q3 2024, due to increased competition and shifting consumer trends.



Which Stock to Buy Now?

Both Coca-Cola and Kraft Heinz have their strengths and weaknesses, but Coca-Cola's higher return on invested capital (ROIC), dividend growth history, and stable market share give it an edge. Kraft Heinz's higher dividend yield and lower forward P/E may appeal to income-oriented investors, but its declining market share and higher payout ratio raise concerns about its long-term sustainability.

In conclusion, while both Coca-Cola and Kraft Heinz have their merits, Coca-Cola's strong fundamentals and growth prospects make it the better choice for long-term investors. However, Kraft Heinz's higher dividend yield may be attractive for income-seeking investors looking for a more immediate payout.

As always, it's essential to conduct thorough research and consider your investment goals and risk tolerance before making any decisions. The market is dynamic, and what may be a good choice today might not be the best option tomorrow. Stay informed and adaptable to make the most of your investments.

Word count: 600