Evaluating Embonor’s Growth Prospects
In the first nine months of 2018, Embonor grew revenues about 1% and operating earnings around 8%. Both the Chilean and Bolivian company operations, each about half the overall business, contributed to this growth. Chile is a relatively mature Coke market, and we expect long-term earnings to grow in the low- to mid-single digits for the foreseeable future, in line with 2018 results. In an interesting experiment, the company is beginning to distribute Diageo products in Chile. This effort will not have a large impact on nearer-term results, but it is a free option that could grow into something more significant over time.
While Bolivian operations returned to revenue and earnings growth after the weather impacted 2017, results in 2018 were still below our expectations. Economic growth in Bolivia leveled off to around 4% in both 2017 and 2018. Its economy relies on crude oil exports, and oil price declines slowed overall economic growth. While Bolivia has a high per capita consumption of Coca-Cola products relative to its per capita GDP of around US$3,400, ready-to-drink packages have lots of room for growth as consumers gain wealth. Our research and past experiences in the industry suggest that people consume progressively more of their beverages in pre-packaged formats data-contrast=”auto”>as their annual incomes rise from US$5,000 to US$15,000. With weak competition, dominant brands, and superior distribution, Embonor will expand the consumption of a broader array of ready-to-drink products such as bottled water and fruit juices over the coming years.