In order to assess the reasons behind the reduction of earnings for The Coca-Cola Company (KO), we must first understand that it wasn’t only the internal factors within the company which led to a downturn in earnings but also the external factors of which the company was faced with which also contributed and compounded the earnings problem.
In order to begin an analysis into the earnings problem, let us look into the external factors upon which The Coca-Cola Company would have to contend with. Based on the PESTLE analysis framework, we can ascertain that the political, economic, social, technological, legal and environmental factors had a lot of influence on the business and growth potential of the company.
Looking at the political and legal aspects, it is noted that the company is subject to changes in Food & Drug Administration (FDA) regulations; environmental laws of which the method of production of the company’s beverage is subjected to; taxation laws which may hinder certain business decisions on potential investments and antitrust laws which may restrict certain business strategies the company may have to gain a commercial advantage. We have to note that these factors are primarily driven by changes in the legal administration systems as well as the changes in the governmental or politically-driven policies.
On the economic aspect, changes in the economic front that impacts the end consumers’ spending power may see a change in the consumer behavior with a tendency towards basic consumer staples against non-staple products like carbonated beverages. It is also noted that changes in the economy may also impact interest rates which may lead to a higher exposure of the company’s debt to rising interest expenses leading to lowered overall e ...