In order to grow their sales and profitability, it is essential that companies adapt to a changing environment. What worked yesterday may not be a profitable strategy tomorrow and, as such, new income streams, new products and a more efficient allocation of capital are constantly required to stay ahead of rivals.
Of course, not all companies are able to do this. Notably, Coca-Cola Amatil Ltd (ASX: CCL) has been behind the curve in recent years, with the beverages company failing to adapt its product line to a changing consumer. Furthermore, Coca-Cola Amatil failed to keep a handle on a rising cost base and gradually became inefficient, with the development of its business across Asia also being insufficient.
However, the company appears to be righting those wrongs, with it forecast to reverse a hugely disappointing period by posting an annualised rise in net profit of 4.9% during the next two years. As well as a new marketing campaign, Coca-Cola Amatil is launching new serving sizes, new products to go alongside traditional favourites and has also pumped US$500m into its Indonesian operations as it seeks to become a dominant player in a rapidly growing Asian beverages market.
Clearly, Coca-Cola Amatil has major turnaround potential and, with it yielding 4.7% from a dividend which is due to be covered 1.3 times next year, it appears to be a strong buy. That's especially the case while it has a price to sales (P/S) ratio of 1.4, which is in-line with that of the ASX.
Also having endured a disappointing period is Telstra Corporation Ltd (ASX: TLS). In the last five years its bottom line has risen by just 2% per annum and, as a result, its strategy has been refreshed in an attempt to boost its financial outlook.
Notably, Telstra is attempting to diversify its income streams, with a move towards becoming a communications hub within the e-healthcare business being a potentially exciting and profitable development. And, with Telstra also aiming to generate one third of sales from Asia within five years, its top and bottom lines are likely to gain a boost – especially with low interest rates having the potential to keep the Aussie dollar at a relatively low ebb.
Of course, one area in which Telstra has remained in a strong position is within the Australian mobile space. Although a number of rivals are chasing down Telstra, it continues to have a dominant position and this provides a degree of stability during an exciting period of change for the business. And, while Telstra is expected to grow its bottom line by almost 14% next year, it remains a very sound income stock with its yield of 5.6% being 100 basis points higher than that of the ASX.
