) delivered adjusted operating earnings of $1.22 per share in the
second quarter of 2012, beating the Zacks Consensus Estimate by
2.5%. Earnings were also 4% above the prior-year adjusted earnings
driven by positive revenue and volume growth which made up for
higher commodity costs and currency headwinds.
In the quarter, net revenues increased 3% year over year to
$13.09 billion, as benefits from an increase in concentrate
(syrups, powders, etc. used in finished beverages) sales and
positive pricing were largely pulled down by currency headwinds of
4%. The top-line results were marginally above the Zacks Consensus
Estimate of $13.01 billion.
Volume Growth in Detail
The cola giant witnessed volume growth of 4% in the reported
quarter driven mainly by solid growth in the emerging markets of
India, Russia, China and Brazil. The developed nations of North
America, Japan and Germany registered positive volume growth as
against weakness in Europe.
Among the non-alcoholic ready-to-drink (NARTD) beverages,
sparkling beverages, like Coca-Cola, Fanta and Sprite, grew only 2%
in terms of volume. Specifically, the Coca-Cola soft drink volume
grew 2% saved mainly by strong performances in emerging countries
of India, Russia and Brazil.
Still beverages grew 9% in terms of volume, registering much
better volume growth than the popular soft drinks. The company's
packaged water, juices and juice drinks, ready-to-drink tea and
coffee, energy drinks and sports drinks all registered impressive
growth in the quarter.
Geographically, volume was up 5% in international markets while
North America recorded volume growth of only 1% as Coca-Cola
shifted focus to the fast expanding emerging markets with the
developed markets nearing saturation.
Coca-Cola recorded adjusted consolidated gross margin of 60.3%
in the second quarter of 2012, down 70 basis points year over year
due to rising commodity costs. Adjusted operating margin was 26.1%,
down 30 basis points from the prior-year quarter mainly due to
gross margin declines and foreign exchange headwinds.
Eurasia & Africa
division recorded revenues of $840 million, up 5% (up 16% on a
currency neutral basis) over the prior-year quarter as benefits
from volume growth, concentrate sales and positive price/mix were
partially offset by currency headwinds.
The segment witnessed volume growth of 12% year over year led by
India, which surged 20%, followed by the Middle East and North
Africa posting year-over-year volume growth of 20% in the quarter.
Sparkling beverages volume was up 11% versus 18% volume growth for
still beverages. Adjusted operating income was up 15% on a currency
neutral basis in the quarter to $347 million driven by revenue
growth which offset input cost headwinds.
segment recorded revenues of $1.15 billion, up 1% (up 11%) over the
prior-year quarter as benefits from concentrate sales and positive
price/mix were tempered by currency headwinds. Volumes
increased 3% in the segment, with Brazil, South Latin, Latin Center
and Mexico all showing positive volume growth.
Volume growth, however, lagged the 6% surge witnessed in the
prior-year quarter. Adjusted operating income was up 13% on a
currency neutral basis to $686 million in the quarter, benefiting
from volume growth and favorable pricing.
segment recorded revenues of $5.8 billion, up 5% on the back of
positive price/mix. Volumes increased 1% in the segment. Sparkling
beverage volume declined 2% against 8% volume gain for still
beverages as Americans become more health conscious. Adjusted
operating income was flat on a currency neutral basis to $832
million in the quarter.
segment recorded revenue of $1.7 billion, up 7% (up 6%) over the
prior-year quarter benefiting from volume growth as well as
positive concentrate sales, price/mix and currency impact. The
Pacific Group's volume climbed 8% in the quarter, with growth of 7%
in China, 4% in Japan, 24% in Thailand and 6% in Philippines.
Adjusted operating income was up 12% on a currency neutral basis to
$823 million in the quarter driven by positive geographic mix.
segment recorded revenues of $1.49 billion, down 9% (down 2%) over
the prior-year quarter due to declines in volumes, concrete sales
and negative impact from currency. Volume in Europe declined 4% in
the quarter due to sluggish economy and unfavorable weather in the
Adjusted operating income was down 3% on a currency neutral
basis to $895 million due to top-line decline as well as increased
investments for the Olympic Games and Euro Cup championships.
We currently have a Neutral recommendation on The Coca-Cola
Company. The stock carries a Zacks #3 Rank (a short-term Hold
We are encouraged by the company's global reach, strong brand
power, expanding presence outside the U.S. and its solid cash
position. Moreover, the company's acquisition of
) Bottling business and its productivity initiatives are expected
to result in significant cost savings.
However, Coca-Cola needs to ramp up its advertising spending to
match arch competitor
) increased focus on North American beverages. Moreover, rising
costs of inputs have hurt the company's margins.
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