On Nov 18, we maintained a Neutral recommendation on
The Coca-Cola Company
) as we have faith in the cola giant's long-term fundamentals
despite its soft performance in the past few quarters.
Why the Neutral Recommendation?
On Oct 15, 2013, Coca-Cola announced mixed third-quarter
results, barely meeting the Zacks Consensus Estimate for earnings
but missing the same for revenues.
Coca-Cola's third-quarter 2013 adjusted earnings of 53 cents
per share were in line with the Zacks Consensus Estimate.
Earnings grew 4% year over year as decent operating margins made
up for the soft revenues. Revenues declined 3% year over year and
missed the Zacks Consensus Estimate. Though volumes and price/mix
improved from the second-quarter levels, currency headwinds took
a toll on the top line.
Volumes grew 2% in the quarter, better than the last quarter's
1% growth, driven by improved volume trends in many key markets
including North America, China and India. However, volumes were
still below last year's 4% growth due to economic slowdown in
Europe, Brazil and Mexico. Price/mix increased a strong 2% in the
quarter, much better than flat price/mix seen in the first
Despite higher-than-expected currency headwinds and weak gross
margins, operating margin grew 90 basis points to 23.5% in the
quarter driven by favorable operating expense leverage.
Following the soft third-quarter results, estimates largely
moved downwards over the past 60 days. The Zacks Consensus
Estimate for 2013 decreased 0.5% to $2.09 per share while that
for 2014 decreased 2.2% to $2.22 over the same period.
Despite softer performance in recent quarters, we believe
Coca-Cola has sound long-term fundamentals with its global reach,
strong brand power, expanding international presence, powerful
global bottling network and its solid cash position. Moreover,
its increased focus on product/packaging innovation and marketing
strategies bode well for additional market share gains.
However, sluggish volume trends of its soft drinks are a
concern. Changing consumer preferences, increasing health
consciousness, rising obesity concerns, possible new taxes on
sugar-sweetened beverages and growing regulatory pressures are
affecting carbonated beverage sales of Coca-Cola as well as other
beverage giants like
). The continuously challenged consumer spending environment is
another negative factor.
Other Stocks to Consider
Coca-Cola carries a Zacks Rank #3 (Hold). Other beverage
companies that are currently doing well include
Coca-Cola Amatil Limited
The WhiteWave Foods Company
). While Coca-Cola Amatil carries a Zacks Rank #1 (Strong Buy),
WhiteWave Foods carries a Zacks Rank #2 (Buy).
COCA-COLA AMATI (CCLAY): Get Free Report
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
WHITEWAVE FOODS (WWAV): Free Stock Analysis
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