The Coca-Cola Co.
) reported third-quarter 2013 adjusted earnings of 53 cents per
share, in line with the Zacks Consensus Estimate. Earnings grew
4% year over year owing to volume and pricing improvement. Decent
operating margin growth also contributed to earnings. Currency,
however, hurt earnings growth by 5%.
Revenues and Margins
In the quarter, net revenue declined 3% year over year to
$12.03 billion, missing the Zacks Consensus Estimate of $12.05
billion. The year-over-year decline was due to currency headwinds
(2%) and structural changes (4%), which more than offset the
benefit of concentrate sales (1%).
Excluding transaction gains and other items, revenues declined
2% to $12.12 billion. However, adjusting for the impact of
currency and structural changes, constant currency revenues
increased 4% in the quarter. Improved volume growth and positive
pricing in many markets led to the increase in sales.
The company recorded adjusted consolidated gross margin of
60.0% in the quarter, down 30 basis points (bps) year over year
due to weak top-line performance, which offset the lower cost of
Adjusted selling, general and administrative (SG&A)
expenses declined 4% on a currency-neutral basis and came in at
$4.4 billion owing to better operating expense leverage.
Adjusted operating margin was 23.5% in the quarter, up 90 bps
year over year, gaining from improved operating expense leverage.
Adjusted operating income on a constant currency basis increased
2% to $2.85 billion in the quarter. Currency hurt operating
income by 5% in the quarter, worse than management's expectations
Volume and Pricing Growth in Detail
The cola giant witnessed 2% volume growth in the reported
quarter, lower than last year's 4% growth. Social unrest in
southeast Europe and Brazil hurt volumes. However, it improved
sequentially as weather conditions improved in some of the
markets in the quarter. Management also expects better volume
growth in the second half of 2013.
Volumes grew only 1% in the Americas as 2% positive growth in
North America was partially offset by flat volumes in Latin
America. In Latin America, the key markets of Brazil and Mexico
underperformed. International volumes grew 3% as decent volume
growth in Pacific, Eurasia and Africa was offset by weakness in
Europe. Improved weather conditions in China and India led to
volume gains in the quarter. In addition, Coca-Cola gained volume
and value market share in both sparkling and still beverage
Among the non-alcoholic ready-to-drink (NARTD) beverages,
sparkling beverages, like Coca Cola, Fanta and Sprite sales
improved 1% in the quarter, down from 3% growth in the last year
quarter. Specifically, Coke volumes grew 2%.
Changing consumer preferences, increasing health
consciousness, rising obesity concerns, possible new taxes on
sugar-sweetened beverages and growing regulatory pressures are
affecting sales of carbonated beverages of Coca-Cola as well as
other soft drink companies like
Dr Pepper Snapple Group Inc.
Accordingly, Coca-Cola is trying to re-invigorate sales of its
soft drinks by conducting strong integrated marketing campaigns,
offering more choices to customers in package sizes, sweeteners
and beverages (including more low- and no-calorie selections) and
providing transparency in labeling.
Still beverages such as Minute Maid, Simply and POWERade grew
3% in terms of volume, registering substantially higher volume
growth than the popular soft drinks and reflecting consumers'
growing health consciousness. However, growth was lower than the
previous quarter's growth of 6% and last year's growth of 10%.
Among the still beverages, ready-to-drink tea grew 5% and
packaged water grew 5%. Energy drinks and juice/juice drinks
recorded 4% growth in the quarter.
Price/mix increased 2% in the quarter as compared to flat
price/mix in the prior quarter. The improvement was led by
positive growth in Latin America and Europe segments, which
offset the pricing declines in Eurasia and Africa and Pacific.
Price/mix was flat in North America.
The company did not provide specific revenue or earnings
guidance. The recent structural changes (bottler merger in Brazil
and the sale of 51% stake in the Philippines bottler) are
expected to hurt 2013 net sales by 3% and operating income by
Foreign exchange is expected to hurt fourth-quarter operating
income by 5% to 6%, while it will unfavorably impact full year
operating income by 4%. Further, the company anticipates that the
Philippine bottling transaction, together with the bottling
transaction in Brazil, will have a 1% structural impact on
full-year 2013 operating income, with this decline being offset
by a related improvement in equity income.
Operating expense leverage is expected to be in low
single-digits in 2013. Share repurchase guidance stands at $3.0
Coca-Cola currently holds a Zacks Rank #4 (Sell). One beverage
company, which is better placed is
Coca-Cola Enterprises Inc
) with a Zacks Rank #2 (Buy).
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