Things are hardly falling into place for
The Coca-Cola Company
reported a downbeat fourth-quarter 2013 with earnings matching the
estimate and the top line missing by a moderate margin. In
addition, the performance of underlying metrics also failed to stir
optimism among investors. Notably, this cola giant has now missed
the revenue estimate for six straight quarters.
Q4 Earnings in Focus
The company's adjusted earnings of $0.46 per share barely met the
Zacks Consensus Estimate. A stronger dollar reduced the earnings
growth by 5%. On a constant currency basis, earnings grew 7% mainly
aided by cost containment efforts and lower taxes.
Net revenue slipped 4% year-over-year to $11.04 billion due to
headwinds from currency (by 2%) and structural changes (by 5%). To
add to the concern, revenues fell short of the Zacks Consensus
Estimate of $11.3 billion. However, constant currency revenues grew
4% in the quarter. Both volumes and price/mix gains were lower than
the third-quarter levels.
Adjusted consolidated gross margins improved 60 basis points (bps)
in the quarter to 60.8% while adjusted operating margin dropped 10
bps to 21.6% hurt by the increased marketing expenses.
As far as the outlook is concerned, there was not much spark apart
from the announcement of a new restructuring plan. The company now
plans to enhance its productivity and reinvestment program to
generate $1 billion in productivity savings by 2016 over and above
its present program of $550 million to $650 million expected to be
saved annually over a four-year period from 2012 through 2015. The
incremental savings will be used toward brand building through
increased media investments, hopefully boosting long-term
Management expects negative currency translation to hurt
first-quarter operating income by 10% and full-year operating
income by 7%, indicating that currency headwinds will likely
subside as the year progress.
Quite expectedly, following these uninspiring numbers, Coca Cola
slipped into the red in the key trading session, shedding 3.75% but
recovered slightly (0.35%) in after-hours trading. The pang was
also felt in the ETF space, with consumer staples ETFs having
considerable exposure to Coca Cola being hit.
Consumer Staples Select Sector SPDR (
Consumer Staples ETF (
iShares Dow Jones US Consumer Goods Sector ETF (
have the biggest allocation in Coca Cola. The trio saw sluggish
trading yesterday. XLP fell 0.57% at the close while VDC dropped
0.49% and IYK lost 0.28%. Below, we have highlighted the funds in
A Comprehensive Guide to Consumer Staples ETFs
XLP in Focus
The most popular consumer ETF on the market, XLP follows the
S&P Consumer Staples Select Sector Index. The fund invests
about $5.36 billion of assets in 42 holdings.
Of these firms, the in-focus Coca-Cola takes the second spot,
making up roughly 9.37% of the assets. In terms of sector exposure,
the fund is skewed toward food & staples retailing which makes
up for one-fourth share, closely followed by household products
(20.98%) and beverages (20.03%).
The fund charges 16 bps in fees per year from investors. The fund
returned over 13.4% in 2013 but has lost 3.21% year to date. XLP
currently has a Zacks ETF Rank of 4 or 'Sell' with a 'Low' risk
Unpopular Sector ETFs to Start 2014
VDC in Focus
This fund manages a $1.61 billion asset base and provides exposure
to a basket of 110 consumer stocks by tracking the MSCI US
Investable Market Consumer Staples 25/50 Index. The product charges
a low fee of 14 bps per year from investors. Again here, Coca-Cola
is the second firm with 8.6% allocation. The product is widely
spread across various sectors out of which soft drinks take up
VDC added 28.0% in 2013 but has shed 3.29% year to date. The fund
has a Zacks ETF Rank of 3 or 'Hold' with a 'Low' risk outlook (see
the Top Ranked ETFs here
IYK in Focus
This ETF tracks the Dow Jones U.S. Consumer Goods Index, giving
investors exposure to the broad consumer staples space. The fund
holds about 119 stocks in its basket with AUM of $413.8 million,
while charging a slightly higher fee of 45 bps per year from
Like the other two, Coca-Cola occupies the second position in the
basket with 7.78% of assets. IYK is also widely diversified across
sectors with beverages making up more than 18.0%.
The fund was up about 30% in 2013 but is down 3.25% so far this
year (as of February 18, 2014). The product has a Zacks ETF Rank of
3 with a 'Medium' risk outlook.
Investors should note that the entire space of consumer staples was
beaten down to start the year with freezing weather taking most of
the blame, but is expected pick up pace from the second quarter. As
Sterne Agee analyst
, higher home heating bills could curb consumer spending "well into
Consumer ETFs Slip as Wal-Mart Guides Earnings
Coming to the company, Coca Cola currently remains out of our favor
as evident from its Zacks Rank #4 (Sell) for company-specific
reasons. Sluggish volume trends of carbonated beverages in the wake
of rising health consciousness among consumers are posing threats
to most of the cola giants.
So, it would be wise to bet on Coca-Cola through a basket approach
as it gives some shield against the risk of single-stock investing.
So for investors interested to arrest the company's new cost
savings plan, buying in the aforementioned products on their recent
dips could be a better idea than just an investment in the
struggling KO for now.
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ISHARS-US CN NC (IYK): ETF Research Reports
COCA COLA CO (KO): Free Stock Analysis Report
VIPERS-CONS STA (VDC): ETF Research Reports
SPDR-CONS STPL (XLP): ETF Research Reports
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