We have maintained our rating on
he Coca-Cola Company
) with a target price of $81.00 following appraisal of first
quarter 2012 results.
The Coca-Cola Company delivered adjusted operating earnings of
89 cents per share in the first quarter of 2012, beating the Zacks
Consensus Estimate by a penny. Earnings were also above the
prior-year adjusted earnings of 86 cents per share driven by strong
revenue and volume growth which made up for margin declines.
In the quarter, net revenues increased 6% year over year to
$11.1 billion, benefiting from an increase in concentrate (syrups,
powders etc used in finished beverages) sales and positive price
mix (3%). The results were above the Zacks Consensus Estimate of
The cola giant witnessed volume growth (unit case volume) of 5%
in the reported quarter with gains in all geographic regions as
well as across all non-alcoholic ready-to-drink (NARTD) beverages,
whether sparkling (NARTD with carbonation) or still (NARTD without
Read our full report at
Coca-Cola Beats on Volume.
Headquartered in Atlanta, Georgia, The Coca-Cola Company is the
largest global producer and marketer of beverages. Coca-Cola has a
formidable portfolio of globally recognized brands. Coca-Cola
markets four of the world's top five nonalcoholic sparkling
beverage brands, including Coke, Diet Coke, Sprite and Fanta, thus
boasting of a high level of consumer acceptance.
Similarly, the company also commands a leading place in the
juices or still beverages category, with its flagship brands such
as Minute Maid, Simply and POWERade. Moreover, the company
possesses one of the largest distribution networks in the world
which gives it a huge competitive advantage.
As the developed markets are nearing saturation, Coca-Cola is
showing keen interest in the emerging markets of India, Russia and
China encouraged by the high-growth nature of these countries.
Currently, 43% of the company's business is being generated in the
developed markets (US, Western Europe, Australia, Japan), 37% in
developing nations and 20% in the emerging markets.
Management believes that due to the higher growth rates in the
emerging and developing markets, each of these geographic segments
will contribute 33% of the company's business by the end of
Coca-Cola is undertaking various productivity initiatives to
streamline its cost structure and boost profitability. In 2011, the
company successfully completed its four-year productivity program,
with annualized savings of over $500 million.
Further, in February 2012, Coca-Cola launched a four-year
productivity and reinvestment program which is expected to generate
incremental annualized savings of $550 million to $600 million
phased over a four-year period starting in 2012 through the end of
2015. The savings will be used towards further brand building and
help mitigate the negative impact from commodity costs, thereby
boosting long-term profitability.
The acquisition of North American bottling business from
Coca−Cola Enterprises Inc.
) is expected to generate synergies of at least $350 million in the
next four years.
Despite the benefits, we prefer to remain on the sidelines due
to the company's contracted margins which are being continuously
hurt by commodity cost inflation. Moreover, Coca-Cola needs to ramp
up its advertising spending to match up competitor
) increased focus on North American beverages. An overall weak
macroeconomic environment, still strained consumer discretionary
spending, changing consumer preferences, and increasing health
consciousness also create headwinds.
COCA-COLA ENTRP (CCE): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
To read this article on Zacks.com click here.