The Coca-Cola Company
) started 2014 on a positive note, beating the Zacks Consensus
Estimate for revenues in the first quarter while meeting earnings
expectations as volumes gained slightly.
This is the first time that Coca-Cola has beaten the Zacks
Consensus Estimate for sales in the past six quarters. Shares
were up 2% in
First-quarter 2014 adjusted earnings of this Zacks Rank #4
(Sell) company were 44 cents per share, in line with the Zacks
Earnings declined 4% on a year-over-year basis due to currency
headwinds as a strong dollar lowered the value of the company's
ex-U.S. sales. Earnings grew 5% year over year on a constant
currency basis as positive price/mix gains, strong developing
market volumes and cost control made up for higher marketing
Revenues and Margins
In the quarter, net revenue declined 4% year over year to
$10.58 billion due to headwinds from currency and structural
changes. However, revenues beat the Zacks Consensus Estimate of
$10.56 billion helped by better pricing and volume growth than
Currency and structural changes hurt revenues by 4% and 2%,
respectively. Adjusting for the impact of currency and structural
changes (primarily bottler merger in Brazil and the sale of 51%
stake in the Philippines bottler completed in 2013), constant
currency revenues increased 2% in the quarter. Both volumes and
price/mix gains were better than the fourth-quarter 2013
Adjusted consolidated gross margins declined 60 basis points
(bps) in the quarter to 60.9%.
Adjusted selling, general and administrative (SG&A)
expenses were flat on a currency-neutral basis and came in at
$3.99 billion as solid cost control helped offset the increased
Despite headwinds from one less selling day, shift of Easter
timing and accelerated marketing investments, adjusted operating
income on a constant currency basis increased 7% to $2.46 billion
in the quarter. Better operating expense leverage and solid cost
control pulled up profits in the quarter. Adjusted operating
margin was 23.2% in the quarter, down 50 bps year over year.
As expected, currency hurt operating income by 10% in the
quarter due to the weakening of many emerging market
Volume and Pricing Growth in Detail
The cola giant witnessed 2% volume growth in the reported
quarter, better than 1% in the previous quarter. While volumes
were flat in North America, they grew 2% in international
However, Coca-Cola's North American volume performance was
better than a 1% decline seen last quarter due to accelerated
media investments around Super Bowl and Sochi 2014 Winter
Olympics programming. In North America, while still beverage
volume improved 3%, sparkling beverages declined 1%.
Coca-Cola is struggling with sluggish volume trends of its
sparkling beverages in North America due to carbonated soft
drinks (CSD) category headwinds. Last month, Beverage Digest, a
leading beverage industry newsletter said that CSD volumes
declined 3%, the ninth straight year of decline for CSDs.
The CSD category is suffering to growing health consciousness
since consumers have become particularly vigilant about the use
of artificial sweeteners, high sugar content and related obesity
concerns. Also, possible new taxes on sugar-sweetened beverages
and growing regulatory pressures are affecting the CSD sales.
These challenges have also been felt by other major soft drink
Dr Pepper Snapple Group, Inc
) - leading to lower volumes and weak sales.
Overall, developed market volumes declined 1% as positive
growth in Japan and Australia was offset by 4% decline in Europe.
European volumes were hurt by a shift in Easter timing from first
quarter last year to second quarter this year and weak sparkling
beverage volume in Great Britain.
In developing/emerging markets, volumes grew 3% as both China
and Brazil showed sequential improvement. While strong marketing
campaigns around the Chinese New Year improved volumes by 12% in
China, activation of the FIFA World Cup, Carnival holiday and
better weather conditions led to renewed momentum in the Brazil
business. Volumes grew 6% in India and Russia.
Among the non-alcoholic ready-to-drink beverages, while still
beverages showed improvement from the previous quarter, sparkling
beverages volumes slowed down.
Sparkling beverage volumes declined 1% in the quarter, which
compared unfavorably with flat growth in the fourth quarter. A
shift in Eater holiday timing and double digit decline in Great
Britain offset decent sparkling beverage sales in China.
Still beverages such as Minute Maid, Simply and POWERade grew
8% in terms of volume better than previous quarter's growth of
Price/mix increased 2% in the quarter better than 1% in the
fourth quarter of 2013 as positive growth in Latin America,
Eurasia and Africa and Europe segments was offset by declines in
the Asia Pacific region. Price/mix was flat in North America.
The company did not provide specific revenue or earnings
guidance. The structural changes (bottler merger in Brazil and
the sale of 51% stake in the Philippines bottler) completed in
2013 are expected to hurt 2014 net sales and operating income by
Foreign exchange is expected to hurt second-quarter as well as
full-year operating income by 7%.
The company expects share repurchase to range between $2.5
billion and $3.0 billion while effective tax rate will be
Other Stocks to Consider
A better ranked beverage maker is
Monster Beverage Corp.
) which carries a Zacks Rank #2 (Buy).
DR PEPPER SNAPL (DPS): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
MONSTER BEVERAG (MNST): Free Stock Analysis
PEPSICO INC (PEP): Free Stock Analysis Report
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