Can Coca-Cola Keep the Momentum Going in the Second Half? - Analyst Blog

On Aug 15, 2014, we issued an updated research report on The Coca-Cola Company ( KO ).

Coca-Cola posted mixed results for the second quarter of 2014, beating the Zacks Consensus Estimate for earnings but slightly missing the same for revenues. Earnings of 64 cents per share increased 1% year over year driven by improved sparkling beverage volumes, price/mix gains, strong international volumes and better gross margins which made up for higher commodity and marketing costs. Organic revenues grew 3% driven by better volumes.

However, what caught investors' attention was an improvement in the volumes of Coca-Cola's sparkling beverages, especially its namesake brand.

These carbonated soft drinks (CSDs) have been seeing declining sales trends for the past few quarters due to category headwinds. Growing health and wellness consciousness - consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns -, new taxes on sugar-sweetened beverages and growing regulatory pressures have been affecting CSD sales of all major soft drink makers - Coca-Cola, PepsiCo, Inc. ( PEP ) and Dr Pepper Snapple Group, Inc. ( DPS ).

However, Coca-Cola's sparkling beverage volumes grew 2% in the quarter, much better than 1% decline in the first quarter due to increased media investments around the FIFA World Cup and the "Share a Coke" campaign. In the reported quarter, the Coca-Cola brand grew 1% in North America - a sequential improvement helped by the shift to smaller size packages and improved pricing strategy.

Accelerating sparkling beverage growth led by the Coca-Cola brand is one of the strategic priorities of Coca-Cola as discussed during the first-quarter conference call. Other priorities include expanding the still beverage portfolio, increasing brand investments by maximizing productivity and winning at the point of sale. The company has been executing these priorities quite well in the first half of 2014.

It remains to be seen if it is able to keep the momentum going in the second half as well. The market in general expects volume trends to improve further in the second half through the company's aggressive marketing investments, innovation, product development, infrastructure, distribution and overall improved execution.

Other Stocks to Consider

Coca-Cola carries a Zacks Rank #3 (Hold). A better-ranked beverage stock is The WhiteWave Foods Company ( WWAV ) with a Zacks Rank #2 (Buy).

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COCA COLA CO (KO): Free Stock Analysis Report

DR PEPPER SNAPL (DPS): Free Stock Analysis Report

PEPSICO INC (PEP): Free Stock Analysis Report

WHITEWAVE FOODS (WWAV): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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