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The Coca-Cola Company (KO): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Summary:

Shares of Coca-Cola shot up as the company ended 2014 on a strong note beating the Zacks Consensus Estimate for both earnings and revenues in the fourth quarter of 2014. Excluding the impact of currency, earnings increased 5% driven by improved organic revenues and cost cuts. Organic revenue increased 4% driven by an extra selling day, improved soda sales and price increases in North America. Coca-Cola enjoys sound long-term fundamentals given its global reach, strong brand power, expanding international presence, a solid global bottling network and an impressive cash position. However, though the company has aggressive cost-cutting and strategic initiatives in place to drive growth in 2015, it warned that the initiatives will take time to deliver the desired results amid challenging global macro conditions. We therefore prefer to remain on the sidelines.

Overview:

Headquartered in Atlanta, GA, The Coca-Cola Company is the largest global producer and marketer of beverages. Coca-Cola commands a portfolio of more than 500 sparkling (carbonated) as well as still (non-carbonated) beverages like water, enhanced water, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Popular sparkling beverage brands include Coke, Diet Coke, Fanta and Sprite while still beverage brands include Minute Maid and Powerade. Through one of the largest distribution systems worldwide, Coca-Cola's products reach consumers in more than 200 countries.

Most of the company's beverages are manufactured, sold and distributed by independent bottling partners. Its top five bottlers include Coca-Cola Enterprises Inc., Coca-Cola Hellenic Bottling Company SA, Coca-Cola FEMSA, Arca Continental, S.A.B. de C.V. and Swire Beverages. In Oct 2010, the company acquired Coca-Cola Enterprises Inc.'s North American bottling and distribution operations. Coca-Cola acquired Great Plains Coca-Cola Bottling Company in Dec 2011 and other bottling operations in Vietnam, Cambodia and Guatemala in 2012. In 2013, Coca-Cola sold a majority interest in the Philippines bottling operations, acquired bottling operations in Myanmar and merged some of its bottling partners in Japan, Spain and Portugal, and Brazil.

Moreover, the company has begun to roll out its beverage partnership model in the U.S., under which it will gradually grant new expanded U.S. territories to five of its bottlers to distribute its beverages. The company plans to re-franchise the majority of its company-owned North American bottling territories by the end of 2017 and a substantial portion of the remaining territories no later than 2020.

In addition, the company has a 50% equity interest in Aujan Industries Company, one of the largest independent beverage companies in the Middle East. Coca-Cola bought a 10% stake in Keurig Green Mountain in Feb 2014 for about $1.25 billion and subsequently announced its intention to gradually increase its stake to up to 16%. Coca-Cola also plans to purchase a 16.7% stake in energy drink maker, Monster Beverage Corporation, late this year for 2.15 billion.

In addition, the company distributes some of the brands of other beverage companies like Monster Beverage Corporation and Dr Pepper Snapple in designated U.S. territories under licensing agreements. The company also operates a joint venture with Nestl SA, known as Beverage Partners Worldwide, under which its bottlers market and distribute Nestea products in Europe, Canada, Australia and certain markets in Asia

Coca-Cola currently reports its operating results under six segments, primarily on a geographical basis Eurasia and Africa (6% of 2013 revenues), Europe (10%), Latin America (10%), North America (46%), Asia Pacific (12%), Bottling Investments (16%), Corporate.

The company's long-term target includes global volume growth in the 3 4% range, net revenue in mid single digits, pre-tax income in the 6 8% range, and earnings per share in high single digits.

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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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