Is Coca-Cola Overdone?

Feb.12.13 | About: The Coca-Cola (KO)

By Richard Rittorno

Coca-Cola (NYSE:KO) reported earnings today and is being punished, as analysts were looking for slightly higher revenue. But is this a case of the analysts not getting it right?

Coca-Cola's net income came in at $0.41 per share, or $1.9 billion, compared to the previous year at $0.39 per share, or $1.8 billion. Excluding one-time charge-off items, Coca-Cola earned $0.45 per share -- beating analysts' expectations of $0.44 per share.

So why the sell off, if Coca-Cola beat by a penny? After digging into the earnings report, the big difference between Coca-Cola's planned growth vs. analyst expectations is between case volumes and bottle sales. When comparing the actual case volumes to many of analysts' expectations, it appears they are on the lighter side of expectations. However, when looking at the company's planned growth targets, we find that case volume was in line at 3%. Analysts were looking for 3.6%, even though the company set expectations of 3% to 4%. The other big "miss" was in bottling, where the company grew by 5% vs. expectations of 10%. Again, there seems to be a disconnect between company guidance vs. analysts. It seems as if Coca-Cola set clear targets and goals, but market expectations were beyond that.

Looking beyond North America, Coca-Cola is seeing great growth in emerging markets, with sales in Europe, Asia, and Africa jumping by 5% and income going higher by 18%. In the Pacific, Coca-Cola saw a decline of 1% in sales but grew income by 11%. In another growth area, Latin American sales jumped by 8% and income by 10%. Coca-Cola did well domestically as well, with sales increasing by 6% and income jumping by 12%.

Now in Europe, Coca-Cola saw significant headwinds in sales by falling 6% as the company faced weakening consumer confidence, along with the necessity to aggressively discount products. That's not unexpected for turmoil in the eurozone, and it appears the company is trying to manage the turmoil and limit exposure.

For 2012, Coca-Cola earned $2.01 per share, or $9.2 billion, on $48.03 billion in sales. This is an increase in revenue from the previous year of $1.92 per share, or $8.9 billion on $46.55 billion in sales. Coca-Cola has now met or exceeded the company's guidance and target plans for three years in a row, and it has done so in a very volatile global market -- despite the eurozone crisis.

Bottom Line: This pullback after earnings could be a good opportunity to stick a toe in the water with a company that continues to show growth -- not only domestically, but also in all the key emerging markets.