Coca-Cola (KO) reported earnings today that were met with some cheer by investors as the shares traded up after the announcement. KO managed to show volume gains in light of significant currency headwinds that affected reported profits. The article below will highlight the key takeaways from the earnings release.
KO is the worldwide leader in non-alcoholic ready to drink beverages. Some of its brands included the iconic Coca-cola beverage along with a vast array of juices such as Minute-Maid, teas such as Honest Tea and Fuze and closing with its bottled waters such as Dasani. KO offerings are known the world over which can be a blessing and a challenge as witnessed by the latest earnings report.
Third Quarter and Year-to-Date 2013 Highlights
- Third quarter volume grew 2% and year-to-date volume grew 2%. Coca-Cola Americas grew 1% in both the quarter and year to date and Coca-Cola International grew 3% in both the quarter and year to date.
- Global value share gains achieved in the quarter in total nonalcoholic ready-to-drink (NARTD) beverages and in core sparkling and still beverages.
- Reported net revenues declined 3% in the third quarter and 2% year to date. Excluding the impact of structural changes, comparable currency neutral net revenues grew 4% in the quarter and 3% year to date.
- Reported operating income declined 12% in the third quarter and 6% year to date. Excluding the impact of structural changes, comparable currency neutral operating income grew 8% in the quarter and 6% year to date.
- Currency was a 2% headwind on comparable net revenues and a 5% headwind on comparable operating income in the quarter.
- Third quarter reported EPS was $0.54, up 8%, and comparable EPS was $0.53, up 4%, despite an approximate 5% currency headwind. Year-to-date reported EPS was $1.52, down 2%, and comparable EPS was $1.62, up 4%, despite two fewer selling days in the first nine months of 2013 and an approximate 4% currency headwind.
Info courtesy of Seeking Alpha
As we can see from the bullet points above, earnings were adversely impacted to the tune of 5% by currency fluctuations. There has been some significant erosion in the value of foreign currency in the last quarter most notably being the Indian Rupee. By having such a large international presence there will be times were currencies work against you. KO is currently experiencing one of these periods. The same phenomenon is being witnessed by other consumer goods companies such as Phillip Morris (PM). I view the currency headwind as a temporary situation that will solve itself. I am more interested at the strength of the companies underlying consumer business than the vagaries of the currency market.
The consumer franchise is performing well as witnessed by the volume gains reported. As we can see from the earnings release above, overall company volume was up 2%. The two regions that I would like to focus on are the Americas and Europe. The Americas region is by far KO largest and most important market. The company delivered a 1% gain in volume which is a solid, yet unspectacular result. Upon further examination of the numbers, the North America region delivered a 2% volume gain while Latin America reported a flat number. The numbers add more contexts to the company's claim of facing currency headwinds. The Latin America market saw currency depreciation which impacts the cost of the products forcing consumers to cut back on purchases. Brazil, the largest country in the region saw its currency rise from roughly 2 real's per dollar to over 2.25 real's per dollar. The currencies seem to have stabilized and have traded down from there elevated level which should help KO and other international companies going forward. I am of the opinion the Federal Reserve's talk of tapering caused the strengthening of the dollar and the subsequent decline of other currencies.
Europe reported a drop of one percent in terms of volume versus a 9 month drop of two percent. Volume has picked up in Europe, with certain markets doing better than others. The areas that performed well are Germany along with Northwest and the Nordic countries. The news should bode well for Coca-Cola enterprises (CCE) when they report, as they are the bottler in the regions showing particular strength. Unsurprisingly, Southern Europe continued to have a difficult time. I view the report by KO, as further confirmation that Europe is indeed recovering from their long recession. The recovery is uneven with some areas reporting strength while other areas lag.
KO Dividend data by YCharts
The final point I would like to highlight from the earnings release revolves around the company's buyback activities. The company announced they have repurchased 2.8 billion dollars worth of shares with an additional 200-700 million slated for the rest of the year. The buybacks have managed to shrink shares outstanding by roughly 2%. I anticipate the company will announce an increase in the dividend shortly, rewarding income seeking investors.
In summary, KO recent earnings report shows the diversity and strength of the company. The broad worldwide diversification prevents KO from being too dependent on any one region for its sales. The company was impacted by currency fluctuations, however in my view this is a temporary event and will work itself out. The underlying consumer franchise is strong and continues to grow which should help propel the shares higher into the future. Thank you for reading and I look forward to your comments.