Shares of Coca-Cola (KO) have been in a bit of a funk recently. The market is rightly worried about the company's lackluster volume growth, especially in crucial overseas growth markets and the core North American market. However, Coca-Cola dispatched some of these fears with its recent Q3 2013 earnings results, posting volume growth in all regions except Europe.
Q3 2013 Overview
- Reported EPS: $0.54 +8%
- Adjusted EPS: $0.53 +4%
- Volumes: +2%
- Net Revenues: -3%
- Currency Neutral Net Revenues: +4%
- Reported Operating Income: -12%
- Adjusted Operating Income: +8%
YTD Key Stats
- Reported EPS: $1.52 -2%
- Adjusted EPS: $1.62 +4%
- Volumes: +2%
- Net Revenues: -2%
- Currency Neutral Net Revenues: +3%
- Reported Operating Income: -6%
- Adjusted Operating Income: +6%
Overall, Coca-Cola's quarterly results were in line with estimates, with EPS missing by a penny and revenues missing by around $40M, both small sums for a company the size of Coca-Cola. Currency was a major drag on Coca-Cola's earnings. The strong dollar frankly crushes international revenues for companies like Coca-Cola. When adjusting currencies, we can see that Coca-Cola's results were pretty solid.
In my opinion, the major news here is that the company actually saw volumes growth of around 2% for the quarter. When looking by region, the results are even better. All areas except Europe saw volume growth, with the Pacific region being the standout, growing volumes 5%.
One area of weakness was revenues, falling 3% in the quarter. However, when adjusting for currencies, the company actually saw revenue growth of around 4%. It was noted that Coca-Cola was able to increase prices in some markets, with relatively little impact on volumes.
Capital return was strong in the quarter, with the company buying back around $2.7B worth of stock. Coca-Cola is on track to buyback around $3.0B to $3.5B worth of stock and pay dividends of around $5B in 2013.
It seems as if Coca-Cola has weathered global economic uncertainty quite well. The company noted that it has been able to increase market share in certain markets, grow its portfolio of products to meet local tastes, and increase its massive global footprint in the non-alcoholic beverages market.
Looking ahead to Q4 2013, Coca-Cola estimates that unfavorable currency will impact results by around 5% to 6%, which is higher than previously guided. Also note that the company is restructuring some bottler operations in Brazil and the Philippines, which is likely to have a slight negative impact on Q4 EPS. Coca-Cola also noted in the Q&A that its bottler refranchising plan is ahead of schedule, with progress being called "exciting". The company should provide more details next quarter.
Soda demand is soft, but is being offset by other beverages
As I have noted in previous articles, Coca-Cola is mostly a pure-play beverage stock, with a dominant brand and excellent efficiency. When Coca-Cola launches a product, you can bet that it will almost certainly see impressive market share growth.
Coca-Cola's core product, sugary soda, is seeing some sluggish growth. Consumers are shifting away from this product to healthier options, especially in Europe and North America. What is ironic is that many of these consumers are actually shifting to other Coca-Cola beverages. The company is investing in more health-oriented beverages, somewhat diversifying itself from just soda.
However, Coca-Cola's soda segment is large, with some areas of growth. While diet sodas have seen moderate declines, Coca-Cola's Coke Zero product has actually seen mid-single digit growth. In addition, the company has been launching new flavors of Fanta and Sprite, which is sparking moderate volume growth, especially overseas.
Even when faced with horrible currency-related headwinds, Coca-Cola still posted pretty solid results. It will be interesting to see if volume growth can return to Europe next year, as that region remains the only sore spot for the company. Coca-Cola's North American operations remain strong, with soda volumes actually posting a small increase from last year.
Coca-Cola remains a solid choice for long-term focused investors. The company continues to return large sums to shareholders via dividends and share buybacks while also having a massive "moat" around its core business. However, short-term, the stock will likely post middling results. However, Coca-Cola is not and has never been a day-traders stock.
Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.