Coca-Cola (KO) turned in 3% year-over-year quarterly revenue growth, even with Europe in the doldrums related to sovereign debt issues. In the company's Q2 2012 earnings call held on July 17, 2012, Muhtar Kent, Chairman and CEO, was adamant that the company could continue to execute on its long-term growth targets despite the very volatile and unpredictable prolonged economic recovery.
European volume was down 4% during the quarter, but was made up for by growth in other geographic regions. Germany was the one bright spot in Europe with volume growth of 1%. U.S. volume was up 1%, the Pacific region volume was up 8%, even with the slowing of the Chinese economy. Volume growth in China, while moderated, was positive and came in at 7%. Japan volume growth was 4%, Thailand was 20%, Latin America was up 3%, Mexico was up 1%, Brazil was up 6%, Russia was up 9%, Eurasia was up 12% and Africa was up 12%.
Additionally, the slowness in Asia appears to be contained to China, as other parts of Asia such as Vietnam, Southeast Asia, the Philippines and Australia experienced improved results.
Coca Cola indicated it plans to increase investment in India by $3 billion, increasing the total planned investment to $5 billion between now and 2020.
Coca Cola finalized the acquisition of half of the equity of Aujun Industries which holds the #1 position in the still beverage business in the Middle East.
On a negative note, the company indicated issues with currencies are expected to have an 8% to 9% negative impact on operating income for the third quarter.
Coca-Cola's stock price has been on a nice upward trajectory over the last six months or so as shown below:
With the company's earnings out-of-the-way and its adamant argument for continued growth in spite of macroeconomic volatility, a bullish position, the bull-put credit spread, is considered for Coca-Cola. A bull-put credit spread may be entered for a net credit by selling one put option and purchasing a second further out-of-the-money put option. The goal is for the options to expire worthless and retain the initial net credit and any additional net credits as profit.
Using PowerOptions tools, a variety of bull-put credit positions for September options expiration are available as shown below:
The 2012 September 72.5/75 bull-put credit spread is attractive with a potential return of 8.7% (72.1% annualized) and with a separation between the stock price and the strike price of the short put option of 5.4%. Additionally, the $75 strike price of the short put option is below the previous support for the stock which is around $76. The specific put option to sell is the 2012 Sep 75 at $0.36 and the put option to purchase is the 2012 Sep 72.5 at $0.16.
Bull-Put Credit Spread Trade
- Sell KO 2012 Sep 75 Put at $0.36
- Buy KO 2012 Sep 72.5 Put at $0.16
A profit/loss graph for one contract of the bull-put credit spread is shown below:
The position is fully profitable for a stock price above the $75 strike price of the short put option at expiration. A total loss is experienced for a stock price below the $72.5 strike price of the long put option at expiration, however, the position should be managed for an exit or roll prior to sustaining a loss.
A management point of $77.50 is set for the position. If the price of the stock drops below $77.50, then the position should be managed for an exit or a roll.