Coca-Cola - A Time-Tested Powerhouse

| About: The Coca-Cola (KO)

Coca-Cola (NYSE:KO) reported its earnings for Q3 2012 last week. Earnings were in line with estimates while revenues were up 1% year over year. Margins for the company experienced slight improvement.

The results reported by the company reflected continued growth momentum. Consumer companies like Coca-Cola are facing a challenge of high commodity prices. It has been difficult for consumer companies to pass on commodity price increases to consumers in this recessionary environment. But the most recent quarter's results show that the company did well with regard to passing on the increase in commodity prices, as sales volume for every geographic region increased and total sales volume increased by 4%. If the company is successful in passing on commodity price increases to consumers in the future as well, this will help Coca-Cola expand its top and bottom lines at an attractive rate. That makes it a great investment for the future. The stock also offers a decent dividend yield of 2.7%.

For Q3 2012, the company maintained its sales growth momentum as sales grew for 10 consecutive quarters. Revenues for the third quarter grew by 1% year over year to $12.34 billion, slightly missing revenue estimates of $12.4 billion. In comparable currency, the net revenue grew by 6%. Given that the company has significant international exposure, 5% of its revenues were cut down due to currency headwinds in the quarter. The company was also able to increase its sales volume by 4% year over year globally. Volumes grew across every geographical division in the recent quarter. The highest volume growth of 11% year over year was experienced in Eurasia and Africa. Within this group, growth was lead by the Middle East and North Africa (up 22%) and India (up 11%). Reported revenue for Eurasia increased by 4% in the quarter. The table below shows the percentage volumes and net revenue growth in Q3 2012, according to different geographical groups.

Unit Case Volume %

Net Revenue Increase %

Total Company



Eurasia & Africa






Latin America



North America






Bottling Investment




Earnings per share for the quarter were $0.50, down 2% from the comparable period last year. However, EPS was in line with expectations. Operating income for the quarter grew by 1%. Selling, general and administrative expenses for the quarter were up by 2.4%, and contributed 37.52% to total net revenues in Q3 2012 as compared to 36.9% in Q3 2011. The table below shows the actual earnings for the company and earnings surprises in the last five quarters.

Q3 2011

Q4 2011

Q1 2012

Q2 2012

Q3 2012

EPS Consensus

$ 0.5

$ 0.38

$ 0.44

$ 0.6

$ 0.5

Actual Forecast

$ 0.51

$ 0.4

$ 0.44

$ 0.61

$ 0.5

Earnings Surprise

2 %

5.26 %

0 %

1.67 %

0 %

Source: and Qineqt's calculations.

Coca-Cola, in accordance with its long-term plan of achieving operational efficiency, was able to improve slightly on its margins. The company experienced an improvement in its cash flow from operations of 15% year to date. Cash flow from operations stood at $7.84 billion in the third quarter.

Q3 2011

Q3 2012

Gross Profit Margin

60.20 %

60.70 %

Operating Margin

22.50 %

22.65 %


Coca-Cola is expected to have revenues of $11.6 billion and $48.3 billion in Q4 2012 and full fiscal year 2012, respectively. Earnings per share for the company are expected to be $0.44 in Q4 2012 and $2 in fiscal year 2012. Forecast earnings growth for the next five years is 8.46%. The company has a positive outlook for the future. Almost 70% of the analysts have a buy or strong buy rating for Coca-Cola stock.

By the end of 2015, it is expected to save $550 million to $650 million under its four year reinvestment and productivity program. Earlier, the company had announced its new operating structure, dividing its business into three segments. The new operating structure plan is associated with the company's 2020 vision.

Coca-Cola has a history of paying dividends, and we recommend that our readers buy the stock for its safe 2.7% dividend yield.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: The article has been written by Qineqt's Staples Analyst. Qineqt is not receiving compensation for it (other than from Seeking Alpha). Qineqt has no business relationship with any company whose stock is mentioned in this article.