The Coca-Cola Company’s (KO)
fourth quarter adjusted earnings of 45 cents per share marginally
beat the Zacks Consensus Estimate of 44 cents by a penny. Moreover,
earnings grew 15% from the prior-year quarter as tepid revenue
growth was offset by solid operating margins, which gained from two
extra selling days and lower-than-expected currency headwinds.
Revenues and Margins
In the quarter, net revenue increased 4% year over year to
$11.04 billion, as benefits from volume growth and concentrate
(syrups, powders, etc. used in finished beverages) sales were
largely offset by an almost flat price/mix. Constant currency
revenues increased 5% in the quarter as currency hurt revenues by
1%. The top-line results marginally missed the Zacks Consensus
Estimate of $11.54 billion.
The company recorded adjusted consolidated gross margin of 60.2%
in the fourth quarter of 2012, down 10 basis points both year over
year and sequentially. The gross margin result was in line with
management’s expectation of being sequentially lower than both
second and third quarter margins of 60.3% due to the currency and
mix shift headwinds.
Adjusted selling, general and administrative (SG&A) expenses
increased 1% on a currency neutral basis to $4.42 billion.
Excluding the impact of currency, SG&A expenses were flat due
to better operating expense leverage in the quarter.
Adjusted operating margin was 21.7% in the quarter, up 140 basis
points from the prior-year quarter. The constant currency operating
income increased 14% to $2.48 billion in the quarter, in line with
management’s expectation of double-digit improvement.
Operating profits accelerated as the operating expense leverage
was better in the quarter due to two additional selling days.
Lower-than-expected headwinds from currency also benefited
operating profits. Foreign exchange unfavorably impacted operating
income in the fourth quarter by 4%, lower than management’s
expectations of a negative impact in the mid-single-digit
range.
Volume and Pricing Growth in Detail
The cola giant witnessed volume growth of 3% in the reported
quarter. International volumes grew 4% against a 1% increase in
North America. The company saw volume growth in North America,
Eurasia and Africa, and Latin America while European volumes
declined due to persistent economic uncertainty. Moreover, China
and Japan volumes declined in the quarter, which hurt overall
volumes of the Pacific segment, for the second quarter in a
row.
Among the non-alcoholic ready-to-drink (NARTD) beverages,
sparkling beverages, like Coca Cola, Fanta and Sprite, grew 1% in
terms of volume, lower than last quarter’s 3% growth. Changing
consumer preferences, increasing health consciousness and growing
regulatory pressures are affecting the company’s sparkling beverage
sales.
Still beverages such as Minute Maid, Simply and POWERade grew 9%
in terms of volume, registering much better volume growth than the
popular soft drinks as consumers have grown health conscious.
Coca-Cola is slowly expanding its portfolio of non-carbonated
drinks to reduce its huge dependence on carbonated beverages. Among
the still beverages, packaged water, ready-to-drink tea and energy
drinks recorded double-digit growth in the quarter.
The impact of price/mix was almost flat in the quarter as only
the Latin American segment showed some positive growth.
Geographic Analysis
Geographically, the Eurasia & Africa
division recorded revenues of $697 million, up 5% over the
prior-year quarter as benefits from volume growth and concentrate
sales were offset by price/mix and currency headwinds. Constant
currency revenues increased 9% in the quarter.
The segment witnessed volume growth of 10% year over year led by
13% organic growth in Middle East and North Africa, 13% in Turkey
and 12% in Russia. Sparkling beverages volume was up 7% versus 23%
volume growth for still beverages. Adjusted operating income was up
23% on a currency neutral basis in the quarter to $273 million
driven by pricing gains and better operating expense leverage.
The Latin America segment recorded revenues of
$1.27 billion, up 8% from the prior-year quarter levels driven by
benefits from concentrate sales, positive volume and price/mix,
which offset headwinds from currency and structural changes.
Constant currency revenues increased 12% in the quarter.
Volumes increased 5% in the segment, with Brazil, South Latin,
Latin Center and Mexico all showing positive volume growth. Volume
growth was better than the 4% growth witnessed in the prior-year
quarter.
Sparkling beverages volume was up 3% versus 16% volume growth
for still beverages. Adjusted operating income was up 16% on a
currency neutral basis to $715 million in the quarter, benefiting
from volume growth and favorable pricing in addition to better
operating expense leverage.
The North America segment recorded revenues of
$5.29 billion, up 6% as gains from volume growth and structural
changes was offset by an almost flat price/mix. North American
overall volumes grew 1% in the quarter.
Sparkling beverage volume declined 2% against 8% volume gain for
still beverages as American are increasingly avoiding sugary sodas.
Adjusted operating income was up 11% on a currency neutral basis to
$713 million in the quarter driven by positive volume growth and
better operating expense leverage.
The Pacific segment recorded revenues of $1.35
billion, down 1% over the prior-year quarter due to lukewarm volume
growth and a flat price/mix. Constant currency revenues were flat
in the quarter.
The Pacific Group’s volume grew only 2% in the quarter, below
both prior-year and sequential levels. Volume growth in Thailand,
South Korea and Philippines was offset by sluggish growth in Japan
and China as the latter continues to see some economic slowdown.
Adjusted operating income was up 10% on a currency neutral basis to
$427 million in the quarter due to favorable geographic mix,
productivity gains and better operating expense leverage.
The Europe segmentrecorded revenues of $1.14
billion, down 6% over the prior-year quarter as volumes, price/mix
and currency declined in the quarter. Constant currency revenues
declined 4% in the quarter. Volumes declined 5% in the quarter.
Sparkling beverage volume declined 5% while still beverages went
down 3% in the quarter. Adjusted operating income improved 12% on a
currency neutral basis to $670 million due to better operating
expense leverage and tight cost management.
Annual Results
In fiscal 2012, the company witnessed a 3.0% increase in
revenues to $48.02 billion, slightly missing the Zacks Consensus
Estimate of $48.13 billion.
Adjusted earnings were $2.01 per share, which beat the Zacks
Consensus Estimate of $2.00 by a penny. Adjusted earnings increased
5.0% from the prior year.
Other Stocks to Consider
Coca-Cola currently carries a Zacks Rank #4 (Sell). Rival
PepsiCo, Inc. (PEP) will report on Feb 14. Some of
Coca-Cola’s bottling companies are currently doing well and have a
bright outlook. These include Coca-Cola FEMSA S.A.B de
C.V. (KOF) and Coca-Cola Enterprises Inc.
(CCE), both carrying a Zacks Rank #2 (Buy)
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
COCA-COLA FEMSA (KOF): Free Stock Analysis Report
PEPSICO INC (PEP): Free Stock Analysis Report
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