On Mar 26, we maintained a Neutral recommendation on cola giant, The Coca-Cola Company (KO), following mixed fourth-quarter results announced on Feb 12, 2013.
Why the Neutral Recommendation?
Coca-Cola’s fourth quarter 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 operating margin growth, which gained from two extra selling days and lower-than-expected currency headwinds. Revenues increased only 4% to $11.04 billion as benefits from volume growth was largely offset by a flat price/mix. The top-line results also marginally missed the Zacks Consensus Estimate of $11.54 billion.
Following the less than impressive fourth-quarter results, estimates largely moved downwards over the past 60 days. The Zacks Consensus Estimate for 2013 went down by almost 1% to $2.14 while that for 2014 declined 0.9% to $2.34 over the last 60 days. Accordingly, Coca-Cola carries a Zacks Rank #4 (Sell).
Moreover, a weak consumer spending environment and muted volume growth of its sparkling beverages (largely due to rising obesity concerns) remain persistent overhangs.
However, we have faith in Coca-Cola’s solid long term fundamentals. Coca-Cola enjoys a global reach, strong brand power, expanding presence outside the U.S. and boasts of a solid cash position. Moreover, the integration of Coca-Cola Enterprises, Inc.’s (CCE) Bottling business (bought in Oct 2010) and the company’s productivity initiatives are expected to result in significant cost savings, going forward.
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