On Mar 27, 2014, we issued an updated research report on The Coca-Cola Company (KO).
On Feb 18, the beverage company reported another dull quarter, missing the Zacks Consensus Estimate for revenues and only managing to meet earnings expectation as the U.S. beverage sales slowed down.
Coca-Cola’s fourth-quarter 2013 adjusted earnings of 46 cents per share grew 7% year over year as strong gross margin and lower taxes made up for soft revenues and higher marketing costs. Revenues declined 4% year over year due to soft global volumes.
Changing consumer preferences, increasing health consciousness, rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting sales of carbonated beverages of Coca-Cola as well as other soft drink makers, PepsiCo, Inc. (PEP) and Dr Pepper Snapple Group, Inc. (DPS). In fact, CSD category headwinds led to lower-than-expected volume performance at Coca-Cola in 2013. Overall, the company’s revenues and profits in 2013 fell short of management’s expectations.
Despite the 2013 headwinds, management aims to accelerate growth in 2014 — “the year of execution.” In 2014, the company plans to accelerate growth of sparkling beverages, led by the Coca-Cola brand. The company has increased marketing investments and is driving package and product innovation to boost its sparkling beverage volumes. Moreover, the company will expand its still beverage portfolio and increase its brand building investments to enhance volume growth.
Coca-Cola enjoys sound long-term fundamentals with its global reach, strong brand power, expanding international presence, powerful global bottling network and solid cash position. Moreover, its increased focus on product/packaging innovation and marketing strategies bode well for additional market share gains.
Other Stocks to Consider
Coca-Cola carries a Zacks Rank #4 (Sell). A better-ranked beverage stock is Monster Beverage Corporation (MNST), carrying Zacks Rank #2 (Buy).