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Will Coca-Cola Do Better in 2014?

Zacks Equity Research

On May 15, 2014, we issued an updated research report on The Coca-Cola Company (KO).

The Coca-Cola Company started 2014 on a positive note — beating the Zacks Consensus Estimate for first-quarter revenues (results announced on Apr 16) while meeting earnings expectations on slight volume gain.

In fact, this is the first time in the past six quarters that Coca-Cola has beaten the Zacks Consensus Estimate for sales helped by better pricing and volume growth. Earnings grew 5% year over year on a constant currency basis as positive price/mix gains, strong developing market volumes and cost control made up for higher marketing costs.

Changing consumer preferences, increasing health consciousness, rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting the sales of carbonated beverages of Coca-Cola as well as other soft drink makers like PepsiCo, Inc. (PEP) and Dr Pepper Snapple Group, Inc. (DPS). In fact, CSD category headwinds resulted in lower-than-expected volume 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, especially 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. In fact, management announced at the first-quarter conference call that only 5% of its total incremental marketing spend for 2014 was deployed in the first quarter. It expects to ramp up both quality and quantity of its marketing spend in the remaining quarters which should drive better volumes.

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 #3 (Hold). A better-ranked beverage stock is its Western European bottler Coca-Cola Enterprises, Inc. (CCE) carrying a Zacks Rank #2 (Buy).

Read the Full Research Report on CCE
Read the Full Research Report on KO
Read the Full Research Report on DPS
Read the Full Research Report on PEP

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