The Coca-Cola Company (NYSE:KO) is set to announce its Q1 earnings on April 17. The company’s international operations especially those in China, Brazil, India and Turkey will continue to lead volume and revenue growth for the company. Gross margins should stabilize as the negative impact of higher commodity costs is expected to be lower in 2012, as compared to 2011. The company currently competes with companies like PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group (NYSE:DPS) and other local players. We estimate a $71 price for Coca-Cola, which is in line with the market price.

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Gross Profit Margins Should Stabilize

We do not expect any significant change in the gross profit margins for the company. Even though Coca-Cola expects the incremental cost of goods to be in the range of $350-$400 million for 2012 (the corresponding figure was $800 million for 2011), the company will benefit from revenue synergies with Coca-Cola Enterprises’ (CCE) North American bottling operations. The acquisition of CCE’s North American bottling operations will result in an annual revenue synergies of $350 million per year, according to the company.

Moreover, soft drink companies have been passing on the higher commodity costs to consumers. For example, in North American Carbonated Soft Drink (CSD), the total retail sales were $75.7 billion, up 2% over the previous year, in spite of a 1% volume decline.^[1]

Overseas Markets To Fuel Growth

Like most big companies, Coca-Cola is betting on emerging markets to fuel the company’s growth and it has a long history of penetrating such important markets. Soft drink volumes have slowed and are showing negative growth in the U.S. so the company is investing heavily in international markets, especially in countries where per-capita consumption is low. For example, in China, the company opened its 42nd bottling plant in March 2012. The company will eventually spend $4 billion in the country in next three years.^[2] CSD witnessed a 12% volume growth in China in 2011.

Similarly, Coca-Cola will invest a staggering $7.5 billion in Brazil through 2016 which includes sponsoring the country’s soccer World Cup in 2014 and the Olympics in 2016.^[3] Coca-Cola will also benefit from increased distribution in the Middle East and North African markets through Aujan industries, a company in which Coca-Cola agreed to buy 50% equity in 2011 in a deal worth $980 million.

The non-CSD portfolio’s volume proportion should continue to rise helped by increased presence internationally. Minute Maid was launched in Kenya, Tanzania and Uganda in 2011. Moreover, Coca-Cola plans to spend $100 million on its Aurburndale plant in Florida to expand production of its ‘Simply’ range of products (which fall under Minute Maid). The non-CSD segment or ‘still’ beverages as Coca-Cola terms them, contributed 25% to the overall volume in 2011. The corresponding figures were 24% and 23% in 2010 and 2009 respectively.

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