Coca-Cola Delivers Strong Results Buoyed by Worldwide Volume Growth

Coca-Cola Co (NYSE:KO) delivered strong results helped by impressive volume growth in developing countries and strong pricing in the North American region. Revenues for Q1 stood at $11.1 billion, up 6% from the same quarter in the previous year. Operating income grew 10% to $2.5 billion whereas the net income rose 8% to $2.06 billion. The company currently competes with companies like PepsiCo (NYSE:PEP) and Dr Pepper Snapple Group (NYSE:DPS) and other local players. We have a revised $74 price estimate for Coca-Cola, which is in line with the market price.

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Emerging Markets Continue to Deliver

Worldwide volume for Coca-Cola grew 5% helped by a 20% growth in India, 24% in Thailand, 9% in China and 10% in South Africa. Coca-Cola continues to invest heavily in China with plans to invest $3 billion in the country in the next three years. Recently, the company also opened its 42nd bottling plant in the country. Coca-Cola also acquired a 50% stake in Aujan industries in 2011 for $980 million which will see the company having a greater presence in the Middle East and North African markets. The move is already beginning to reap benefits as the volume grew 14% in the region.

We expect the namesake beverage Coca-Cola to gradually increase its market share in the international soft drink markets as the company continues to go deeper into the developing regions. Investments in developing markets focus mostly on setting up new plants to increase capacity, marketing investments and expanding distribution networks. Just to emphasize that point, the company added more than 1.2 million new pieces of cold drink equipment in 2011.

Strong Pricing in North America

Net revenues rose 5% in the North American region whereas the volume grew only 2%. Most beverage companies are struggling to generate volume growth in the U.S. and hence increase their prices periodically to maintain profitability. Compared to same quarter in the previous year, soft drink volume grew 1% whereas the still beverage volume grew by an impressive 6%, with Powerade leading the pack with 13% volume growth.

The focus is clearly on still beverages (or non-CSDs) as consumers switch from traditional soft drinks to healthier alternatives such as juices, sports drinks, water mixers, Ready-to-Drink (RTD) teas, among others. While the soft drinks will continue to generate profits due to their strong pricing, volume growth for Coca-Cola will come from non-CSDs.

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