Coca-Cola Delivers Mixed Results As Higher Margins Are Offset By A Strong Dollar

by Trefis Team
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Coca Cola
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Coca-Cola Co (NYSE:KO) reported its Q3 earnings as revenues were hurt by a strong US Dollar. Currency knocked off 5 percentage points from its top-line. Total revenue for the quarter rose 1% to $12.34 billion. Net income for the quarter stood at $2.31 billion or 50 cents a share, up from $2.22 billion or 48 cents a share from a year earlier. Total volume was up 4% helped by a 10% still beverage (or non-carbonated beverage) volume gain. [1]

See our full analysis for Coca-Cola

Commodity Relief

The beverage giant now expects the incremental cost of raw materials to be around $225 million; down from the previous forecast of $300 million. At the start of the year, Coca-Cola had forecasted the figure to be in the region of $350-400 million. Not surprisingly, the gross margins improved to 60.7% from 60.2% in the previous year quarter. However, in the first nine months of the year, the margins are still down 0.5% to 60.5% and therefore we expect a slight decline for the full year margins.

China Disappoints

Coca-Cola disappointed in China as its volumes grew only 2% in the country, down from 7% in the second quarter. The company even opened its 42nd bottling plant at an investment of $160 million in the country, but that could not prevent the volume growth to slow down in a cooling economy.

On the other hand, Coca-Cola continued to perform strongly in India, Thailand and Russia. In India, the volumes rose 15% helped by its flagship drink Coke, which surged 34%. The volume gains made by Coca-Cola in India echo well with its decision to pour in additional $3 billion (and a total of $5 billion) in the country by 2020. Similarly, Russian and South African volumes grew 7% while Thailand’s volumes surged 19%.

Mixed Bag for Developed Markets

North American pricing continued to remain strong as the company was able to realize a price/mix benefit of 3%. Overall, volume in North America grew 2%. The negative repercussions of a strong Dollar were most evident in Europe where the currency had a 7% impact on the region’s revenues. Volume grew 1% but most of it was attributable to the gains made in Eastern and Central Europe where the prices are lower, something which hurts the revenue. Reported revenue for Europe declined 8%.

We estimate a $38 price for Coca-Cola, but we are in the process of revising our estimate in order to incorporate the Q3 earnings.

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Notes:
  1. KO 8-k []
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