The Coca-Cola Company (NYSE:KO) announced strong first quarter earnings featuring 4% consolidated volume growth, led by its flagship brand Coca-Cola which sold 3% more in number globally as compared to the same period last year. Emerging markets fueled growth of its International business for which volumes were up 5% y-o-y. Still beverage category continues to outperform as volume growth from the category stood at 6% as compared to 3% y-o-y growth in sparkling beverages. First quarter reported net revenues and operating income declined 1% and 4% respectively primarily due to foreign currency fluctuations. However, comparable currency neutral net revenues and operating income grew 2% and 5% respectively despite two fewer selling days. 
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Emerging Markets Fuel International Business Growth
Coca-Cola delivered strong 5% volume growth in its International business driven by growth in key emerging markets, including Thailand (up 18%), India (up 8%) and Russia (up 8%) while volumes in Mexico and Brazil grew by 3% y-o-y. Volumes from Eurasia and Africa division of the company that reports operating results from Middle-East and African countries grew by handsome 15%. Volume growth from the division was helped by the company’s partnership with Aujan Industries, one of the largest independent beverage companies in the Middle East. Aujan sells one of the leading juice brands in the middle east, Rani which is sold in more than 56 countries and generates sales revenues of more than $600 million.
Strong volume growth of 7% was also reported from countries with per capita consumption of the company’s brands less than 150 8-ounce servings per year, reflecting increased penetration of the company’s brands in these markets. The fact that Coca-Cola’s International business is being able to post significant volume gains despite continued weakness in Europe where consumer spending remains subdued due to macroeconomic uncertainties is very encouraging because it bolsters the company’s long-term growth outlook if we assume that current macroeconomic headwinds will turn into tailwinds going forward.
Sparkling Sales Growth Underline The Global Strength Of The Coca-Cola Brand
Sparkling beverages volume grew slower than still beverages category in all the reported regions of the company and even continued their decline in the North American markets (down 1%) amid rising heath consciousness and increasing awareness of obesity and other health related issues associated with carbonated beverages. However, a world-wide volume gain of 3% in the category underlines the strength of its flagship brand, Coca-Cola. Extensive marketing campaigns by the company around this brand across the globe coupled with ‘value-meal’ promotions helped the brand’s world-wide volumes grow by 3% y-o-y. The brand’s volume gains were specifically impressive in emerging markets with huge consumer bases, such as India (up 30%), Russia (up 15%) and China (up 6%).
Slowdown In China Impacting Volume Growth
The Slowdown in China’s economy reflected in marginal 1% volume growth from the country. China’s economic output in terms of GDP grew just 7.7% for the first three months of this year, below the 7.9% growth clocked in the last quarter of 2012. The country’s annual GDP grew by 7.8% during 2012, which was the slowest pace of growth it has seen since 1999.  The impact of the slowdown in China’s economic growth on the company’s results becomes clearer when we consider that the company’s volumes form China grew by 13% in 2011 and just 4% y-o-y in 2012, and in this quarter the volume growth has slowed down to just 1% y-o-y. While, a part of the slowdown in volume growth can be attributed to higher competition in the country is not being ruled out, however slower growth in consumption rates in the country should worry Coca-Cola investors since China is among the four largest International markets for the company, the other three markets being, Mexico, Brazil and Japan. These four markets accounted for more than 30% of the global unit case volume sold by Coca-Cola in 2012.
We estimate a $37 price for Coca-Cola, which will soon be revised based on the the company’s Q1 earnings release.
- Coca-Cola Reports Solid 4% Global Volume Growth In First Quarter, www.coca-colacompany.com [↩]
- China’s Q1 GDP Growth Slows Unexpectedly to 7.7%, www.cnbc.com [↩]