Coca-Cola Loses Its Fizz On Bad Weather, Slower Emerging Markets Growth

+5.92%
Upside
61.18
Market
64.80
Trefis
KO: The Coca-Cola Company logo
KO
The Coca-Cola Company

The Coca-Cola Company (NYSE:KO) reported lower second quarter earnings this Tuesday on bad weather and slower growth from emerging markets. The company reported a decline of 3% in net operating revenues and 2% in operating income. Worldwide sales volume grew modestly by 1% as growth from the emerging markets slowed down considerably and continuing weakness in the sparkling category in North America and Europe weighed heavily on the company. Volume growth primarily came from juices, packaged water and ready to drink teas as still beverages led the charge for the company. Reported earnings per share (EPS) for the quarter at $0.59 declined 3% y-o-y. However, EPS adjusted for one-time items stood at $0.63 per share, up 4% y-o-y. [1]

See Our Complete Analysis For Coca-Cola

Slower Volume Growth

Relevant Articles
  1. Should You Pick Coca-Cola Stock At $60 After Q4 Beat?
  2. Down 10% This Year Is Coca-Cola Stock A Better Pick Over AbbVie?
  3. What’s Next For Coca-Cola Stock After 4% Gains In A Week Amid Q3 Beat?
  4. Down 15% This Year Will Coca-Cola Stock Rebound After Its Q3?
  5. Which Is A Better Beverage Pick – Coca-Cola Stock Or Monster Beverage
  6. Pricing Actions To Bolster Coca-Cola’s Q2?

Coca-Cola’s second quarter earnings were negatively impacted by slower worldwide volume growth. Sales volume declined in North America and Europe while growth from emerging markets slowed down considerably. The company blamed cold and wet weather in North America and Europe, early monsoon in India and a slower global economy for the slowdown in volume growth. Although Coca-Cola claims to have gained volume share worldwide, the company’s performance in some of its key markets was not encouraging at all. The beverage giant reported flat volumes in emerging markets such as China and Brazil while its sales volume from Japan and Mexico inched higher by just 1%. These are very important markets for the company as they contribute more than 30% to its global sales volume.

More importantly, the scenario in developed markets is getting worse for Coca-Cola. Declining soda consumption in these markets due to obesity and diabetes concerns is weighing heavily on the company. Coca-Cola’s revenues from the North America region, which makes up almost 45% of its total revenues, declined 1% due to a sharp 4% decline in sparkling sales volume. However, the company is confident of a better second half with improved weather conditions and increased marketing.

Still Beverages Lead

Coca-Cola reported flat sparkling sales volume during the quarter however and 6% in volume growth in still beverages worldwide helped the company report a consolidated volume growth of 1%. Still beverages sales volume was boosted 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 that is sold in more than 56 countries and generates sales revenues of more than $600 million. Coca-Cola also reported strong growth from ready to drink tea and packaged water categories. The company’s Gold Peak, Honest Tea and Fuze Tea brands did well to grow its ready to drink tea sales volume by 10% during the quarter. Coca-Cola was also able to grow its energy drinks and juices and juice drinks volumes by 5% and 4% respectively.

Currency Headwinds

Coca-Cola operates in all but two countries worldwide generating ~60% of its revenues from international markets. This exposes the company to significant currency risk. The strengthening U.S. dollar dragged down Coca-Cola’s comparable net revenues by 2% and operating income by 3% during the quarter. The company now expects currency headwinds to reduce full year operating income by 4% up from an earlier estimate of 2%.

Our $39 price estimate for Coca-Cola will soon be updated based on the latest developments.

Understand How a Company’s Products Impact its Stock Price at Trefis

Notes:
  1. The Coca-Cola Company Reports Second Quarter Results, coca-colacompany.com []