The Coca-Cola Company’s (NYSE:KO) third quarter earnings came out largely on expected lines, with a moderate 2% worldwide volume growth which was primarily driven by the growing consumption in emerging markets. On the other hand, macroeconomic headwinds and changing consumer preferences against carbonated soft drinks (CSDs) continued to weigh on the company’s performance in the developed world.
The growth in consolidated sales volume was also coupled with a 2% pricing/mix gain, which primarily came from Coca-Cola’s Europe and Latin America operations. The company also did well in the fast-growing still beverage categories in North America that helped it offset the declining consumption of fizzy drinks. Coca-Cola’s third quarter earnings per share (EPS) adjusted for one-time items grew by 4% y-o-y, despite an ~5% currency headwind. 
Coca-Cola is the world’s leading beverage company, selling more than 500 sparkling and still brands. The company sells non-alcoholic beverages in nearly every category – sparkling beverages, water, enhanced and flavored water beverages, tea, coffee, juice, sports beverages and energy drinks. Led by Coca-Cola, its most valuable brand, the company’s portfolio features 16 billion dollar brands including Diet Coke, Fanta, Sprite, Coca-Cola Zero, Vitaminwater, Powerade, Minute Maid, Simply, Georgia and Del Valle.
We currently have $45 price estimate for Coca-Cola, which we will soon update based on the third quarter earnings announcement.
Coca-Cola operates in all but two countries worldwide, generating about 60% of its revenues from international markets. Such broad geographical presence has greatly helped the company amid declining consumption of CSDs in the U.S. Emerging and developing markets where per capita consumption of CSDs is much lower compared to the developed markets and income levels are rising rapidly, provide a huge growth opportunity for the company.
Coca-Cola’s third quarter volume growth primarily came from its Eurasia & Africa and Pacific divisions that operate in the Middle East, African and Asia-Pacific countries. The company’s 9% volume growth in China was a great improvement from almost flat performance during the first half. Coca-Cola also reported strong volume growth in Vietnam, Thailand and India. However, it could partially be attributed to increased marketing and promotional activities in the region, as pricing/mix was down 3% in the Pacific division. 
On the other hand, sales volume declined by 1% in Europe and remained flat y-o-y in Latin America. However, those figures look impressive when we take into account the pricing gains realized by the company in these regions. Coca-Cola realized hefty 8% and 12% price/mix gains in Europe and Latin America respectively, which translated into higher net revenues and operating income adjusted for currency fluctuations and one-time items.  The fact that the company was able to largely sustain its sales volume in these markets despite such pricing gains, instills the faith in its branding prowess. Overall, we believe that Coca-Cola was able to balance its international business really well between volume gains in some regions and pricing in others, to drive sustainable top and bottom line growth during the quarter.
A stable performance in North America amid the ongoing soda slump helped Coca-Cola sustain the growth delivered by its international business. While the company’s sparkling volume remained flat in North America during the third quarter, its still beverages grew 5% y-o-y on balanced growth from all the categories. Coca-Cola rode on its popular brands to deliver strong growth in the fast-growing ready to drink tea category. The company’s Gold Peak, Honest Tea and Fuze Tea brands did well to grow its sales volume by double digits during the quarter. Coca-Cola also performed well in other still beverage categories such as juices, packaged water and energy drinks. The company reported volume growth of 5% and 4% respectively in packaged water and juices categories.  Coca-Cola’s strong performance in the fast-growing still beverage categories underpins the company’s capability to sustain its market leadership in the North American beverage industry in the long run, despite the aggravating decline in soda consumption.Notes:
- The Coca-Cola Company Reports Third Quarter and Year-To-Date 2013 Results, coca-colacompany.com [↩] [↩] [↩] [↩]