Coca-Cola Co.’s (KO) third-quarter GAAP earnings grew 7.8% to $2.1 billion from $1.9 billion in the year-ago quarter. Excluding special items, adjusted earnings per share came in at 92 cents, which surpassed both the Zacks Consensus Estimate of 89 cents as well as the year-ago result by 12%. The better-than-expected results were driven by volume growth and improved margin performance.
Quarterly Details
During the quarter, Coca-Cola’s net revenues rose 4.7% to $8.4 billion from $8.0 billion in the year-ago period. Revenues were also well above the Zacks Consensus estimate of $8.2 billion. Growth was mainly attributable to a 7% increase in concentrate sales, and 1% favorable impact of price and mix. Global unit case volume increased 5% in the quarter, driven by a 6% improvement in international unit case volume.
Geographically, the Eurasia & Africa division witnessed volume growth of 12% year-over-year led by Russia, which surged 30%, while Turkey, Southern Eurasia and East and Central Africa posted double-digit volume growth. The Latin American segment volumes increased 4% driven by Brazil (13%). The Pacific region recorded volume growth of 11%, led by Philippines, Korea, China and Japan. However, overall volume growth was partially offset by a modest 2% growth in North America, while Europe recoded flat revenue growth.
Coca-Cola’s gross profit during the quarter increased 7.8% year-over-year to $5.5 billion, while gross margin rose 184 basis points (bps) to 65.3% due to favorable currency translations and reduced commodity costs. Selling, general and administrative expenses, as a percentage of net revenues, increased 16 bps to 36.4%, the increase was driven by investment on the company’s bottling operations. The operating margin rose 109 bps to 27.8%.
Balance Sheet, Cash Flow and Share Repurchase
Coca-Cola exited the quarter with $10.5 billion in cash and a long-term debt-to-capitalization of 13.6%. During the first half of 2010, the company generated $7.2 billion of cash from operations and deployed $3.0 billion towards dividends and $2.7 billion towards investments. The company expects to repurchase approximately $2 billion worth of shares in fiscal 2010.
Zacks Rank
Coca-Cola is the world’s largest producer and marketer of beverages and commands a formidable portfolio of globally recognized brands. Coca Cola shares maintain a Zacks #3 Rank, which translates into a short-term Hold recommendation. The company successfully completed the acquisition of its North American biggest bottler in an effort to compete effectively with arch-rival PepsiCo (PEP).
Moreover, the company is also undertaking initiatives to boost productivity, streamline cost structure and reduce leverage, which augurs well for future operating performance. However, sluggish volume trends in Europe, intense competition and exposure to adverse fluctuations in commodity prices and foreign currency undermines the company’s future growth prospects. Our long-term recommendation on Coca-Cola is Neutral.
