Analysis - The Coca-Cola Co meets rather than beats expectations
Coca-Cola released its Q1 results yesterday
The good thing about lowered expectations is that they are much easier to exceed.
So while The Coca-Cola Co may not have been happy with its roundly disappointing final quarter of 2013, it did lay the groundwork for a breakout of relative optimism from analysts as they digested yesterday's first quarter numbers.
In a note titled “With lowered expectations meet is the new beat”, Wells Fargo's Bonnie Herzog today (16 April) said that despite its challenges, Coca-Cola still proved its ability to hit Wall Street estimates.
“(For 2014), we see several catalysts that could potentially allow Coca-Cola to continue to surpass the Street's lowered expectations, and return to its long-term growth algorithm,” Herzog said, citing an upcoming flow through of the company's full marketing budget that was highlighted by CEO Muhtar Kent yesterday.
Herzog also pointed to strong growth in key developing markets such as India and China, where volumes spiked by 6% and 12% respectively.
Stifel's Mark Swartzberg, meanwhile, was surprised that Mexico’s volumes were down low single digits - as far as he was concerned they should have dropped lower. A new excise tax in the country has pushed retail prices for regular CSDs up by 12-15%, affecting all companies operating in the market. Swartzberg called Mexico an “important watchpoint for the balance of the year,” suggesting that the better-than-expected performance in a region that accounts for 13% of Coca-Cola's global volumes is a positive sign.
Despite the silver linings, there were still troughs of pessimism. After all, as the Financial Times reported yesterday, Q1's 1% decrease in global sparkling volumes was Coca-Cola's first decline in the category for 15 years.
Europe's overall volumes were down 4% and Swartzberg predicted there will be continued pressure on North America's per-case profits as data showed that pricing on CSDs in the region was down low-single digits following a similar drop over last year.
Herzog, who said the fall in sparkling volumes bodes ill for Dr Pepper Snapple Group and its high exposure to the category, also warned that Coca-Cola's strong stills performance (+8% volumes) cannot yet make up for CSD declines.
But she added: “We continue to believe that Coca-Cola is well positioned to gain volume/value share, as it was able to this quarter.”
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