In the Spotlight - Coca-Cola Q3
The Coca-Cola Co's third-quarter earnings beat analyst expectations
For the three months to the end of September, profits were up by 8%, while operating profits increased by 9% to $2.34bn in the quarter and were up by 13% in the first nine months of the year, compared to the same periods of last year.
Third quarter net sales reached $8.43bn, a 5% increase on last year. Nine-month sales also increased by 5%, as global volume sales rose 5% in the quarter, ahead of the company's long-term target.
The firm's entire system is "strong and poised to grow and outpace competitors" an analyst told Bloomberg on Wednesday (20 October). "We believe Coco-Cola is in the early stages of a multi-year period of sales and profit expansion," CLSDA analyst Caroline Levy said. The Atlanta-based company's worldwide volume growth in the quarter not only shows that the entire system is strong, Levy added, but marked the ninth straight quarter that the company's volume growth has outpaced PepsiCo's overall volume, which includes its snack business.
"The quarter highlighted the breadth and depth of Coke's strength, and we see continued global share gains for the Red system," Levy said. Subsequently, she raised her target share price by $3 to $72.
Citigroup also raised it price target $3 to $65 with a 'buy' rating, basing the boost on Coca-Cola's optimistic 2010 outlook. "Coca-Cola's third-quarter beat leaves us more confident in its outlook for 2010," US beverages analyst Wendy Nicholson told SmarTrend.
Citigroup's Bruce Rolph and Kim Ta added: "For year-to-date it has delivered strong top-line growth - posting 5% global volume growth and reported sales growth ... . Even more impressively, Coca-Cola has delivered tremendous margin expansion so far this year, driven by productivity gains and positive mix shift ... . In addition, the company is set to buy back $2bn of stock in 4Q10, which should boost EPS in 4Q by 1-2%."
Sales in the company's Eurasia and Africa region grew 12% and the Pacific region was up by 11%. Latin America's 4% volume growth was a bit softer than expected, Credit Suisse analyst Carlos Laboy told Atlanta Journal Constitution, even though Brazil chipped in an impressive 13% growth rate. But, the company's volume growth in North America, thanks in part to Powerade's 32% growth, pleasantly surprised several analysts.
The world's largest soft drink maker has made turning around the ailing North American market a top priority. It has bought its largest bottler in the region, developed high-tech fountain machines, and introduced smaller can sizes.
"While management will wait to provide further 2011 detail until closer to year end, we believe that the investments made in the global business (including those in North America aside from the CCE bottling deal) put (Coca-Cola) in a solid position as the global economy slowly emerges from widespread macroeconomic difficulties," a Barclays analyst told StreetInsider.
"Furthermore, the $10.5bn in cash and cash equivalents along with another $2.6bn in short-term investments sitting on Coca-Cola's balance sheet should give it ample flexibility for 2011 and beyond, in our view," the analyst added.
Chairman and CEO Muhtar Kent said that Coca-Cola has continued to invest heavily in its brands in North America, to the tune of $2.5bn last year and 10% more than this figure in 2010. He added that his firm's deal with Coca-Cola Enterprises (CCE) will allow it to take its business in North America to "the next level".
Soft drinks consumption in North America has stalled in recent years and both Coca-Cola and PepsiCo have talked up their respective prospects in emerging markets like Russia, China and India. But, Kent said that the firm was coming back in its heartland.
"Investors don't fully appreciate the sustainability of what Coke is doing," Consumer Edge Research analyst Bill Pecoriello told Reuters. "Coke will have to continue to do this quarter after quarter into 2011."
He added: "If you couple a positive North America, which has been a drag on results for years, with very strong international growth, you have best-in-class (performance)," Pecoriello said.
But that goal is far from complete as Coca-Cola integrates the North American operations of CCE.
"I think we are in no way declaring victory," Kent said on the firm's earnings call. "We are in the process of stabilising and we are cautiously confident, even in the depths of the most severe crisis that we have had in North America."
Kent declined to say whether he believes that the increases will last.
"We feel our investments, our marketing, our brand health metrics are all in a good place," Kent told Reuters. "There is still a very challenging environment out there. With that, you will certainly see us outperform the industry."
Coca-Cola shares rose 0.42% or $0.25 to $60.25 at 11.16am EDT in New York trading on Tuesday.
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