Back to top

Analyst Blog

Zacks Equity Research

Coca Cola at Neutral, Yet Again

KO PEP

 ZacksTrade Now

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On May 23, we maintained a Neutral recommendation on cola giant, The Coca-Cola Company (KO - Analyst Report), following decent first-quarter results announced on Apr 16, 2013. However, muted volume trends of carbonated beverages concern us. Coca-Cola carries a Zacks Rank #3 (Hold).

Why the Neutral Recommendation?

Coca-Cola’s first-quarter 2013 earnings of 46 cents per share beat the Zacks Consensus Estimate by a penny. Moreover, earnings grew 5% year over year as revenue decline was offset by significantly improved margins.

Revenues declined 1% as benefit from volume growth was offset by currency headwinds, structural changes and two fewer selling days in the quarter. Volumes grew 4% in the quarter, better than last quarter’s 3% growth. While still beverage volumes grew, those of sparkling beverages declined.

Gross margins expanded 80 basis points (bps). Operating margin grew 70 bps year over year and 200 bps sequentially gaining from gross margin expansion and improved operating expense leverage.

Overall, it was a good quarter for Coca-Cola. Following the decent first-quarter results, estimates mostly moved upwards over the past 60 days. The Zacks Consensus Estimate for 2013 increased by almost 1% to $2.16 while that for 2014 increased 0.4% to $2.35 over the same period.

Moreover, we are encouraged by Coca-Cola’s global reach, strong brand power, expanding international presence, powerful global bottling network and its solid cash position.

However, sluggish volume trends of its soft drinks are a concern. Changing consumer preferences, increasing health consciousness, rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting the company’s sparkling beverage sales.

Though Coca-Cola has increased marketing investments and is driving package and product innovation to boost its carbonated beverage business, we prefer to wait until we see a substantial turnaround. The continuously challenged consumer spending environment is another negative factor.

Other Stocks to Consider

Rival PepsiCo, Inc. (PEP - Analyst Report) carries a Zacks Rank #2 (Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%