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We have maintained our rating on The Coca-Cola Company (KO - Analyst Report) with a target price of $81.00 following appraisal of first quarter 2012 results.

The Coca-Cola Company delivered adjusted operating earnings of 89 cents per share in the first quarter of 2012, beating the Zacks Consensus Estimate by a penny. Earnings were also above the prior-year adjusted earnings of 86 cents per share driven by strong revenue and volume growth which made up for margin declines.

In the quarter, net revenues increased 6% year over year to $11.1 billion, benefiting from an increase in concentrate (syrups, powders etc used in finished beverages) sales and positive price mix (3%). The results were above the Zacks Consensus Estimate of $10.8 billion.

The cola giant witnessed volume growth (unit case volume) of 5% in the reported quarter with gains in all geographic regions as well as across all non-alcoholic ready-to-drink (NARTD) beverages, whether sparkling (NARTD with carbonation) or still (NARTD without carbonation).

Read our full report at Coca-Cola Beats on Volume.

Headquartered in Atlanta, Georgia, The Coca-Cola Company is the largest global producer and marketer of beverages. Coca-Cola has a formidable portfolio of globally recognized brands. Coca-Cola markets four of the world's top five nonalcoholic sparkling beverage brands, including Coke, Diet Coke, Sprite and Fanta, thus boasting of a high level of consumer acceptance.

Similarly, the company also commands a leading place in the juices or still beverages category, with its flagship brands such as Minute Maid, Simply and POWERade. Moreover, the company possesses one of the largest distribution networks in the world which gives it a huge competitive advantage.

As the developed markets are nearing saturation, Coca-Cola is showing keen interest in the emerging markets of India, Russia and China encouraged by the high-growth nature of these countries. Currently, 43% of the company’s business is being generated in the developed markets (US, Western Europe, Australia, Japan), 37% in developing nations and 20% in the emerging markets.

Management believes that due to the higher growth rates in the emerging and developing markets, each of these geographic segments will contribute 33% of the company’s business by the end of 2020.

Coca-Cola is undertaking various productivity initiatives to streamline its cost structure and boost profitability. In 2011, the company successfully completed its four-year productivity program, with annualized savings of over $500 million.

Further, in February 2012, Coca-Cola launched a four-year productivity and reinvestment program which is expected to generate incremental annualized savings of $550 million to $600 million phased over a four-year period starting in 2012 through the end of 2015. The savings will be used towards further brand building and help mitigate the negative impact from commodity costs, thereby boosting long-term profitability.

The acquisition of North American bottling business from Coca−Cola Enterprises Inc. (CCE - Analyst Report) is expected to generate synergies of at least $350 million in the next four years.

Despite the benefits, we prefer to remain on the sidelines due to the company’s contracted margins which are being continuously hurt by commodity cost inflation. Moreover, Coca-Cola needs to ramp up its advertising spending to match up competitor PepsiCo Inc.’s (PEP - Analyst Report) increased focus on North American beverages. An overall weak macroeconomic environment, still strained consumer discretionary spending, changing consumer preferences, and increasing health consciousness also create headwinds.

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