Coca-Cola Posts Fourth-Quarter Results; Focus Remains on Controlling Costs

On Tuesday, Coca-Cola (KO) reported solid fourth-quarter results that showed strength across all of its major geographic operating groups. We will be revisiting our valuation model for the concentrate maker, but we don’t expect to make a material change to our $65 fair value estimate.

Fourth-quarter net revenues jumped 5% (6% excluding currency), as global volume advanced 3% in the quarter driven by solid international volume expansion of 4% (North America volume grew 1%). Coca-Cola noted that it grew value share in NARTD (non-alcoholic ready-to-drink) beverages across most of its beverage categories. Brand Coca-Cola’s volume increased 3%, with expansion coming from around the world – 33% growth in Thailand, 15% growth in India, 13% growth in China, etc. Worldwide still beverage volume advanced 8% in the quarter, led by ready-to-drink teas, juices and juice drinks, energy drinks, etc. The firm highlighted Minute Maid Pulpy, which experienced 20% growth in 2011, as a key source of strength. We continue to be fans of Coca-Cola’s ability to drive global volume growth despite the well-documented macroeconomic concerns around the world. 

On a currency-neutral basis, the firm’s comparable operating income in the quarter advanced 14%, while fourth-quarter comparable earnings per share came in at $0.79, up 10%. On a reported basis, cost of goods sales advanced 3% (less than the pace of sales growth), while SG&A fell during the quarter. We were pleased to see that management is effectively controlling rising input costs and applaud the company’s newly-launched global productivity initiative, which aims to save an incremental $550 million to $650 million by the end of 2015. Cash from operations was impressive, coming in at $9.5 billion, and we expect the firm to continue to return cash to shareholders in the form of a healthy dividend and share buybacks. Coca-Cola is targeting net share repurchases of $2.5 billion to $3 billion for this year.