Coca-Cola (KO) reported strong first-quarter 2012 results Tuesday that revealed 5% global volume growth with expansion across every geographic operating group. Though we liked the performance during the period, we see no reason to change our fair value estimate on the firm at this time.
The world’s biggest drink maker’s first-quarter net revenue advanced 6%, and the firm leveraged that sales expansion into operating-income growth of 10%. The revenue expansion was driven evenly by concentrate sales and positive pricing. However, currency-neutral operating income grew in line with the pace of sales as the company faced difficult comparisons with respect to commodity costs in the quarter. Earnings per share came in at $0.89 in the quarter (consensus was at $0.88), with cash from operations advancing roughly 8%.
Coca-Cola’s worldwide volume numbers stood out as the major positive in the period. Volume growth was solid around the world: North America (up 2%), Japan (up 3%), Germany (up 3%), India (up 20%), China (up 9%), and Brazil (up 4%). Brand Coca-Cola continues to fire on all cylinders, with decent growth in many developed markets and superb expansion in the BRIC regions (Brazil, Russia, India, and China). The company’s packaged water volume and energy drinks volume increased 15% and 25%, respectively, during the period.
All things considered, we liked Coca-Cola’s performance and view its volume strength in North America as indicative of ongoing resilience in the US economy. However, we remain on the sidelines with respect to the firm’s shares on the basis of valuation.