The market cheered for Coca-Cola’s Q1 results
City Index April 16, 2014 8:55 PM
<p>Following something of a beating on global equities over the past week or so, partly driven by jitters over potentially stretched valuations, investors are now […]</p>
Following something of a beating on global equities over the past week or so, partly driven by jitters over potentially stretched valuations, investors are now focused on quarterly results, as the earnings season kicks into full gear.
The market found reason to cheer yesterday (15th April), as beverage heavyweight Coca-Cola released its first quarter earnings.
The company reported a 4% decline in revenue at around $10.6bn (up 2% on a comparable currency basis), which was roughly in line with expectations.
Operating profit came in at $2.4bn, that’s a 1% decline over the previous year, though up 7% on a comparable currency basis. Net income for the period was $1.63bn, down from $1.8bn the prior year.
Can Coca-Cola’s earnings be seen as positive?
Now, these numbers are hardly impressive but, given the challenges faced by the company, nuggets of Coca-Cola’s report point towards reasons for optimism.
The impact on Coca-Cola as a result of consumers’ increasing emphasis on health has been widely discussed. That on-going shift has translated into declining demand for carbonated soft drinks in developed markets (notably in the US).
A pickup in other regions to help offset sluggish growth in developed markets, therefore, is a good thing.
Indeed, while sales volumes declined 1% in developed markets, global sales volumes grew 2% in the quarter. That was helped by an overall 3% growth in emerging markets – driven by a decent rise in China (up 12%) and Brazil (up 4%). Meanwhile, India and Russia both grew 6%.
On a portfolio level, the company’s efforts to bulk up its still beverages (such as juices and sports drinks) are seemingly paying off, with global sales volumes up 8% – that’s in contrast to a 1% decline in sparkling beverages.
Looking ahead, the company cites adverse foreign currency movements as likely to pose a challenge. That’s not entirely surprising – it’s not the only company with a global footprint to have noted that issue.
But Coca-Cola looks poised for revived growth in the long term
That’d be helped – in part – by investments, such as the company’s commitment to add an additional $400m to its marketing kitty this year.
Furthermore, Coca-Cola has sufficient firepower to further broaden its portfolio via acquisitions. It’s done it before: in February, for example, the company purchased around a 10% stake in Green Mountain Coffee for some $1.3bn.
So, contrary to some headlines questioning yesterday’s positive reaction, there’s reason to be upbeat. Of course, it looks somewhat different with short-term goggles on.