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Coca-Cola (KO) |
HenryTo
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 Posted: Tue Feb 09, 2010 2:39 pm Post subject: Coca-Cola (KO) |
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Morningstar's latest earnings note for KO:
| Quote: | | Our thesis for Coca-Cola KO remains intact following the release of fourth-quarter results, which support our view that the company has not lost its sparkle in emerging markets, but North America continues to be challenging. We are maintaining our fair value estimate. Fourth-quarter revenue grew 4% year over year, after adjusting for favorable currency movements and fewer selling days versus the prior-year quarter. The fourth-quarter operating margin, adjusted for one-time charges, slipped 50 basis points to 25% because of elevated cocoa and sugar prices and higher pension expense. Although the price of cocoa has eased in rec ent weeks, any rebound in global consumer demand could again force commodity prices higher, and we expect Coke to face a more unfavorable cost environment in 2010. Coke's fourth-quarter results highlighted the continuing disparity in the firm's performance between emerging and developed markets. Unit case volume increased 29% in China and 20% in India, but fell 2% in North America. We expect these trends to continue throughout the year. Coke's investment of $2 billion in China over three years should allow the company to expand its distribution footprint in this key market for several years to come. On the other hand, flat industry consumption and the migration of consumer tastes toward noncarbonated drinks in North America are creating long-term threats to Coke's performance. In the near term, we think PepsiCo's PEP bottler acquisitions may give it an advantage in its route to market, and this may add to Coke's woes in North America in 2010. |
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HenryTo
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| Posted: Tue Jul 19, 2011 11:39 am Post subject: |
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Morningstar on KO's 2Q earnings:
http://quicktake.morningstar.com/Stocknet/387559/coke-beats-in-2q-but-sets-too-ambitious-pricing-targets-in-north-america-shares-fairly-valued.aspx?symbol=KO
| Quote: | Coca-Cola KO narrowly beat our expectations for the second quarter, thanks to another very strong performance in international markets, but the results have no impact on our valuation. However, the slowdown in North America will raise some eyebrows, as consumers appear to be retrenching once again, and we think this will prevent Coke from achieving its ambitious pricing targets for the second half of the year.
Second-quarter revenue, adjusted for the asset swap with Coca-Cola Enterprises CCE, the benefit of cross-licensed brand volume (primarily Dr Pepper DPS brands), and foreign exchange, grew more than 7% year over year, driven by a 6% increase in concentrate sales and a 1% impact from higher prices and product mix. This was a slight acceleration from the first quarter, with growth primarily driven, once again, by emerging markets. Volume grew 7% in the Pacific and the Eurasia and Africa segments and 6% in Latin America. In China, volume grew a staggering 21%, despite cycling double-digit growth in the second quarter last year. Coke's $2 billion investment in China is paying off, as expanded distribution and greater points of sale are driving this growth. However, the Pacific segment's growth rate may slow in the third and fourth quarters, as we think the replenishing of inventories in Japan may have temporarily boosted second-quarter volumes. We expect to see similar trends in Asia from PepsiCo PEP when it reports earnings Thursday. The mid- to high-single-digit growth rates in international markets continue to support our thesis that Coke is a solid emerging-markets play. Its heavy investment in infrastructure in Asia and Africa should allow the company to increase volume for several years to come, while Latin America should also be an important, if inconsistent, driver of volume and value growth.
As we said in our first-quarter earnings note, there are risks to the recovery in North America, and this played out in the second quarter. Internal volume was flat, but Coke did manage to raise prices 1%-2% during the quarter. Management reiterated its commitment to raising prices 3%-4% during the second half of the year, a target that we believe will prove to be too optimistic unless gas prices remain off their highs and the unemployment picture begins to improve. Elevated packaging costs and hedges already in place mean that Coke will probably face above-average input costs for the remainder of the year, but we doubt consumers will be willing to swallow the higher costs, given that the pressures on low-income consumers remain heavy. With Pepsi refocusing on the flagship Pepsi brand, we believe the competitive environment will prevent Coke from achieving its pricing targets and the firm will be forced into heavy promotional discounts that could wipe out the price increases.
The acquisition of the North American bottling operations drove a 700-basis-point decline in the second-quarter operating margin. Although Coke reiterated its target of $110 million-$140 million in operating cost synergies from the bottler acquisitions in 2011 (less than 1% of operating costs), its exposure to commodity costs is likely to be a headwind in the second half of the year. We may slightly increase our 2011 earnings per share estimate, currently $3.86, but in light of increased competition from Pepsi and a deteriorating North American market, we now expect even greater challenges in the second half of the year, and both our near-term assumptions and investment thesis remain intact. Coca-Cola is one of our favorite consumer packaged goods companies--vast and effective global distribution, scale, and pricing power give it a wide economic moat--but with increasing costs posing a risk to margins and rising gas prices and fragile housing markets a threat to consumer confidence in developed markets, we think the stock is fairly valued at around 17 times forward earnings and just under 12 times forward EV/EBITDA. PepsiCo, on the other hand, still appears to offer some upside. If the firm's refocused Pepsi strategy succeeds in taking share from Coke, this could provide a catalyst to Pepsi's stock in the second half of the year. |
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HenryTo
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| Posted: Wed Apr 27, 2011 12:34 pm Post subject: |
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Morningstar on KO's 1Q earnings:
http://quicktake.morningstar.com/Stocknet/378425/coke-suffers-1q-near-miss-but-results-increase-our-confidence-in-our-valuation-thesis.aspx?symbol=KO
| Quote: | Coca-Cola KO became one of the few consumer staples companies to miss consensus earnings estimates in the first quarter, but results were in line with our expectations. We remain confident in our discounted cash flow valuation assumptions and our long-term investment thesis that Coca-Cola is an attractive play on emerging markets. We are reiterating our $64 fair value estimate. Trading down slightly in premarket trading, the stock is converging on our fair value estimate, which implies a 2011 earnings multiple of 17 times.
We estimate first-quarter revenue, adjusted for the asset swap with Coca-Cola Enterprises CCE and the benefit of cross-licensed brand volume and foreign exchange, grew 6% year over year, driven by a 5% increase in concentrate sales and a 1% impact from higher prices and product mix. Once again, Coke's growth was primarily driven by emerging markets, with volume growing 8% in the Eurasia and Africa segment and 7% in Latin America. In the Pacific segment, volumes grew 5%, with China rebounding 13% following a soft fourth quarter. As we stated in our previous earnings note, there may had been some volume shift into the first quarter of 2011 as a result of the timing of the Chinese New Year. However, PepsiCo PEP is slightly outspending Coke on infrastructure in China, and we shall keep an eye on the firm's medium-term performance in this important growth market. With the exception of Latin America and the Pacific region, growth in emerging markets slowed sequentially in the first quarter, in part as a result of the cycling of strong comparisons from a year ago. However, we continue to regard Coke as an emerging markets play, and the firm's heavy investment in infrastructure in Asia and Africa should allow the company to increase volume for several years to come, while we think Latin America will be an important driver of both volume and value growth.
In the key market of North America, conditions continue to improve. Internal volume grew 2%, despite a small hike in prices during the quarter. This indicates that consumers have been willing to swallow the price increases implemented by Coke (and several other consumer staples firms) this year in an attempt to offset input cost inflation. However, the pricing environment could become more challenging in the second half of 2011, with gas prices on the rise and the uncertain impact on consumer confidence of the removal of the Federal Reserve's economic stimulus. We are pleased to see Coke's improving performance in North America, and we retain our cautiously optimistic stance for the remainder of the year, but there are clear risks to the recovery.
The acquisition of the North American bottling operations drove a 730-basis-point decline in the first-quarter operating margin. Although Coke expects to achieve $110 million-$140 million in operating cost synergies from the bottler acquisitions in 2011 (less than 1% of operating costs), its exposure to commodity costs is likely to be a headwind in the second half of the year. We forecast a full-year operating margin of more than 25%, above the 22% generated in the first quarter, but below peak comparable margins of 27% achieved in 2009. Coca-Cola is one of our favorite consumer packaged goods companies--vast and effective global distribution, scale, and pricing power all give it a wide economic moat--but with increasing costs posing a risk to margins and rising gas prices and fragile housing markets a threat to consumer confidence in developed markets, we think the stock is fairly valued at around 17 times forward earnings and just under 12 times forward EV/EBITDA. We think PepsiCo, on the other hand, offers upside. The firm is being outperformed by Coke in the United States, but it trades at less than 15 times forward earnings, a multiple gap with Coke that we think has grown too wide. |
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HenryTo
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| Posted: Thu Feb 10, 2011 1:19 am Post subject: |
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Morningstar on KO's 4Q earnings:
| Quote: | We have been saying for some time that Coca-Cola KO is leveraging strength in developed markets to invest in growth in emerging markets. While this played out in the fourth-quarter results and Coke's performance was generally solid, there was a surprising and notable drop in volume in China. With the stock up slightly in premarket trading at 17 times forward earnings, we think it is fairly valued. Fourth-quarter revenue, adjusted for the benefit of cross-licensed brands and foreign exchange, grew 8% year over year, driven by a 5% increase in concentrate sales and a 3% effect from higher prices, which more than offset an unfavorable geographic mix shift. Once again, Coke's growth was primarily driven by emerging markets, with volume growing 14% in the Eurasia and Africa segment. However, revenue at the Pacific segment, which has been delivering double-digit growth in recent quarters, was up 6% on just 1% volume growth, driven by a 3% decline in volume in China. We are not too concerned, because Coca-Cola brands are very popular in China, and we think there may have been some volume shift into the first quarter of 2011 as a result of the timing of the Chinese New Year. However, PepsiCo PEP is slightly outspending Coke on infrastructure in China, and we shall keep an eye on the firm's medium-term performance in this important growth market. In general, growth in emerging markets is slowing sequentially, in part as a result of the cycling of strong comparisons from a year ago, but Coke's heavy investment in infrastructure in Asia and Africa should allow the company to increase volume for several years to come.
Coke reported a 3% increase in volume in North America, boosted by a 20% increase in Powerade. Consumers continued to switch back to higher-priced noncarbonated beverages during the quarter, as still beverage volume increased 7% in the United States (and 11% internationally). With the convenience store and grocery store channels still fairly weak, industry volume is fairly flat and likely to remain so until unemployment falls materially. Coke's volume growth is being driven by market share gains as a result of flat pricing, and we suspect this may not be sustainable if Pepsi responds with pricing initiatives of its own, or if input cost inflation forces the firm to raise prices in 2011.
Higher marketing spending and investments in the bottling operations drove a 250-basis-point decline in the firm's fourth-quarter operating margin. Although Coke expects to achieve $110 million-$140 million in operating cost synergies from the bottler acquisitions in 2011 (less than 1% of operating costs), we think its exposure to commodity costs will be a headwind in the second half of the year. Coca-Cola is one of our favorite consumer packaged goods companies--vast and effective global distribution, scale, and pricing power all give the firm a wide economic moat--but with increasing costs posing a risk to margins and rising gas prices a threat to consumer confidence, we think the stock is fairly valued at around 17 times forward earnings and 12 times forward EV/EBITDA. We think PepsiCo, on the other hand, offers upside. The firm is being outperformed by Coke in the U.S., but it trades at just 14 times forward earnings, a multiple gap with Coke that we think has grown too wide. |
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HenryTo
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| Posted: Tue Oct 19, 2010 10:35 pm Post subject: |
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Morningstar on KO's 3Q results:
| Quote: | | Coca-Cola's KO third-quarter results support our view that the company has sustainable long-term growth potential in emerging markets, but the quarter was notable for the continued signs of life in North America. We are maintaining our fair value estimate. Third-quarter revenue, adjusted for acquisitions, divestitures, and foreign exchange, grew 8% year over year, led by a 7% increase in concentrate sales and a 1% effect from pricing. Once again, Coke's growth was primarily driven by emerging markets, with volume growing 12% in the Eurasia and Africa segment and 11% in the Pacific region. While impressive, growth in emerging markets is slowing sequentially, in part as a result of the cycling of strong comparisons from a year ago, but also due to the fragile stat e of the global economic recovery. Nevertheless, Coke's heavy investment in infrastructure in markets like China and the Philippines should allow the company to increase volume for several years to come. For the second successive quarter, Coke reported a 2% increase in volume in North America. Consumers continued to switch back to higher-priced noncarbonated beverages during the quarter, as still beverage volume increased 11%. Modestly higher restaurant traffic was probably a driver of the volume growth; we expect the convenience store channel to remain weak until unemployment falls materially. Until that happens, the North American market is likely to remain sluggish, and we forecast continued low-single-digit volume growth. Productivity initiatives helped Coca-Cola to add 110 basis points to its operating margin, which reached almost 28% in the third quarter. Although the acquisition of the North American bottling operations will have a negative impact on profitability, we forecast Coke to generate as much as $350 million in annual cost savings by the end of 2014 as a result of the deal. |
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HenryTo
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| Posted: Mon Oct 04, 2010 10:06 am Post subject: |
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Morningstar on KO's acquisition of CCE:
| Quote: | | Coca-Cola KO completed the acquisition of Coca-Cola Enterprises' CCE North American bottling and distribution operations Sunday. Our fair value estimate for Coca-Cola remains intact because our valuation already assumes pro forma cash flows for the deal. However, we will lower our fair value estimate for CCE to account for the $10 per share special dividend being paid to shareholders. Although Coke is trailing its great rival PepsiCo PEP in the move toward vertical integration, we think it is a sensible strategy for the next decade. Consumers in North America are migrating away from sugary soda to more healthy and functional noncarbonated drinks, and this is causing a complexity in the route to market that the franchise model was not equipped to deal with. In addition, the firm expects to generate $350 million in cost synergies over the next four years, a target we think is achievable. On the other hand, bottling is a capital-intensive business that we estimate will shave as much as 300 basis points from Coke's operating margin, but we think this is a necessary evil in order for Coke to secure its leadership in the beverage industry. We also like the deal from CCE's perspective. As part of the deal, CCE acquired the bottling operations owned by Coke in Norway and Sweden and became an exclusively European bottler. Europe is a more attractive market than North America because the strength of the Coca-Cola brand allows it to command a higher price than Pepsi's products. However, with no incidence pricing model in place in Europe, CCE will be a price taker on concentrate, a key raw material. We expect CCE to further consolidate its position in Europe by buying smaller bottlers. |
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HenryTo
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Posts: 11260
Location: Los Angeles, California
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| Posted: Wed Jul 21, 2010 10:38 am Post subject: |
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Morningstar on KO's 2Q earnings:
| Quote: | | Coca-Cola's KO second-quarter results support our view that the company has long-term growth potential in emerging markets, but the quarter was notable for the improvement in volumes in North America. We are maintaining our fair value estimate. Second-quarter constant currency revenue grew 5% year over year, led by an increase in global volume of 4%. Once again, Coke's growth was primarily driven by emerging markets, with volume growing 10% in the Eurasia and Africa segment and 7% in Latin America. We think Coke's investment of $2 billion in China over the next three years should allow the company to continue to expand its distribution footprint in this key market for several years to come. Coke reported a significant improvement in North America, where volume grew 2% after several quarters of decline. Consumers began to switch back to premium-priced noncarbonated beverages during the quarter, and Coke benefited from its marketing initiatives around the soccer World Cup. In addition, we think the convenience store channel performed better, albeit against favorable comparisons with a soft quarter year ago. Tight control over costs helped Coca-Cola to add 240 basis points to its operating margin, which reached almost 32% in the second quarter. While we applaud the firm's volume growth and profitability improvements, we remain cautious on its prospects for the remainder of the year. Unemployment remains elevated at more than 9%, and the expiration of the government's stimulus measures could damp consumer spending in the second half of 2010, which could hurt volume. |
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rffrydr
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| Posted: Tue Apr 20, 2010 3:24 pm Post subject: |
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Pepsi has already "gone Native." I think Coke's got little to worry about from coconut water and malnutrition.
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Today is the Tomorrow you worried about Yesterday! |
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HenryTo
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Location: Los Angeles, California
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| Posted: Tue Apr 20, 2010 11:09 am Post subject: |
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Morningstar's latest notes on KO's earnings:
| Quote: | | Our thesis for Coca-Cola KO remains intact following the release of first-quarter results, which support our view that the company has not lost its sparkle in emerging markets, but North America continues to be challenging. We are maintaining our fair value estimate. First-quarter revenue, adjusted for deconsolidated entities, grew 7% year over year. However, this growth was primarily driven by a 6% impact from favorable currency movements. Underlying performance was much weaker, as 3% volume growth offset a 2% decline in prices. Once again, Coke's growth was driven by emerging markets. Volume grew 11% in the Eurasia and Africa segment and 5% in the Pacific region, and we think that Coke's investment of $2 billion in China over the next three years should allow th e company to continue to expand its distribution footprint in this key market for several years to come. It was a different picture in developed markets, with volume flat in Europe and down 2% in North America. Although Coke Zero achieved double-digit growth in North America, still beverage volume fell 2% as consumers continued to purchase premium still beverages less frequently. We think foreign exchange effects masked a quite soft performance by Coca-Cola in the first quarter, and as the firm cycles the drop in the value of the U.S. dollar in the second half of 2010, its performance is likely to slow. Although there are signs that consumer confidence is returning, we expect Coke to face challenges from rising commodity costs and a rejuvenated PepsiCo PEP. Coke's great rival is further advanced in the integration of its bottlers, and we expect that to give Pepsi an advantage in its route to market for the remainder of 2010. |
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