January 19, 2016
(KO-NYSE) $41.92*
Note: All new or revised material since the last report is highlighted.
Reason for Report: Mid-Quarter Update
Prev. Ed.: 3Q15 Earnings Update, November 25, 2015 (broker material was considered till Oct 27, 2015).
B rokers’ Recommendations: 56.3% (9 firms); Neutral: 37.5% (6); Negative: 6.2% (1) Prev. Ed.: 8; 7; 1
Brokers’ Target Price: $46.31 ( ↑$0.31 from the prev. ed., 13 firms) Brokers’ Avg. Expected Return: 8.0%
*Note: Though dated Jan 19, 2016 , share price and brokers’ material are as of Dec 8, 2015.
Note: The tables below for Revenue, Margins, and Earnings per Share contain fewer bro kers’ material than the brokers’ material used in the Valuation table. The extra figures in the Valuation table come from reports that did not have accompanying spreadsheet models.
CocaCola, the world’s largest beverage maker, markets more than 500 non-alcoholic beverage brands, both sparkling and still. The company markets four of the world's top five non-alcoholic sparkling beverage brands, including Coke, Diet Coke, Sprite and Fanta, and is slowly expanding its portfolio of non-carbonated drinks as well.
Of the 16 firms covering the stock, 9 assigned a positive rating, 6 assigned a neutral rating while 1 firm had a negative stance on the stock.
Positive or equivalent (9/16 firms): The bullish firms are encouraged by CocaCola’s strategic and restructuring initiatives which funded the higher marketing spend that improved volumes in 2015 so far.
They believe that the company’s turnaround efforts position them for better top-line and bottom-line growth in 2016. Some believe that transformative changes like North American re-franchising and investments in new/innovative revenue platforms can support long-term profits. These firms are also encouraged by the company’s solid cash return to shareholders through dividends and stock buybacks.
Neutral, Negative or equivalent outlook (7/16 firms): Though encouraged by CocaCola’s turnaround efforts, these firms prefer to remain on the sidelines due to the need to show sustained sales acceleration. Emerging market volatility/slowdown, challenging global demand environment – due to concerns about decline in the consumption of carbonated soft drinks – and significant currency headwinds keep this group of firms concerned.
January 20, 2016
© Copyright 2016, Zacks Investment Research. All Rights Reserved.

Headquartered in Atlanta, GA, The Coca-Cola Company is the largest global producer and marketer of beverages. Coca-Cola commands a portfolio of more than 500 sparkling (carbonated) as well as still (noncarbonated) beverages like water, enhanced water, juices and juice drinks, ready-to-drink teas and coffees, and energy and sports drinks. Popular sparkling beverage brands include Coke, Diet Coke, Fanta and
Sprite while still beverage brands include Minute Maid and Powerade.
Most of the company’s beverages are manufactured, sold and distributed by independent bottling partners.
Its top five bottlers include Coca-Cola Enterprises Inc.; Coca-Cola Hellenic Bottling Company SA; Coca-
Cola FEMSA, S.A.B. de C.V.; Arca Continental; and Swire Beverages.
The company is aggressively pursuing its beverage partnership model in the U.S. under which it plans to refranchise two-thirds of its company-owned North American bottling territories by the end of 2017, and the rest no later than 2020, to boost margins and returns.
In addition, the company has a 50% equity interest in Aujan Industries Company, one of the largest independent beverage companies in the Middle East. Coca-Cola also owns 17% stake in specialty coffee retailer Keurig Green Mountain and 16.7% stake in energy drink maker, Monster Beverage Corporation.
In addition, the company distributes some of the brands of other beverage companies like Monster
Beverage Corporation and Dr Pepper Snapple in designated U.S. territories under licensing agreements.
The company also operates a j oint venture with Nestlé SA, known as Beverage Partners Worldwide, under which its bottlers market and distribute Nestea products in Europe, Canada and Australia.
Coca-Cola currently reports its operating results under six segments, primarily on a geographical basis —
Eurasia and Africa, Europe, Latin America, North America, Asia Pacific, Bottling Investments , Corporate.
The firms have identified the following issues as critical to an evaluation of the investment merits of Coca-
Cola:
Key Positive Arguments
Coca-Cola markets four of the world's top five nonalcoholic sparkling beverage brands — Coke, Diet
Coke, Sprite and Fanta — thus boasting a high level of consumer acceptance.
Key Negative Arguments
Changing consumer preferences, increasing health consciousness, rising obesity concerns, possible new taxes on sugar-sweetened beverages and growing regulatory pressures are affecting the sales of CSD category beverages.
Coca-Cola possesses one of the largest distribution networks in the world, which gives it a huge competitive advantage.
With more than half of its revenues coming from outside the U.S., currency headwinds are affecting the company’s profits due to the recent weakening of many foreign currencies against the U.S. dollar.
Coca-Cola has a strong presence in the developing and emerging countries, thus benefitting from the significant growth opportunities that these countries offer.
The macroeconomic environment is expected to remain volatile in 2016 which can make sales acceleration difficult. While the macro environment is improving in the U.S., management expects persistent challenges in many key emerging/developing markets like Brazil, Russia and China.
CocaCola’s aggressive cost-cutting and strategic initiatives led to improved results in 2015. Its increased marketing investments supported volume growth in the first three quarters of 2015.
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CocaCola’s transformative North American refranchising initiatives should improve margins and returns, and lead to superior growth, despite hurting sales/profits in the near term.
Coca-Cola boasts a solid cash position, which can be used to return value to shareholders through higher dividends and regular share buybacks as well as for reinvesting in the business.
Additional information is available at CocaCola’s website: www.cocacola.com
.
Note: Coca-
Cola’s fiscal year coincides with the calendar year.
November 27, 2015
2015 has been a “transition year” for Coca-Cola because of the changes implemented to create a new operating model. The company has undertaken aggressive cost-cutting and several initiatives to drive faster growth this year. Other than aggressively cutting costs, the plan includes making disciplined brand and growth investments as well as aligning incentive plans. Firms are largely encouraged by these turnaround efforts.
Coca-Cola is refranchising the majority of its company-owned North American bottling territories to create a more efficient system. It has been divesting and merging many bottling operations since 2014 to revamp its bottling system and thereby improve margins and drive growth. Three of its European bottlers
— Coca-
Cola Enterprises, Coca-Cola Iberian Partners and CocaCola Erfrischungsgetränke AG — will merge to form a new Western European bottler named Coca-Cola European Partners. Also, the company has entered into an agreement with beer and beverage company, SABMiller, and partner Gutsche Family
Investments, to combine their bottling operations in Southern and East Africa to form the largest Coca-Cola bottling entity in Africa. The company has also created the National Product Supply System (NPSS) to strengthen and streamline the U.S. production volume that will cut costs, enhance investments and improve innovation. The refranchising efforts, though hurting sales/profits in the near term, will result in higher operating margins, lower capital spending, and improved return on invested capital over the long term.
Coca-Cola is pursuing investments in newer revenue platforms to boost long-term sales and profits. In Feb
2014, the company entered into an innovative partnership with Keurig Green Mountain under which the latter will make and sell Coca-Cola branded single-serve pods for use on its Keurig Cold at-home beverage system. The deal opens up an exciting new packaging format for CocaCola’s brands. It acquired a stake and signed a deal with Monster Beverage Corporation in Jun 2015 to expand distribution of Monster products into additional territories. This will allow Coca-Cola to compete more effectively in the global energy category. Coca-Cola has also signed a distribution agreement with Suja, a high growth organic cold-pressed juice company to gain a foothold in this new growing market. In China, the company has invested in the plant-based protein drinks platform through the takeover of the beverage business of China
Green Culiangwang Beverages Holdings. These strategic investments will help the company to expand in the non-alcoholic beverage industry over the long run.
Coca-Cola has been undertaking various productivity initiatives to streamline its cost structure.
In Feb 2012, Coca-Cola launched a four-year productivity and reinvestment program which included initiatives like optimization of global supply chain; improving effectiveness of global marketing and innovation; operating expense leverage; standardization of information systems and integration of Coca-
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Cola Enterprises’ (CCE) North America business. The program is expected to save $550 million to $650 million annually.
In Feb 2014, the company expanded the scope of the program to generate $1 billion of additional productivity savings by 2016 that will be primarily used for higher media investments. In October, the company extended this productivity initiative to generate $3 billion in savings through 2019. Coca-Cola aims to achieve total annualized productivity of approximately $3.6 billion by 2019 from the initiatives implemented under this program since it started.
The program focuses on initiatives like restructuring the global supply chain including optimization of the manufacturing footprint in North America, investing in technology to streamline operations, implementing a zero-based budgeting program, headcount reductions and driving increased efficiency in direct marketing investments. The resultant savings are being used to fund marketing programs and innovation to reaccelerate top-line growth, margin expansion and returns on capital.
Coca-Cola has a commanding presence in the developing and emerging markets of Latin America, India,
Russia and China, encouraged by growth opportunities that these countries provide. Coca-Cola remains very optimistic about its Indian operations in which it has already invested more than $2 billion over the last
18 years. Coca-Cola, along with its bottling partners, will invest another $5 billion by 2020-end to build consumer marketing, infrastructure and brands in India.
Coca-Cola plans to invest $8 billion in China over the next six years to build plants, distribution, coolers, brands and equipment. The company also plans to invest $3 billion in Russia between 2012 and 2016, $8 billion in Brazil through 2016, and $500 million in Indonesia over the next 3 –4 years.
The company’s long-term target includes net revenue increase in mid single-digits, pre-tax income growth in the 6 –8% range, and earnings per share growth in high single-digits.
November 27, 2015
Rating Distribution
Positive
Neutral
Negative
Avg. Target Price
56.3% ↑
37.5%
↓
6.2%
$46.31
↑
$54.00
↑
Maximum Target
Minimum Target
No. of Analysts with Target Price/Total
$41.00
13/16
The risks to achieving the target price include prolonged slowdown in core markets like China and Europe, further foreign exchange volatility, higher commodity costs and weakening consumer spending.
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Coca-Cola to Grant Expanded Territories to 3 U.S. Bottlers – Dec 9, 2015
As part of its aggressive re-franchising efforts, Coca-Cola announced the signing of letters of intent with three U.S. bottlers — Coca-Cola Beverages Florida, Viking Coca-Cola Bottling Company and Coca-Cola
Bottling Company United (“United”) — to grant expanded distribution territories in five U.S. states. The deals are subject to the companies reaching a definitive agreement.
Coca-Cola Tops Third-Quarter Earnings; Revenues Hit by Currency – Oct 21, 2015
CocaCola’s third-quarter 2015 adjusted earnings were $0.51 per share which beat the Zacks Consensus
Estimate of $0.50 by 2%.
Earnings declined 4% year over year due to a strong dollar eroding the value of its overseas sales.
Excluding the 12% negative Fx impact, earnings increased 8% as improved organic revenues made up for the relatively weaker margins.
Net revenue declined 5% year over year to $11.43 billion due to currency headwinds.
Adjusting for the impact of currency, organic revenues went up 3% driven by improved volume and price/mix. Revenues, however, marginally missed the Zacks Consensus Estimate of $11.61 billion.
Profit-before-tax (PBT) declined 5% to $2.89 billion. Currency hurt PBT by 12%, higher than expectation of 10%. Structural changes had a negative impact of 1% on PBT. Excluding currency headwinds and structural changes, PBT improved 8% as strong profits in North America made up for the declines in
Asia-Pacific and Europe.
Three Coca-Cola European Bottlers Plan to Merge – August 6, 2015
Three European bottlers of The Coca-Cola Company — Coca-Cola Enterprises, Coca-Cola Iberian
Partners and CocaCola Erfrischungsgetränke AG — will merge to form a new Western European bottler
— Coca-Cola European Partners.
While Coca-Cola Enterprises is a publicly traded Atlanta-based bottler of Coca-Cola Company (Coke) serving some Western European countries, including France and Great Britain, Coca-Cola Iberian
Partners is a privately held Coke bottler that caters to Spain and Portugal. Coca-Cola
Erfrischungsgetränke AG is a German beverage company owned by Coke.
Per the merger, CocaCola Enterprises’ shareholders will receive one Coca-Cola European Partners share in addition to one-time cash payment of $14.50 per share. Coca-Cola Enterprises will hold 48% stake, Coca-Cola Iberian Partners will own 34% with Coke commanding the remaining 18% in the new bottling company.
Coca-Cola European Partners will be the largest independent Coca-Cola bottler in term of revenues — combined pro-forma 2015 revenues of about $12.6 billion. With more than 50 bottling plants, Coca-Cola
European Partners will serve over 300 million consumers across 13 Western European countries, including Andorra, Belgium, France, Germany, Great Britain, Iceland, Luxembourg, Monaco, Norway,
Portugal, Spain, Sweden and the Netherlands.
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With its increased scale, Coca-Cola European Partners should realize substantial synergies from supply chain savings and better operating efficiencies. The synergies are estimated to culminate into annualized pre-tax savings of $350 –$375 million within three years of closing.
Coca-Cola European Partners will be headquartered in London and trade on the Euronext Amsterdam, the New York Stock Exchange and the Madrid Stock Exchange. CEO Kent believes that the merger will help drive profitable growth across Western Europe. The merger is the latest in CocaCola’s strategy of combining its smaller bottling operations to form larger companies to improve efficiency and cut costs.
Net revenue declined 5% year over year to $11.43 billion due to currency headwinds.
Currency headwinds hurt sales by 8%, higher than management’s expectations of 7%. With more than half of its revenues coming from outside the U.S., CocaCola’s sales/profits were affected by the weakening of many emerging market currencies against the U.S. dollar.
Adjusting for the impact of currency, organic revenues went up 3% driven by improved volume and price/mix.
The Zacks Digest Average net revenue matched the company’s results in 3Q15.
Volume and Pricing
Coca-Cola witnessed 3% volume growth in the third quarter, better than 2% in the previous quarter as both still and sparkling beverage volumes improved. The volume growth was also better than most firms’ expectations.
Sparkling beverage volumes grew 2%, higher than 1% in the second quarter. The Coca-Cola brand grew
1%, same as the previous quarter. Coke Zero climbed 8%, while Fanta and Sprite grew in a low single-digit range. Diet Coke, however, declined 8% as the diet drinks are coming under pressure due to increasing consumer concern regarding the use of artificial sweeteners.
Still beverages grew 6% in terms of volume, better than 5% in the last quarter, supported by positive growth in teas, packaged water and sports drinks.
In North America, volumes grew 1%, lower than 2% in the earlier quarter. Among other developed nations, volumes improved in Europe, while it declined in Japan. European volumes rose 4%, better than 1% in the previous quarter. Japan volumes declined 2%, worse than 1% growth in the prior quarter.
Among the developing countries, mid single-digit volume growth in China and India was offset by declines in Russia and Brazil, respectively.
Price/mix increased 3%, better than 1% in the previous quarter driven by the company’s new pricing and packaging initiatives in key markets, like North America, and favorable geographic mix.
While Latin America and North America continued to show positive growth supported by the company’s new pricing strategies, price/mix improved in Asia Pacific. However, price/mix declined in Eurasia and
Africa but remained flat in Europe.
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CocaCola’s increased marketing investments funded by cost savings from its productivity/ strategic initiative drove improved volume growth in 2015, especially in North America. A couple of firms believe that the increased media investments will continue to drive volumes.
Geographic Breakdown of Revenues
The company reported its operating results under six geographic segments.

Eurasia and Africa

Europe

Latin America

North America

Asia Pacific

Bottling Investments
Eurasia & Africa
The division recorded revenues of $603 million, down 15% year over year, due to currency headwinds.
Organic (excluding currency changes) revenues grew 2% driven by concentrate sales growth which offset an unfavorable geographic mix. The Zacks Digest average segment revenues were in line with the company’s results.
The segment witnessed volume growth of 4% year over year, same as the previous quarter. Price/mix declined 2%, worse than 1% in the previous quarter, due to an unfavorable geographic mix.
Sparkling beverages volume was up 3% led by the Coca-Cola and Sprite brands. Still beverages went up
6%, less than 7% in the previous quarter, driven by 6% growth in juice and juice drinks and 8% growth in packaged water.
Deteriorating economic conditions in Russia and volatility in the Middle East partially offset the solid performance in the other Africa businesses. Volumes declined in a high single-digit range in Russia.
Europe
The Europe segment recorded revenues of $1.33 billion, down 7% year over year, due to currency headwinds and structural changes. Organically, revenues improved 3% driven by concentrate sales growth and improved volumes. The Zacks Digest average segment revenues were in line with the company’s results.
European volumes improved 4%, higher than 1% in the previous quarter backed by stepped-up marketing investments and favorable weather conditions.
Sparkling beverage volumes grew 2%, better than flat in the last quarter as growth in Coke Zero and Fanta made up for the decline in Coke. Still beverages grew 12%, higher than 7% in the previous quarter backed by strong performance of sports drinks and packaged water and the Innocent brand of juice drinks.
Price/mix was flat, same as the previous quarter, as positive price/mix across certain key markets was offset by unfavorable geographic mix.
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Latin America
The Latin America segment recorded revenues of $1.01 billion, down 14% year over year due to currency headwinds. Organic revenues increased 14% driven by higher price/mix and improved volumes. The Zacks
Digest average segment revenues wer e in line with the company’s results.
Price/mix increased 13%. Volumes grew 2%, same as the last quarter, supported by improved volumes of still and sparkling beverages. Sparkling beverage volumes grew 1%, better than flat in the previous quarter.
Still beverages grew 6%, better than 5% in the prior quarter.
Growth in Mexico, South Latin and Latin Center business units was offset by a 4% volume decline in Brazil due to weak macroeconomic environment.
North America
The North America segment recorded revenues of $5.64 billion, up 1% year over year despite currency headwinds and negative impact of structural changes. Structural changes, which reflect the unfavorable impact of refranchised territories, hurt sales by 1%.
Organic revenues grew 3% driven by positive price/mix which made up for softer volumes. Volumes grew
1%, lower than 2% in the earlier quarter, as improved volumes of still beverages were offset by decline in sparkling sodas. Expanded distribution of Monster beverages benefitted North American volumes by 1%.
The Zacks Digest average segment revenues were same as the company’s results.
In North America, still beverages grew 7%, while sparkling beverages declined 1%. While packaged water, sports drinks and teas drove still beverage volume growth, decline in Diet Coke lowered sparkling beverage, offsetting the growth in Fanta and Sprite.
Price/mix increased 3% driven by strong price realization and new price pack strategies in the region. In
North America, helped by incremental media expenditure, the smaller packages are doing better than their larger counterparts, favorably impacting mix.
The company increased its marketing focus in 2014 and 2015 through incremental media investments to fund brands globally and aggressive marketing campaigns like Share a Coke to accelerate top-line growth.
The company’s disciplined quality advertising investments led to improved volume trends in North America in 2015.
Progressing With Beverage Partnership Model
On Dec 9, 2015, Coca-Cola announced the signing of letters of intent with three U.S. bottlers — Coca-Cola
Beverages Florida, Viking Coca-Cola Bottling Company and CocaCola Bottling Company United (“United”)
— to grant expanded distribution territories in five U.S. states. The deals are subject to the companies reaching a definitive agreement. While Coca-Cola Beverages Florida will get additional territories in southeastern Florida, United will assume extra territories in north and central Georgia. Viking Coca-Cola Bottling
Company will take more territories in parts of northern Minnesota.
Also, Coca-Cola reached definitive agreements with two independent bottlers — Clark Beverage Group and Chesterman Company — for territories as specified in the letters of intent signed earlier this year.
Thus far, Coca-Cola has transferred or signed agreements for territories covering over 40% of the U.S. bottle can volume.
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Also, Coca-Cola stated that it has reached definitive agreements with three independent bottlers — Coca-
Cola Bottling Co. Consolidated (Consolidated), United and Swire Coca-Cola USA (Swire) — to sell production facilities as per letters of intent signed in September. Consolidated will buy facilities in Virginia and Maryland; United will acquire plants in New Orleans while Swire will take over Arizona and Colorado facilities. These facilities will be transferred between 2016 and 2018.
On Oct 21, 2015, Coca-Cola announced the signing of letters of intent with three U.S. bottlers — Coca-
Cola Beverages Florida, Great Lakes Coca-Cola and Atlantic Coca-Cola Bottling Company — to grant expanded distribution territories in seven U.S. states. The deals are subject to the companies reaching a definitive agreement. Thus far, Coca-Cola has transferred or signed agreements for territories covering over 30% of U.S. bottle can volume.
Asia Pacific
The Asia Pacific segment recorded revenues of $1.41 billion, down 11% year over year, due to currency headwinds. Organic revenues declined 1% due to decrease in concentrate sales which overshadowed improved price/mix and volumes. The Zacks Digest average segment revenues were in line with the company’s results.
Price/mix increased 1%, much better than 6% decline seen in the previous quarter.
The Asia Pacific Group’s volume grew 4%, better than 3% in previous quarter as improved volumes in
China and India made up for the weak performance in Japan.
Volumes grew 5% in China driven by strong sparkling beverage performance. Coca-Cola brand volumes grew in a double-digit range in China.
Japan volumes declined 2%, worse than 1% growth in the second quarter, due to poor weather conditions.
Volumes grew 4% in India, improving from a tough second quarter.
Sparkling beverages grew 3%, better than 1% in the previous quarter. Still beverages grew 6%, better than
5% last quarter.
Bottling Investments
This segment oversees CocaCola’s company-owned bottling operations outside North America.
The Bottling Investments Group recorded revenues of $1.75 billion, down 4% due to currency headwinds
(11%). Organic revenues grew 3% as volume gains (11%) offset price/mix decline (5%).
Provided below is a summary of revenue as compiled by Zacks Digest:
Total Revenue
($ in Million) 3Q14A 2014A 2Q15A 3Q15A 4Q15E 2015E 1Q16E 2016E
Digest High
Digest Low
$11,981.0 $46,012.0 $12,149.0 $11,400.0 $9,757.0 $44,866.0
$11,981.0 $46,012.0 $12,149.0 $11,400.0 $9,757.0 $44,009.0
$46,220.0
$45,293.1
$45,756.6
3.0%
Digest Average $11,981.0 $46,012.0 $12,149.0 $11,400.0 $9,757.0 $44,437.5
Y/Y Growth -1.1% -2.0% -3.2% -4.8% -10.5% -3.4%
Please refer to the Zacks Research Digest spreadsheet on Coca-Cola for specific revenue estimates.
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2015 Outlook
The company did not provide a specific revenue or earnings guidance. Management expects the macroeconomic environment to remain volatile. The global growth for 2015 is projected to be below 2014 level. While the macro environment is improving in the U.S., management expects challenges to persist in many key emerging/developing markets like Brazil, Russia and China.
Fourth-Quarter 2015 Outlook
In November 2015, The Coca-Cola Company raised its expectation regarding the negative impact of currency translation on fourth-quarter sales and profits ahead of its presentation at Morgan Stanley Global
Consumer and Retail Conference.
Foreign exchange is expected to hurt fourth-quarter sales by 7% higher than previous expectations of 6%.
Structural changes are expected to have a slightly negative impact on fourth-quarter sales. Structural changes are expected to have a 1% negative impact on revenues.
Adjusted consolidated gross margins declined 50 basis points (bps) year over year and 80 bps sequentially to 60.7% as positive pricing, productivity gains and slightly lower commodity costs were offset by currency headwinds. The Zacks Digest average gross margins were in line with the company’s results.
Adjusted selling, general and administrative (SG&A) expenses increased 1% on a currency-neutral basis to
$4.21 billion due to higher marketing expenditure.
Adjusted operating income, on a constant currency basis, increased 8% to $2.71 billion. Adjusted operating margin was 23.7%, flat year over year, as lower gross margins and higher marketing investments offset strong cost management and productivity gains. Operating margins declined 230 bps sequentially. The
Zacks Digest average operating margins were same as the company’s results.
Profit-before-tax (PBT) declined 5% to $2.89 billion. Currency hurt PBT by 12%, higher than expectation of
10%. Structural changes had a negative impact of 1% on PBT. Excluding currency headwinds and structural changes, PBT improved 8% as strong profits in North America made up for the declines in Asia-
Pacific and Europe.
Provided below is a summary of margins as compiled by Zacks Digest:
Margins
Gross
Operating
Pre-Tax
3Q14A
61.2%
23.7%
2014A
61.1%
23.8%
2Q15A
60.7%
26.0%
3Q15A
60.7%
23.7%
4Q15E
61.0%
20.3%
2015E
60.4%
23.3%
1Q16E
25.4% 25.6% 29.6% 25.3% 21.8% 25.5%
Net 19.6% 19.8% 22.9% 19.6% 16.8% 19.7%
Please refer to the Zacks Research Digest spreadsheet on Coca-Cola for specific margin estimates.
2016E
61.4%
24.0%
25.5%
19.7%
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Geographic Breakup
Eurasia & Africa
Adjusted PBT declined 8% on a currency-neutral basis to $210 million due to lower equity income associated with a joint venture and headwinds from closing of the Monster Beverage transaction.
Europe
Adjusted PBT declined 2% on a currency-neutral basis to $731 million as increased marketing investments and headwinds from closing of the Monster Beverage transaction offset productivity gains.
Latin America
Adjusted PBT improved 15% on a currency-neutral basis to $539 million as positive operating leverage offset higher marketing investments.
North America
Adjusted PBT increased 4% on a currency-neutral basis to $846 million as lower input costs and productivity gains offset the impact of higher marketing costs.
Asia Pacific
Adjusted PBT declined 2% on a currency-neutral basis to $578 million due to unfavorable impact from the closing of the Monster Beverage transaction.
Bottling Investments
Adjusted PBT grew 15% on a currency-neutral basis to $251 million.
2015 Outlook
Foreign exchange is expected to hurt 2015 operating income by 11% and PBT by 8% (earlier 7
–8%).
Structural changes are expected to have a 1% negative impact on PBT.
Fourth-Quarter 2015 Outlook
Foreign exchange is expected to hurt fourth-quarter operating income by 13% and PBT by 11% higher than previous expectations of 12% and 10%, respectively.
Structural changes are expected to hurt PBT by 2%.
Fourth-quarter profits are expected to be hurt by six fewer selling days this year and substantially higher marketing expenses.
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3Q15 adjusted earnings of $0.51 per share declined 4% year over year due to a strong dollar eroding the value of its overseas sales. Excluding the 12% negative Fx impact, earnings increased 8% as improved organic revenues made up for the relatively weaker margins.
The Zacks Digest EPS was in line with the company’s results. Coca-Cola’s EPS was ahead of most analysts’ expectations.
Earnings have been adjusted mainly to incorporate charges related to the North American re-franchising initiative and costs associated with the productivity program. Including these, reported earnings were $0.33 per share, down 31% year over year.
Provided below is a summary of EPS as compiled by Zacks Digest:
EPS (in $)
Digest High
Digest Low
3Q14A
$0.53
$0.53
2014A
$2.05
$2.04
2Q15A
$0.63
$0.63
3Q15A
$0.51
$0.51
4Q15E
$0.37
$0.37
2015E
$2.00
$1.99
1Q16E 2016E
$2.15
$2.08
Digest Avg. $0.53 $2.04 $0.63 $0.51 $0.37 $2.00 $2.12
Year-over-year growth 0.0%
-1.7%
-1.5% -4.1% -15.4%
-2.4% 6.0%
2015 Outlook
In 2015, the adjusted constant currency earnings per share are expected to increase 5%. Previously, management expected the number to go up in a mid single-digit range.
Including the impact of currency, adjusted earnings are expected to decline 3% in 2015.
The company still expects to buy back shares worth $2.0 billion to $2.5 billion in 2015. Productivity savings are expected to be $500 million in 2015. Adjusted effective tax rate is likely to be 22.5%.
Fourth-Quarter 2015 Outlook
Fourth-quarter comparable currency neutral EPS will decline in a mid-to-high single-digit range.
Please refer to the Zacks Research Digest spreadsheet on Coca-Cola for specific earnings estimates.
2014
Research Analyst Kinjel Shah
Copy Editor Kamalika Pramanik
Content Ed.
Lead Analyst
N/A
Kinjel Shah
QCA
No. of brokers reported/Total brokers
Reason for Update
Kinjel Shah
4/18
Daily
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