Coke, Pepsi Suspend Russian Operations; Minimal Change to FVE

As the war in Ukraine persists, leading beverage operators are opting to halt their businesses in Russia. In this context, citing the ongoing humanitarian crisis, wide-moat Coca-Cola is suspending its operations in Russia, a decision that follows similar actions by companies across a wide swath of industries. Coke’s exposure in Russia and Ukraine represents between 1% and 2% of revenue and operating income and includes a 21% stake in its regional bottler/distributor. We do not expect Coke’s suspension of Russian operations to result in a change to our $59 fair value estimate, although we will continue to monitor this dynamic situation. We acknowledge that the conflict in Ukraine may increase pre-existing inflationary pressures, which management had estimated as a mid-single-digit headwind to cost of goods sold its recent fiscal 2022 guidance, and thus could pose an incremental challenge for the company. We believe Coke is well-positioned to navigate a heightened inflationary environment given its strong brand, innovation capabilities and marketing support, as well as greater operational flexibility achieved per its experience with the COVID-19 pandemic.