Coke's 4Q Growth and Margins Improve, but Shares Look Fairly Valued

Coke reported a solid quarter, with carbonated volume gains from a year ago in emerging and developing markets (including 3% in Eurasia and Africa, 1% in Latin America, and 3% in Asia Pacific) highlighting the growth potential of these regions. We continue to believe the firm can drive sales growth here back to mid- to high-single-digit levels over the long run as consumers increase their beverage consumption levels (which largely remain well below those of developed countries) and Coke realizes increased revenue per liter; success in Brazil and other southern Latin America countries with price increases this quarter (total segment price/mix was up 10% year over year) is especially indicative of this potential.

The company's North American sales were also a positive, with volume increasing 1% and price/mix climbing 4%--the best performance for both metrics in several quarters. Here, still beverages drove gains, and the firm noted it gained value share in these products. That said, we remain encouraged by Coke's and competitors' pricing rationality on carbonated drinks as well and expect low-single-digit price/mix gains can continue for the segment.

Overall, revenue grew 4% in the quarter (excluding negative currency impacts), and currency-neutral adjusted profitability expanded from a year ago, despite weaker performance in Europe and Latin America (due partly to marketing investments, as well as structural challenges in Venezuela). The company held its 2015 outlook for earnings to grow at a mid-single-digit rate, excluding currency headwinds, which is in line with our current projection.

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