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Commentary

Coke Sees Positive Price and Volume Growth

The beverage behemoth continues to capitalize on its already-strong share position and sizable distribution network even as a strong dollar weighs on reported results, writes Morningstar analyst Adam Fleck.

Mentioned:

Wide-moat  Coca-Cola's (KO) second-quarter results keep the company on track to meet our full-year expectations, and we don't plan major changes to our $43 fair value estimate. Although reported revenue declined from a year ago, currency headwinds drove the entirety of this fall; the firm enjoyed continued positive contributions from both volume and price/mix. End-market shipments increased 2% year over year, accelerating from the first quarter's 1%, while price/mix was a bit slower (at 1%, versus 3%) because of poor geographic mix, as the firm enjoyed faster volume growth in lower-priced countries. Year to date, Coke has generated 1% end-market volume growth and price gains of 2%, and is tracking toward our full-year target of similar volume growth and a slightly higher 3% price/mix contribution.

We're encouraged that both carbonated and noncarbonated beverages saw positive volume gains in the quarter, with still drinks in particular enjoying a solid 5% growth rate (on top of similar gains in the same period a year ago). Coke enjoyed the strongest growth in its Eurasia and Africa segment, where sparkling beverages climbed 4% and non-carbonated leaped 7%, while still drinks climbed 5% in both Latin America and Asia Pacific. We continue to believe developing and emerging regions offer the highest long-run growth potential given lower per-capita consumption rates and faster-growing economies, and expect Coke to capitalize on its already-strong share position and sizable distribution network in these markets.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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