Coke Begins Transition Year on Strong Note

We’re maintaining our $43 fair value estimate for

Although unit case volume slowed in the quarter versus 3% gains in the fourth quarter, we remain encouraged that the firm saw growth in both sparkling and noncarbonated drinks. Within sparkling, China was a particular standout, growing 6% in the quarter, while the Eurasia and Africa segment saw 4% sparkling gains and India enjoyed double-digit growth. Despite declines in Russia, we believe the positive growth trajectory for Coke in emerging and developing markets remains intact.

Price and mix also contributed positively in the quarter, climbing 3% versus the prior year, the strongest pace since early 2012. While we attribute some of these gains to rate hikes in the face of increased inflationary pressure and positive geographic mix, and we note that comparisons will become more difficult over the rest of 2015, we think the overall consolidated volume growth despite this positive pricing and mix (including a 1% gain in trademark Coca-Cola globally), speaks to the brand intangible assets that buoy our wide economic moat rating.

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