Earnings Analysis: Coca-Cola Co. (NYSE:KO)

The Coca-Cola Company (NYSE:KO) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visitwww.capitalcube.com.

Coca-Cola Co.’s analysis versus peers uses the following peer-set: Nestle SA Reg Shs. Ser. B Spons (PINK:NSRGY), PepsiCo, Inc. (NYSE:PEP), Groupe Danone SA (PINK:DANOY), Monster Beverage Corp (NASDAQ:MNST), Dr Pepper Snapple Group Inc. (NYSE:DPS), Cott Corporation (NYSE:COT) and Reed’s, Inc. (NASDAQ:REED). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Earnings Analysis: Coca-Cola Co. (NYSE:KO)

Valuation Drivers

Coca-Cola Co.’s current Price/Book of 2.6 is about median in its peer group. KO-US’s operating performance is higher than the median of its chosen peers (ROE of 26.5% compared to the peer median ROE of 21.5%) but the market does not seem to expect higher growth relative to peers (PE of 19.9 compared to peer median of 19.7) but simply to maintain its relatively high rates of return.

The company’s relatively high profit margins (currently 18.5% vs. peer median of 9.5%) are burdened by asset inefficiency with asset turns of 0.6x compared to the peer median of 0.8x. Overall, this suggests a margin driven operating model relative to its peers. KO-US’s net margin is less than (but within one standard deviation of) its five-year average net margin of 22.6%.

Economic Moat

The company has achieved better revenues growth than its chosen peers (year-on-year change in revenues of 33.1%) but its earnings growth performance has been below the median (change in annual reported earnings of -27.4% compared to the peer median of 8.4%). This suggests that, compared to its peers, the company is focused more on top-line revenues. KO-US is currently converting every 1% of change in revenue into -0.8% change in annual reported earnings.

KO-US’s return on assets is above its peer median both in the current period (10.5% vs. peer median 7.4%) and also over the past five years (15.2% vs. peer median 7.5%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s comparatively healthy gross margin of 64.8% versus peer median of 53.6% suggests that it has a differentiated strategy with pricing advantages. Further, KO-US’s bottom-line operating performance is better than peer median (pre-tax margins of 23.8% compared to peer median 13.5%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

KO-US’s revenues have grown at about the same rate as its peers (13.5% vs. 12.9% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 19.9. The historical performance and long-term growth expectations for the company are largely in sync.

KO-US’s annualized rate of change in capital of 26.4% over the past three years is higher than its peer median of 18.3%. This investment has generated an above peer median return on capital of 20.5% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

KO-US has reported relatively strong net income margin for the last twelve months (18.5% vs. peer median of 9.5%). This margin performance combined with relatively high accruals (3.6% vs. peer median of 1.3%) suggests possible conservative accounting and an understatement of its reported net income.

KO-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Coca-Cola Co. (NYSE:KO)
Graph of Revenues Trend for Coca-Cola Co. (NYSE:KO)
Graph of Net Margin Trend for Coca-Cola Co. (NYSE:KO)
Graph of Net Margin Trend for Coca-Cola Co. (NYSE:KO)
Graph of Accruals Trend (% revenues, Quarterly) for Coca-Cola Co. (NYSE:KO)
Graph of Accruals Trend (% revenues, Annual or TTM) for Coca-Cola Co. (NYSE:KO)

Company Profile

The Coca-Cola Co. is a nonalcoholic beverage company. It provides diet and regular sparkling beverages and still beverages such as 100 percent juices, juice drinks, waters, sports and energy drinks, teas and coffees and milk and soy-based beverages. The company’s portfolio of brands include Diet Coke, Fanta, Sprite, Coca-Cola Zero, vitaminwater, Powerade, Minute Maid, Simply and Georgia. The company’s operating segments include Eurasia & Africa, Europe, Latin America, North America, Pacific, Bottling Investments and Corporate. The Eurasia & Africa segment is engaged in supporting the 2020 Vision by delivering broad-based unit case volume growth and delivered double-digit volume growth for the year in the areas of East and Central Africa, the Middle East, North and West Africa, Southern Eurasia and Turkey. The Europe segment is engaged in developing and implementing packaging strategies to respond to consumer needs through the availability of family packaging and lower-cost first-time buyer packaging and advancements in the energy drinks category. The Latin America segment attributes its growth from its FIFA World Cup program activation, expansion to other beverage categories, affordability strategies and accelerating market investment levels. The North America segment is engaged in building strong, value-creating brands by well-defined brand, price, package and channel strategy. The Pacific segment is engaged in managing and growing its portfolio of brands and markets with right strategies and the bottling capability of LG Household & Health Care. The Bottling Investments segment is engaged in cost management, combined with marketplace execution, operational excellence and productivity. It offers branded beverage products available to consumers throughout the world through its network of company-owned or controlled bottling and distribution operations, bottling partners, distributors, wholesalers and retailers. It was founded by Asa Griggs Candler in 1892 and is headquartered in Atlanta, GA.

Disclaimer

The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website www.analytixinsight.com.
This article was originally written by abha.dawesar, and posted on CapitalCube.
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