Few companies are as globally known as The Coca Cola Company (NYSE:KO), the world’s largest beverage company. Few stocks are also as trusted as Coca-Cola, which has generated steady growth and income for conservative investors over the past decade. However, Coca-Cola’s fourth quarter results have some investors doubting the soft drink giant’s ability to continue expanding overseas. Is Coca-Cola still a fizzy investment, or has this stock gone flat?
The Fizzy Fundamentals
|Forward P/E||5-year PEG||Price to Sales (ttm)||Return on Equity |
|Profit Margin||Debt to Equity|
|Dr Pepper Snapple||14.15||2.26||1.58||27.33%||10.47%||119.33|
|Advantage||Dr. Pepper||Dr. Pepper||Dr. Pepper||PepsiCo||Coca-Cola||Coca-Cola|
Source: Yahoo Finance
Dr. Pepper Snapple wins in every growth metric. However, this is also because it is a much smaller company, with a market cap of $9 billion compared to Coca-Cola’s $168 billion and PepsiCo’s $112 billion. Coca-Cola comes out on top in two important categories – lower debt and higher profit margins. Both will be extremely important for balancing the company’s overseas expansion with unstable commodity prices.
Let’s also chart Coca-Cola’s top and bottom line performance against PepsiCo and Dr. Pepper Snapple over the past three years.
Coca-Cola’s revenue growth is notably outpacing its earnings growth. Although Coca-Cola is still growing its bottom line at a healthy rate, the divergence of PepsiCo’s top and bottom lines should serve as a cautionary tale for Coca-Cola shareholders. Meanwhile, Dr. Pepper has grown its bottom line faster than its top line – a healthy indicator that its margins are still kept in check.
Lastly, we should compare the operating margins of these three companies over the same period.
Coca-Cola’s margin growth is the healthiest, despite its wide exposure to global markets.
Based on pure fundamental growth, Coca-Cola is a rock solid stock that trades at a slight premium to its peers but also has the margin and revenue growth to back it up.
The Flat Fourth Quarter Earnings
So if Coca-Cola’s fundamentals are so stable, why are investors worried? Let’s take a look at the key numbers from its fourth quarter earnings.
Coca-Cola’s top line grew 3.8% to $11.46 billion – or 5% excluding currency impacts. Meanwhile, its earnings rose 12.65% to $1.87 billion, or 41 cents per share. Excluding one-time charges, the company earned 45 cents per share.
While earnings topped the Thomson Reuters’ forecast of 44 cents per share, revenue missed the forecast of $11.53 billion. Gross margin also dipped from 60.1% to 59.6%.