Coca-Cola's 1Q15 Earnings: Can KO Pop a Surprise on Markets? (Part 2 of 4)
US soda volumes down
US carbonated soft drink, or CSD, volumes declined for the tenth straight year in 2014 as indicated in the March 2015 report of Beverage Digest. Beverage companies such as Coca-Cola (KO), PepsiCo (PEP), and Dr Pepper Snapple (DPS) have been under pressure due to a shift in consumer preference toward healthier drinks. According to Beverage Digest, the industry’s US CSD volumes declined by 0.9% in 2014 to 8.8 billion 192-ounce cases. This is on top of a 3% decline in 2013.
Beverages account for 19.8% of the portfolio holdings in the Consumer Staples Select Sector SPDR Fund (XLP).
Revenues decline for eight straight quarters
On a year-over-over basis, Coca-Cola’s revenues have been declining since the first quarter of 2013. In 4Q14, the company’s revenues fell by 1.5% to $10.9 billion, primarily because of weakening foreign currencies and structural changes related to the company’s bottling operations.
In the full-year 2014, Coca-Cola’s revenues declined by 1.8% to $45.9 billion. Coca-Cola’s sparkling beverage unit case volumes were flat in 2014. Still beverages rose by 6%.
Analysts expect Coca-Cola’s 1Q15 revenues to be ~$10.7 billion.
Scope for growth
Coca-Cola (KO) continues to expand into growth categories such as sparkling and still beverages through innovation as well as strategic deals. According to Coca-Cola, there’s immense scope for growth given that, of the 26 beverages consumed by an average global household each day, only 1.4 belong to the Coca-Cola company brand. For more on Coca-Cola’s deals, read Coca-Cola’s joint ventures set the stage for future growth.
Coca-Cola’s deal with Monster Beverage (MNST) is expected to close in the second quarter of 2015. Pursuant to the deal, Coca-Cola will acquire a 16.7% stake in Monster Beverage and will gain increased exposure to the rapidly growing energy drinks market. According to Beverage Digest’s March 2015 report, Monster Beverage posted strong 7% growth in terms of volumes, beating the overall carbonated soft drink industry, which posted a 0.9% decline in 2014 volumes.
Aside from expanding its product line-up, Coca-Cola continues to strengthen its international presence.
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