The Coca-Cola Company (KO, Financial) reported its fourth quarter 2014 earnings on February 10. Revenue on a reported GAAP basis was $10.87 billion for the quarter beating analysts’ average estimate by $110 million. GAAP earnings for the quarter totaled $770 million resulting in adjusted earnings per share of $0.44, $0.02 higher than analysts’ EPS estimate.
While earnings beat analysts’ estimates, unadjusted quarter over quarter and year over year comparisons showed declines. For the fourth quarter, revenue was down 1.5% while earnings decreased 55%. For the year, revenue was down 1.8% while earnings fell 17%.
When comparing comparable currency neutral structurally adjusted data however Coca-Cola reported a net revenue increase of 4% for the quarter and 3% for the year. On a comparable currency neutral structurally adjusted basis operating income was up 7% for the quarter and 6% for the year. The impacts of the strengthening dollar, which have been highly present throughout the fourth quarter earnings season, are likely the reason for the higher currency neutral results.
Product Mix
In terms of product mix the company reported consistent volume growth in sparkling beverages which grew 1% for the quarter and full year with the leading Coca-Cola brand growing volume 1% for the quarter and full year.
For the quarter, unit case volume sales showed the greatest increase in the Eurasia and Africa region increasing 3% for the fourth quarter. For the full year, Asia Pacific reported a volume sales increase of 5%.
While Coca-Cola has seen steady sales in sparkling beverages its expansions in still beverages played a large part in the company’s sales for the quarter. Still beverages overall had volume growth of 2% and 4% respectively for the fourth quarter and full year. In Eurasia and Africa still beverage volume increased 8% for the full year with strong volume growth also showing in Latin America for the year at 6%.
A highlight for the year was Coca-Cola Company’s ability to increase its list of billion-dollar brands to 20. In February the company announced that still beverage brands Gold Peak, FUZE TEA and I LOHAS generated revenue of over $1 billion.
Outlook and Valuation
A major focus for the fourth quarter and year ahead will be on the company’s five strategic actions. As the company prepares to compete in tough markets globally it will focus on the following five initiatives to help it reignite its growth:
- Targeting disciplined brand and growth investments
- Driving revenue and profit growth, with clear portfolio roles across markets
- Refocusing on the core business model
- Driving efficiency through more aggressive productivity
- Streamlining and simplifying operations
These initiatives will be key to the company’s success as it seeks to reach approximately 5% EPS growth for the year ahead. Following the company’s earnings report its stock closed for the day at $42.40. With a trailing twelve month dividend yield of 2.88% and return of 5.16% for 2014 it is a favorite of Warren Buffet who holds 10% of the outstanding shares. However, for new investors it has minimal upside potential in the current environment with a discounted cash flow value of $41.89.
