Coke Still Has Fizz Despite Near-Term Challenges
The beverage giant's economic moat remains wide with a strong brand portfolio that commands pricing power.
Coca-Cola (KO) posted fourth-quarter results Tuesday morning. Although quarterly volume growth moderated to just 1%, 7 percentage points of adverse exchange rates will have a negative impact on the firm's 2014 operating profit. Management remains committed to Coke's 2020 vision and its long-term growth algorithm (which includes high-single-digit growth in constant currency earnings per share). Even though Coke's 2013 volume growth was tepid--partly the result of emerging-market headwinds--we believe the firm's economic moat remains wide with a strong brand portfolio that commands pricing power.
Longer term, we believe that Coca-Cola will benefit from rising per capita emerging-markets consumption across its entire beverage portfolio, as government-led wage rate increases and infrastructure investments, a flight to urban centers, and younger populations are all conducive to favorable emerging-markets disposal income trends. This should help drive volume growth of 3% to 4%, and sales growth of 5% to 6%.
Thomas Mullarkey does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.