Coke Sees Positive Price and Volume Growth

Wide-moat  Coca-Cola's (KO) second-quarter results keep the company on track to meet our full-year expectations, and we don't plan major changes to our $43 fair value estimate. Although reported revenue declined from a year ago, currency headwinds drove the entirety of this fall; the firm enjoyed continued positive contributions from both volume and price/mix. End-market shipments increased 2% year over year, accelerating from the first quarter's 1%, while price/mix was a bit slower (at 1%, versus 3%) because of poor geographic mix, as the firm enjoyed faster volume growth in lower-priced countries. Year to date, Coke has generated 1% end-market volume growth and price gains of 2%, and is tracking toward our full-year target of similar volume growth and a slightly higher 3% price/mix contribution.

We're encouraged that both carbonated and noncarbonated beverages saw positive volume gains in the quarter, with still drinks in particular enjoying a solid 5% growth rate (on top of similar gains in the same period a year ago). Coke enjoyed the strongest growth in its Eurasia and Africa segment, where sparkling beverages climbed 4% and non-carbonated leaped 7%, while still drinks climbed 5% in both Latin America and Asia Pacific. We continue to believe developing and emerging regions offer the highest long-run growth potential given lower per-capita consumption rates and faster-growing economies, and expect Coke to capitalize on its already-strong share position and sizable distribution network in these markets.