Global Growth and Global Losses
Coca-Cola’s global sales volume increased 3%, but that was at the low-end of its own target for 3% to 4% annual growth. While demand was slow in North America, which reported a 1% gain in sales volume, its volume surged in Russia and India, which reported 19% and 32% growth respectively.
While strong numbers in two of the key BRIC markets was encouraging, bleak news from Europe and China poured some cold, flat soda on investor enthusiasm.
Europe reported a 5% decrease in sales volume, due to decreased consumer confidence and aggressive price competition from rival brands.
China, a closely watched market for Coca-Cola, posted a 4% drop in volume, primarily attributed to its economic slowdown over the past year. However, recent signs of life from the Chinese economy hint that this slump may be short-lived.
Coca-Cola’s weakness in Europe and China, exacerbated by a weak U.S. dollar, were the primary causes of the company’s disappointing fourth quarter revenue.
Non-Carbonated Drinks
Demand for Coca-Cola’s non-carbonated drinks grew during the fourth quarter. Bottled water sales rose 12%, while iced tea sales, led by its Gold Peak and Honest Tea brands, grew 16%. This is especially encouraging in developed markets such as North America, where more health-conscious consumers are buying fewer sodas.
Lower Costs in 2013
For beverage makers like Coca-Cola, rising commodity costs are a constant headwind. While the company projects that its total costs for sweeteners, juices, metals and plastic will increase by $100 million in 2013, that represents only half of its bill in 2012. This will give the company more room to change prices according to the demand, without negatively impacting its margins. To offset weaker sales volume, Coca-Cola will likely raise prices to boost its margin per beverage sold, which it has done before successfully thanks to its proven pricing power.
Bottom Line: Fizzy or Flat?
Despite its lackluster numbers in Europe and China, as well as the slight dip in margins, Coca-Cola is a resilient stock that should be bought on weakness. Looking forward, the company’s decreased costs and increased pricing power in 2013 will help it continue to grow its top and bottom lines at a much faster rate than its primary competitor PepsiCo.
I believe that its weakness in China is short-lived, and concerns will wane once the country’s GDP firms up in the second half of the year. While Europe’s unending negative feedback loop will inevitably weigh on earnings throughout 2013, strong growth from India and Russia will more than offset those losses.
So while Coca-Cola is unlikely to explode like a well-shaken soda can, it is still fizzy enough to keep bubbling in 2013 and beyond.
The article Will Coca-Cola Have a Fizzy or Flat 2013? originally appeared on Fool.com and is written by Leo Sun.
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