Assignment 1

The Coca - Cola Company Financial Results Analysis

Dawna Berry, Rochelle Morton, Jose Pinto

ACC 499 – Undergraduate Accounting Capstone

Professor Dr. M. Austin Zekeri

October 21, 2012

1. Discuss the North American market for The Coca-Cola Company in the impact to

volume growth or declines for the period.

I selected the first quarter of 2011. Volume was up 6% in the first quarter of 2011 with growth of

2%, excluding the benefit of their new cross-licensed brands in North America. This was positive

growth in North America and Coca-Cola seemed to have been on an upswing, being the fourth

consecutive quarter of growth. More importantly, North America increased in volume and value

when it came to nonalcoholic beverages (The Coca Cola Company, 2011).

The results for North America were a testament to how well Coke’s new leadership and

operation team were working. Placing focus on integration efforts reflected the greater plan,

while executing strong marketing and sales capabilities to accelerate leadership position within

North America delivered profit and substantial growth (The Coca-Cola's CEO Discusses Q1

2011 Results - Earnings Call Transcript, 2011).

2. Discuss the drivers of profitability during the quarter at The Coca-Cola Company and the

likely long-term impact of these drives on profits.

In the United States, trademark Coca-Cola gained share. Diet Coke was a close second following

the name brand Coca-Cola. Coke Zero continued double-digit volume growth in North America

for the 20th consecutive quarter. Sprite grew 3%, while Fanta was up 5% this past quarter.

Reiterating that using the right strategies and course of actions to sustainably drive long-term

growth across our entire North America was in effect and reflective in the portfolio.

3. Discuss the Earnings per Share results for the quarter in comparison to historic results and

long- term growth targets.

     Year-to-date net share repurchases totaled $2.3 billion. These repurchases are in line with the

targeted range of $2.5 to $3.0 billion in net share repurchases for the full year. Following

shareowner approval, the Company amended its certificate of incorporation on July 27, 2012, to

increase the number of authorized shares of common stock from 5.6 billion to 11.2 billion and

effect a two-for-one stock split of the common stock. Accordingly, all share and per share data

now reflects the impact of the increase in authorized shares and the stock split. The stock split

will not affect the targeted net share repurchase range for the full year.

     Third quarter reported EPS was $0.50 and comparable EPS was $0.51. Items impacting

comparability reduced third quarter 2012 reported EPS by a net $0.01 and reduced third quarter

2011 reported EPS by a net $0.04. In both periods, these items included restructuring charges,

costs related to global productivity initiatives, gains/charges related to equity investees, net

gains/losses related to our economic hedges, primarily commodities, and certain tax matters.

Items impacting comparability in third quarter 2012 also included charges related to changes in

the structure of Beverage Partners Worldwide (BPW) and charges related to the supply of

Brazilian orange juice. Items impacting comparability in third quarter 2011 also included CCE

integration costs.

Year-to-date cash from operations increased 15%. Excluding incremental pension contributions

made in first quarter 2012 and 2011, cash from operations also increased 15%.

    First quarter 2011 results included a net charge of $0.04 per share due to restructuring charges,

costs related to global productivity initiatives and the CCE integration, and charges related to the

natural disasters in Japan, partially offset by a gain on the sale of the Company's stake in Chilean

bottler Coca-Cola Ambassador S.A.

     Second quarter 2011 results included a net gain of $0.03 per share due to a noncash gain on

the adjustment to fair value of our investment in Mexican bottler Group Continental S.A.B.,

partially offset by restructuring charges, costs related to global productivity initiatives and the

CCE integration, and charges related to the natural disasters in Japan.

Third quarter 2011 results included a net charge of $0.04 per share due to restructuring

charges and costs related to global productivity initiatives and the CCE integration.

         The reduction of ESP for the quarter in comparison to 2011 ESP value, was due to changes

made to the company on the evaluation of investments made, current market fluctuations,

product development, and taxes imposed in various departments globally. (www.thecoca-

colacompany.com)

Today’s Trading

Previous close                       37.40

Today’s open                       37.37

Day’s range                         36.96 - 37.48

Volume                                 13,342,577

Average volume (3 months) 16,783,999

Market cap                          $168.4B

Dividend yield                       2.74%

Data as of 4:00pm ET, 10/22/2012

Growth & Valuation

Earnings growth (last year)              -27.08%

Earnings growth (this year)                   +4.50%

Earnings growth (next 5 years)            +7.70%

Revenue growth (last year)           +33.10%

P/E ratio                                             19.5

Price/Sales                                             3.42

Price/Book.                                                5.35

(money.cnn.com)

4. Discuss the emerging markets for The Coca-Cola Company and the likely future impact

on earnings per share.

On July 16, 2012 the company posted solid Q1 earnings helped by strong performances in

emerging markets such as Thailand, India, China and South Africa (Trefis). Soft drink volumes

should continue to post healthy growth as the company invests heavily in emerging markets to

increase capacity, spread out distribution networks and boost marketing. Minute Maid will be an

important top-line driver for the company in the U.S. as consumers ditch colas for healthier

alternatives such as juices, RTD teas, coffee, etc (Trefis). Coca-Cola is spending $99 million on

its Auburndale, Florida plant to expand its 'Simply' line of products, which falls under the Minute

Maid brand (Trefis). Internationally, the juice brand's volumes should also get a boost as it

debuted in three African countries of Tanzania, Uganda and Kenya in the latter half of 2011

(Trefis). On October 16, 2012 before the market opened The Coca-Cola Company was likely to

book a profit of 50 cents a share, down 2.5 percent from a year ago, when Coca-Cola reported

earnings of 52 cents per share, according to analysts polled by Thomson Reuters (Zhang). Coca-

Cola has topped earnings estimates in three of the past four quarters, while meeting in one. “We

expect operating profit to grow at a slower rate than sales, as higher prices and cost-cutting

initiatives are offset by an unfavorable mix, with lower-margin emerging markets growing faster

than developed ones, and commodity cost increases,” Esther Kwon, analyst at S&P Capital IQ,

wrote in an Oct. 6 note (Zhang). Revenue is projected to come in at $12.38 billion for the third

quarter, 1.1 percent above the year-earlier total of $12.24 billion (Zhang). For the year, analysts

expect Coca-Cola to earn $2 a share on revenue of $48.2 billion (Zhang). With these numbers

you can easily tell that the outlook is not rosy. On Coca-Cola’s July 17 earnings conference call,

Chief Executive Officer Muhtar A. Kent noted that consumers across the world are feeling the

effects of “prolonged uncertainty in Europe, a further cooling of the economy in China and the

protracted recovery in the U.S, we find ourselves navigating through a challenging global

economy” (Zhang). JP Morgan analyst John Faucher notes that Coca-Cola’s results could also

be hurt by weak consumer sentiment and negative product mix, meaning the company is relying

more on less profitable items (Zhang). Coca-Cola uses a mix of packaging sizes to help it adjust

various prices and profit margins. Faucher stated that, “We expect pricing to decelerate, which

should help volume trends in the back half of the year” (Zhang).

References:

Trefis. July 16,2012. Coca-Cola to Get Boost from Emerging Markets. The Street. Retrieved on

October 24, 2012 from http://www.thestreet.com/story/11619235/1/coca-cola-to-get-boost-from-

emerging-markets.html

Moran Zhang. October 15,2012. Coca-Cola Q3 Earnings Preview: Global Slowdown Chips

Away At KO's Profits. International Business Times. Retrieved October 24, 2012 from

http://www.ibtimes.com/coca-cola-q3-earnings-preview-global-slowdown-chips-away-kos-

profits-846545

Paper Done By:

Dawna Berry

Rochelle Morton

Jose Pinto