It was recently knocked out of the top spot in the “Best Global Brands” rankings by Apple Inc., but Coca-Cola Co., the world’s largest non-alcoholic beverage company, remains by far the dominant player in its category
It’s one of those iconic stocks that investors such as Warren Buffett regard as a long-term holding. Year in, year out, the pop maker has had a history of delivering decent growth as well as solid dividends.
Concerns are now being raised, however, about the Atlanta-based company’s ability to sustain its robust growth trajectory, especially after a disappointing second quarter, when it reported a paltry 1-per-cent increase in global sales volume.
Sales in the key market of China were flat and North American volumes fell 1 per cent, the first such decline in three years.
Coca-Cola and its rivals face the challenge of tempting increasingly health-conscious consumers who are turning away from sugar-laced soft drinks to lower-calorie products such as tea, juices and water. The company, whose many brands include Fanta, Sprite and Dasani, is tackling the new-beverages sector with innovations such as its Glaceau vitamin water, which combines flavoured H2O with added minerals and vitamins. But is it doing enough?
Third-quarter earnings will be released Tuesday and investors will be keen to know more about Coca-Cola’s strategy to offset slowing sales in saturated markets such as North America by stepping up efforts in high-growth emerging economies. They will also want to see how Coke president and chief executive Muhtar Kent plans to deal with the consumer tilt to healthier beverages.
Goldman Sachs analyst Judy Hong is among those who believe that the company’s lacklustre second quarter was the exception, in part because of unusually wet weather in June. She says the third quarter will show that Coca-Cola is back on track.
“North America is soft, but over all, [second-quarter] weakness will prove anomalous,” she said. Europe should help drive third-quarter profit growth, but emerging-market “choppiness and U.S. concerns [are] likely to continue to weigh on sentiment,” she added.
Ms. Hong forecasts that earnings-per-share in the third quarter will come in at 53 cents (U.S.), a figure in line with the analysts’ consensus forecast.
The stock has gained 6 per cent this year, but shares have been trading around $38, down from a high of $43.43 in May. Eight analysts have a “strong buy” on the stock, zero rate it a “buy,” five say “hold,” one rates it “underperform” and none say “sell.”