Coca-Cola Needs a Fountain of Youth -- Barron's

Coca-Cola ( KO: NYSE)

By Gabelli & Co. ($40.68, Oct. 22, 2014)

We are reducing our 2015 earnings-per-share estimate by 20 cents to $2.10 and change our recommendation to Hold from Buy.

Coca-Cola (ticker: KO) shares trade at 19.4 times our new 2015 EPS estimate and provide a current return of 3.0%. We find the current valuation fair considering the challenging global demand environment and currency headwinds.

Coca-Cola reported third-quarter results that were below our expectations and provided a disappointing outlook for the remainder of 2014 and 2015, calling out a more-challenging macro environment as the main culprit.

Third-quarter global volumes increased just 1%, a sequential deceleration from up 3% and up 2% during the second and first quarters, respectively. Soda volumes were flat and still-beverage volume grew 2%.

Volume decelerated sequentially in every region with the exception of Latin America, where volume increased 2% driven by 9% increase in still-beverage volume and flat soda volume. In North America soda and still-beverage volumes both declined 1%.

Comparable EPS came in at 53 cents per share, flat versus a year-ago, and including a negative 6% impact from currency. Currency is expected to be a 7% and mid-single-digit headwind in the fourth quarter and 2015, respectively.

Coca-Cola is implementing a series of strategic actions to reinvigorate growth: 1) Expanding productivity savings from $1 billion by 2016 to $3 billion by 2019; 2) Simplifying its operating model to speed decision making and enhance local market focus; 3) Refocusing on Coca-Cola's core business of building strong brands supplemented by an unmatched global distribution system.

-- Damian Witkowski

The companies mentioned in Hot Research are subjects of research reports issued recently by investment firms. Their opinions in no way represent those of Barrons.com or Dow Jones & Company, Inc. Share prices at the time the report was issued and the date of the report are in parentheses.

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