The Coca-Cola Company (KO), which is the world's largest nonalcoholic beverage company, reported third quarter 2011 earnings on Tuesday. Here are some of the highlights from the press release and the conference call:
Third quarter reported net revenue were $12.2 billion, up 45%, a significant portion of which is attributable to the acquisition of Coca-Cola Enterprises’ (CCE) former North America operations in the fourth quarter of 2010 (as will be seen in the regional breakdown).
In Eurasia & Africa, unit case volume was up 6%, with net operating revenues 15% higher; operating income was up 20%, with 3% of that increase due to currency tailwinds. The region was led by strong results in India (19% increase in volume, marking the country’s 21st consecutive quarter of growth) and the Middle East &North Africa (9% increase in volume).
In Europe, unit case volume was flat, with net operating revenues 5% higher (2% decline in concentrate sales, offset by a 6% currency benefit and 1% of price/mix); operating income was up 9%, with 6% of that increase due to currency tailwinds.
As mentioned above, North America is skewed by the acquisition of CCE’s North American operations in Q4 2010; while unit case volume was up 5% (6% sparkling, 4% stills), net operating revenues were up 148%. Operating income was up 23%, and 56% on a comparable currency basis. As many know, CSD’s have declined in the United States every year since 2004, leaving many to question the region’s growth prospects; here is CEO Muhtar Kent’s response: “We [Coca-Cola] are growing and we will continue to grow. We never said they we're going to grow at rates of China or India. We said that we'll generate moderate growth rates in America and that we will continue to improve our business and generate higher revenue than our volume and generate higher income than our revenue. So volume, moderate volume, better than the volume revenues, and better than [the] revenue income. That's our model, and we believe that, that model will work.”
In Latin America, unit case volume was up 7% (8% in Mexico for the quarter, 10% YTD), with net operating revenues 17% higher; operating income was up 25%, with 6% of that total due to currency tailwinds.
In the Pacific region, unit case volume was up 5% (11% in China), with net operating revenues 8% higher; operating income was up 4%, and down 5% in constant currency terms.
Worldwide, volume was up 5% in the quarter and 6% year to date, driven by a mix of 4% sparkling growth in the quarter (5% YTD) and 9% still beverage growth (same YTD increase). Excluding the benefit of cross licensing brands, particularly Dr. Pepper brands in North America, volume growth was 4% in the quarter and 5% YTD.
As Mr. Kent pointed out in the prepared remarks, the Coca-Cola Company is continuing to grow despite their current size:
“In Q3 of 2011, we generated almost 250 million unit cases of incremental growth, excluding cross-license and acquired brands, with nearly 50% of this growth coming from sparkling beverages. Just to give you a perspective, this 250 million unit cases of organic volume growth translates into over $1.7 billion of retail value growth, all in 90 days. For the first 9 months of this year, our organic volume growth was over 820 million unit cases, equivalent to creating another India and Russia combined.”
Third quarter reported EPS was $0.95, an increase of 8% from reported EPS in Q3 2010; comparable EPS, which includes a slew of restructuring charges for both 2010 and 2011, came in at $1.03, up 12% in the quarter (10% YTD) and ahead of the company’s long-term growth target.
Year to date, Coca-Cola has repurchased $2.2 billion worth of common stock, in addition to their recently paid $0.47 dividend (the company has paid a dividend every year since 1920 and has increased for annually for almost half a century). For the year, they are planning to increase the share repurchase program, with a plan to purchase $2.5-$3.0 billion in net shares by year end.
The stock was down slightly at the close, and currently trades for $66.74 per share.
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As it relates to portfolio construction, my goal is to make a small number of meaningful decisions. In the words of Charlie Munger, my preferred approach is "Patience followed by pretty aggressive conduct." I run a concentrated portfolio, with a handful of equities accounting for the majority of my portfolio (currently two). In the eyes of a businessman, I believe this is adequate diversification.