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Shares of The Coca-Cola Company (KOFree Coca-Cola Stock Report) moved modestly higher after the global soft-drink-industry leader and Dow-30 component released solid December-quarter results. Excluding one-time items, share net rose nearly 10%, year over year, to $0.79, which was in line with our estimate ($0.79) and slightly above the consensus forecast ($0.77). Revenues, meanwhile, increased 5.2%, to $11.04 billion, which was just shy of our $11.07 billion target.

Worldwide sales volumes increased 3% in the quarter, down from an adjusted 5% through the first nine months of 2011, but still within the company's target long-term range (3%-5%). The slowdown largely reflected a deceleration in Latin American sales, most notably in Mexico. That said, key overseas markets, including China (fourth-quarter volumes: +10%) and India (+20%), where per-capita consumption of Coke products is still relatively low, continued to grow at a fairly rapid pace. What's more, the company managed to eke out 1% volume growth in Europe, even as that region struggled with economic uncertainty and ongoing sovereign-debt issues in some nations. Tailored price and package offerings reportedly helped Coke overcome certain challenges in the euro zone.

Volumes in Coke's mature North American (United States and Canada) market grew 1% in the fourth quarter, which was in line with the trajectory of the previous nine-month period. The company's still (non-bubbly) portfolio was once again the key driver (fourth-quarter volumes: +3%), led by Powerade (+11%), Coke's answer to PepsiCo's (PEP) hugely successful Gatorade brand. Sparkling beverage volumes, meantime, were roughly flat, reflecting, in part, less favorable consumer trends.

In terms of overall profitability, the adjusted gross margin narrowed by 120 basis points (to 60.3%) in the December period, largely due to higher ingredient and packaging costs. Still, the company managed to increase the operating margin, thanks to cost cuts on the selling, general & administrative side.

Strong global demand augurs well for Coca-Cola over the next several years. Indeed, unit-volume sales should increase at a mid-single-digit clip, thanks to higher soft-drink consumption in countries like China and India. On the domestic front, meantime, greater control of the “route to market” should enable Coke to both better serve major customer accounts and more quickly react to shifting consumer tastes. For 2012, specifically, we still look for share earnings to come in at $4.20, up 9% from the adjusted $3.84 earned by Coke in 2011.

As an investment, Coke shares should continue to deliver nicely positive returns pretty much year in and year out, thanks, in part, to a well-covered and growing dividend.

About the Company:  The Coca-Cola Company is the world's leading marketer of ready-to-serve, nonalcoholic beverages. On any given day, 1.7 billion individual servings of the company's brands are consumed by people around the globe. The Atlanta-based company currently has more than 500 wholly owned and licensed brands, including 15 that generate $1 billion or more in annual sales.


At the time of this article’s writing, the author did not have positions in any of the companies mentioned.