Strong Dollar Impacts Coca-Cola’s International Segments



North America business stands out

As discussed in Part 1 of this series, Coca-Cola’s (KO) 1Q15 revenue increased by 1.3% to $10.7 billion. Revenue declined across all the international segments. Revenue for the company’s bottling operations remained almost flat. The company’s North America business was the only segment to post growth in 1Q15 revenue.

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North America segment

Coca-Cola’s North America segment is the largest in terms of revenue contribution. The segment’s 1Q15 revenue increased by 6.4% to $5.1 billion, compared to the same quarter in the previous year. The company benefited from higher volumes and better pricing given the improved economic conditions in the region. The segment’s still beverage volume grew by 2.0%, fueled by double-digit growth in Gold Peak Tea and Glaceau Smartwater.

However, the sparkling beverage unit case volume declined by 1.0% in North America. The demand for sparkling beverages and carbonated soft drinks (or CSDs) continues to be sluggish in the US. According to the March 2015 report by Beverage Digest, US CSD volumes declined by 0.9% in 2014 to 8.8 billion 192-ounce cases. The report reflected a 1.1% and 1.4% decline in CSD volumes for Coca-Cola and PepsiCo (PEP) in 2014, respectively, compared with the previous year.

The CSD volume for the third largest soda maker, Dr Pepper Snapple (DPS), remained flat in the year. These three beverage companies make up about 2.9% of the iShares Russell 1000 Growth ETF (IWF) and 0.8% of the iShares MSCI ACWI ETF (ACWI).

International revenue marred by currency headwinds

Coca-Cola’s international segments continued to be impacted by strengthening of the dollar. Despite favorable product and pricing, and 4.0% growth in both sparkling and still beverage volumes, Coca-Cola’s Eurasia and Africa segment’s revenue declined due to a 10% impact of currency headwinds.

Sparkling beverage volumes continue to be a problem in Europe and remained flat in 1Q15. Still beverage volumes were up 4% in 1Q15 from the comparable quarter of the previous year. The currency impact on the Europe segment revenue was 11%.

The higher volume of still beverages—as well as the increase in pricing and favorable product mix in the Mexico, Brazil, and South Latin business units of the Latin America business segment—was offset by a 15% impact of unfavorable currency translation.

Coca-Cola’s Asia-Pacific segment witnessed an impressive growth of 6.0% in its sparkling beverage unit case volumes, mainly due to the strength in India and China. Currency fluctuations negatively impacted the segment by 8.0%.

Overall, currency headwinds also impacted the company’s operating margins. We will discuss Coca-Cola’s margins in the next part of this series.


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