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Coca-Cola’s Q4 Margins May Not Expand Despite Productivity Boosts

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Fourth quarter margins

Coca-Cola’s (KO) fourth quarter margins might remain under pressure due to currency headwinds and structural changes relating to the company’s bottling and distribution operations. Coca-Cola’s slated to announce its 4Q15 results on February 9.

In the first nine months of fiscal 2015—which ended on October 2, 2015—Coca-Cola’s gross profit margin fell to 60.8% from 61.5% for the first nine months of 2014. Structural changes and foreign currency changes more than offset the company’s positive price mix and a slight decline in commodity costs. Coca-Cola’s operating margin fell to 21% in the first nine months of fiscal 2015 compared to 23.5% in the comparable period of the previous year.

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Third quarter margins

In 3Q15, Coca-Cola’s gross margin fell to 59.9% from 61.3% in 3Q14. The company’s operating margin fell to 20.8% in 3Q15 from 22.6% in 3Q14. This decrease was due to structural changes, currency headwinds, and higher advertising expenses.  PepsiCo’s (PEP) 3Q14 margin fell to 8.7% from 16.5%, mainly due to a $1.4 billion impairment charge for its Venezuelan operations.

Dr Pepper Snapple’s (DPS) 3Q15 operating margin in 3Q15 improved to 20.7% from 20.0% in 3Q14. Higher sales and the company’s productivity measures helped its margin. Cott’s (COT) margin improved to 3.8% in 3Q15 from 3.5% in 3Q14 due to the addition of the Aimia Foods Holdings and DSS businesses as well as cost and efficiency savings.

Coca-Cola’s productivity initiatives

Coca-Cola’s ongoing productivity program aims to generate $3 billion in annualized savings through 2019. These initiatives involve restructuring the global supply chain, implementing zero-based budgeting, streamlining and simplifying the company’s operating model, and increasing direct marketing investments efficiency.

The iShares Global Consumer Staples ETF (KXI) and the iShares Global Consumer Staples ETF (SPY) have 5.1% and 1% exposure to Coca-Cola, respectively.

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