Yesterday it was IBM, today it is the turn of that other Buffett favorite and consumer-spending bellwether, Coke, to disappoint and push the stock lower, when not only did KO miss on the top line, reporting $11.98 billion in sales, below the Estimate $12.12 billion, but utter some unpleasant words about the future, guiding "below its long-term EPS growth target for 2014." And because nothing says strong consumer like one of the biggest consumer staples blowing, we will merely wait for MCDs to come out next and complete the "recovery" picture.
And while elow we present some of the most amusing tidbits from the KO report, nothing beats "structural changes" as in:
- Reported net revenues were even in the quarter and declined 2% year to date. Excluding the impact of structural changes, comparable currency neutral net revenues grew 1% in the quarter and 2% year to date.
- Reported operating income increased 10% in the quarter and 2% year to date. Excluding the impact of structural changes, comparable currency neutral operating income grew 5% in both the quarter and year to date, while the Company continued to invest for growth in its brands with its global system partners.
- After adjusting for structural changes, the Company delivered comparable currency neutral net revenue growth of 1% in the quarter, capturing global price/mix of 1%. On a year-to-date basis, comparable currency neutral net revenues grew 2% after adjusting for structural changes.
Is "strucutral changes" anothera name for "everything that lost us money"?
And yes, FX is becoming a headwind:
- Third quarter reported EPS was $0.48, a decline of 13%, and comparable EPS was $0.53, even with the prior year quarter. Comparable currency neutral EPS increased 6%.
- Reported operating income [for Eurasia and Africa] grew 15% in the quarter, which included a 9 point headwind from foreign currency
- Reported operating income [for Latin America] decreased 9% in the quarter, which included a 6 point headwind from foreign currency
Talk to the Fed, guys. Talk to the Fed.
Moving on to the impact from Russia, which is about to wreak havoc on MCD as well:
- Volume grew 5% in the Eurasia and Africa Group in the quarter leading to volume and value share gains in NARTD beverages.... with the exception of the Russia, Ukraine and Belarus business unit, where volume declined 3%.
Surprisingly, no FX impact in North America but...
Reported net revenues decreased 2% in the quarter, which included a 2 point headwind from structural items related to refranchised territories and changes to our process of buying and selling recyclable materials. Positive price/mix of 1% was offset by a decrease in volume. Reported operating income decreased 5%, which included items impacting comparability, principally net gains/losses related to economic hedges. Comparable currency neutral operating income decreased 1%, primarily driven by increased brand investments and the impact of structural items, partially offset by gross margin expansion.
The bottom line: the "structurally adjusted" "FX-excluding" future is so bright... if only it wasn't for reality:
- We expect the impact of structural items to be a 1 to 2 point headwind on net revenues and an approximate 2 point headwind on operating income during the fourth quarter of 2014.
- We continue to expect fluctuations in currency exchange rates to have an unfavorable impact on our reported results in 2014. Based on current spot rates, our existing hedge positions, and the cycling of our prior year rates, we expect an approximate 7 point headwind on operating income during the fourth quarter of 2014. We now estimate currency will be a 6 point headwind on our full-year operating income, which is at the high end of the outlook we provided last quarter.
- We continue to expect operating leverage to be flat to slightly positive for the full year.
- We are now targeting full-year 2014 net share repurchases of $2.5 billion.
- Given the above, the Company expects to be below its long-term EPS growth target for 2014.
Bottom line: when one excludes reality, everything is great.