Morgan Stanley Notes 'Overblown' Enthusiasm from Coca-Cola Investors

In a report published Monday, Morgan Stanley analyst Dara Mohsenian noted a couple concerns for The Coca-Cola Company KO following first quarter earnings. On Tuesday, April 15, Coca-Cola reported a drop in earnings. Profit for the quarter fell from $1.75 billion, or $0.39 per share a year ago, to $1.62 billion, or $0.36 per share. Net operating volume fell to $10.58 billion but beat analyst estimates of $10.55 billion. Global volume increased 2 percent in the quarter. Despite shareholder optimism, Mohsenian remarked on a few concerns for management. The analyst noted that enthusiasm was “overblown” as “First, Q1 volume and pricing both appeared to benefit from rounding with volume and pricing more in the 1.5% range on an un-rounded basis. Second, Coke's 2% pricing result in Q2 not only benefitted from timing but also from the Innocent acquisition in Europe, and we estimate was up slightly less than 1% excl. these items, which is actually slightly below trends in H2 of 2013.” Morgan Stanley commented that Coca-Cola's organic volume and sales will likely accelerate above forecasts, returning to a 3 to 4 percent long-term volume growth target. The analyst is “skeptical” on growth longer-term as the CSD slowdown is “more secular with health/wellness pressure and consumer demand fragmentation.” Mohsenian rates Coca-Cola as Equal-weight due to topline struggles and the potential for rebound between the second and fourth quarter. Shares of The Coca-Cola Company closed at $40.72 on Thursday and are currently down 5.432 percent at $40.50.