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Can Coca-Cola (KO) Keep the Earnings Streak Alive in Q3?
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The Coca-Cola Company (KO - Free Report) is slated to report third-quarter 2016 results on Oct 26, before the opening bell. Last quarter, the company posted a positive earnings surprise of 3.45%.
In fact, the cola giant surpassed earnings estimates in each of the past four quarters, with an average surprise of 2.61%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Coca-Cola is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Coca-Cola has an Earnings ESP of +2.08%. That is because the Most Accurate estimate is 49 cents while the Zacks Consensus Estimate is pegged lower at 48 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Coca-Cola has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
As stated during the second-quarter earnings call, the company expects Fx headwinds to hurt sales by 2% and profit before tax or PBT by 2–3%. Acquisitions/divestitures and structural items are likely to hurt revenues by 9% and PBT by 3%.
Revenue growth is expected to be stronger in the fourth quarter than the preceding one due to two additional selling days in the fourth quarter. The strong underlying operating leverage witnessed in the first half of 2016 is expected to moderate in the second half due to difficult comparisons. This factor is expected to hurt profits more in the third quarter than the fourth.
Coca-Cola’s aggressive cost-cutting and strategic initiatives led to better-than-expected results in the second quarter amid heightened global volatility and macro headwinds. Increase in the company’s marketing investments supported volume growth, especially in North America. We expect to see similar trends in North America in the yet-to-be reported quarter.
Also, pricing gains, cost cuts and productivity savings should continue to support the bottom line.
However, unfavorable currency and lower volumes of carbonated soft drinks due to declining demand will continue to hurt the top line. Moreover, Coca-Cola’s bottler re-franchising will impact sales/profits in the quarter, though they are anticipated to enhance margins and returns as well as ensure solid growth in the long term.
Stocks to Consider
Here are three companies you may want to consider in the broader consumer staples sector as our model shows they have the right combination of elements to post an earnings beat this quarter:
Avon Products Inc. has an earnings ESP of +33.33% and a Zacks Rank #1. The company is scheduled to report third-quarter 2016 results on Nov 3.
Cott Corporation has an earnings ESP of 33.33% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Nov 10.
Coty Inc. (COTY - Free Report) has an earnings ESP of 2.94% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Nov 3.
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Can Coca-Cola (KO) Keep the Earnings Streak Alive in Q3?
The Coca-Cola Company (KO - Free Report) is slated to report third-quarter 2016 results on Oct 26, before the opening bell. Last quarter, the company posted a positive earnings surprise of 3.45%.
In fact, the cola giant surpassed earnings estimates in each of the past four quarters, with an average surprise of 2.61%.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Coca-Cola is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: Coca-Cola has an Earnings ESP of +2.08%. That is because the Most Accurate estimate is 49 cents while the Zacks Consensus Estimate is pegged lower at 48 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Coca-Cola has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Coca-Cola’s Zacks Rank #3 and +2.08% ESP makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
COCA COLA CO Price and EPS Surprise
COCA COLA CO Price and EPS Surprise | COCA COLA CO Quote
What is Driving Better-Than-Expected Earnings?
As stated during the second-quarter earnings call, the company expects Fx headwinds to hurt sales by 2% and profit before tax or PBT by 2–3%. Acquisitions/divestitures and structural items are likely to hurt revenues by 9% and PBT by 3%.
Revenue growth is expected to be stronger in the fourth quarter than the preceding one due to two additional selling days in the fourth quarter. The strong underlying operating leverage witnessed in the first half of 2016 is expected to moderate in the second half due to difficult comparisons. This factor is expected to hurt profits more in the third quarter than the fourth.
Coca-Cola’s aggressive cost-cutting and strategic initiatives led to better-than-expected results in the second quarter amid heightened global volatility and macro headwinds. Increase in the company’s marketing investments supported volume growth, especially in North America. We expect to see similar trends in North America in the yet-to-be reported quarter.
Also, pricing gains, cost cuts and productivity savings should continue to support the bottom line.
However, unfavorable currency and lower volumes of carbonated soft drinks due to declining demand will continue to hurt the top line. Moreover, Coca-Cola’s bottler re-franchising will impact sales/profits in the quarter, though they are anticipated to enhance margins and returns as well as ensure solid growth in the long term.
Stocks to Consider
Here are three companies you may want to consider in the broader consumer staples sector as our model shows they have the right combination of elements to post an earnings beat this quarter:
Avon Products Inc. has an earnings ESP of +33.33% and a Zacks Rank #1. The company is scheduled to report third-quarter 2016 results on Nov 3.
Cott Corporation has an earnings ESP of 33.33% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Nov 10.
Coty Inc. (COTY - Free Report) has an earnings ESP of 2.94% and a Zacks Rank #3. The company is scheduled to report its quarterly numbers on Nov 3.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>