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Why Is Coca-Cola (KO) Up 2.5% Since the Last Earnings Report?
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It has been about a month since the last earnings report for Coca-Cola Company (The) (KO - Free Report) . Shares have added about 2.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Fourth-quarter 2016 adjusted earnings of the company were $0.37 per share, which beat the Zacks Consensus Estimate of $0.36 by 2.8%.
Earnings declined 2.6% year over year due to currency headwinds. Excluding the 11% negative Fx impact and 51% from other items impacting comparability, earnings declined 55%.
Full-year earnings (non-GAAP) came in at $1.91, down 4.5%. Excluding the 9% negative Fx impact and 6% from other items hurting comparability, earnings declined 10%.
Sales Beat; Organic Revenues Improve
Net revenue declined 6% year over year to $9.40 billion due to currency headwinds and the negative impact of structural items. Currency headwinds hurt sales by 2%.
Acquisitions/divestitures and structural items had a 10% impact on revenues.
After adjusting for the negative Fx impact and acquisitions/divestitures, organic revenues rose 6%, higher than 3% growth in the previous quarter, driven by 6% price/mix growth.
Revenues surpassed the Zacks Consensus Estimate of $9.10 billion.
Margins
Adjusted consolidated gross margins contracted 10 basis points (bps) year over year to 59.4% as positive pricing and productivity gains were offset by currency headwinds.
Adjusted selling, general and administrative (SG&A) expenses declined 8% on a currency-neutral basis to $3.95 billion.
Adjusted operating income, on a constant currency basis, was $1.98 billion, up 7% year over year. Adjusted operating margin was 21.1%, up 110 bps from 20% a year ago.
Profit-before-tax (PBT) declined 5% to $2.05 billion. Currency translations hurt PBT by 11%. Structural changes had a negative impact of 7% on PBT. Excluding currency headwinds and structural changes, PBT rose 14%.
The structural changes mainly include the impact of bottler re-franchising efforts and the brand transfer agreement with Monster which closed in 2015.
Volume and Pricing
Coca-Cola witnessed 1% unit case volume decline in the quarter. Low single-digit unit case volume growth in developed markets was offset by continued macroeconomic challenges in several Latin American markets.
Unit case volume grew 1% in the quarter in North America that includes 1% growth in sparkling beverages.
Sparkling beverage unit case volume was down 2% while still beverage unit case volume grew 2%.
Price/mix increased 6% compared with a 1% rise in the previous quarter.
Developed markets increased volume ahead of emerging markets during the quarter led by 2% volume growth in Asia Pacific (led by Japan) and 1% volume growth in both North America and EMEA. Volumes in parts of Central Latin America, Brazil and Argentina declined mainly due to macroeconomic challenges in those regions.
Geographic Analysis
The company has five operating segments – Europe, Middle East and Africa (EMEA); Latin America; North America; Asia Pacific; Bottling Investments.
EMEA division recorded revenues of $1,645 million, down 4% year over year, due to currency headwinds and acquisitions, divestitures and structural items. Organic revenues rose 5%.
Volumes grew 1%, comparing favorably to 1% decline in the previous quarter. Price/mix remains neutral, lower than 3% last quarter. Even price/mix for the quarter included 1 point of unfavorable geographic mix.
Sparkling beverages volume were flat and Still beverages rose 6%.
The Latin America segment recorded revenues of $982 million, down 4% year over year due to 14% currency headwinds. Organic revenues increased 10% on strong price/mix which offset negative volume.
Price/mix increased 15% driven by inflationary price gains. Volumes were down 4%, comparing unfavorably with flat volume levels last quarter. Sparkling beverage volumes declined 5%, wider than the 2% decline in the previous quarter. Still beverages were flat compared with a decline of 1% in the previous quarter.
The North America segment revenues totaled $2,473 million, up 8% year over year on higher price/mix.
Volumes grew 1%, in line with the previous quarter. Price/mix increased 5% due to the company’s disciplined approach to pricing and packaging strategies.
Sparkling beverage volume growth was 1% and still beverage volume grew 1%.
The Asia-Pacific segment recorded revenues of $1,039 million, up 8% year over year, on account of positive currency impact and higher price/mix. Organic revenues were 7%, up from flat in the previous quarter as price/mix (up 9%) and positive currency impact (up 4%), were offset by flat volume and structural headwinds (down 3%).
Sparkling beverage volume was down 1%. Still beverage volume increased 1%.
Bottling Investments segment revenues declined 20% (up 3% on an organic basis) to $4,138 million as volumes declined 25% and structural headwinds impacted revenues by 23%.
Financial Details
As of Dec 31, 2016, cash and cash equivalents were $8,555 million, up from $7,309 million as of Dec 31, 2015. Long-term debt was $29,684 million as of Dec 31, 2016, up from $28,311 million as of Dec 31, 2015.
2017 Guidance
Organic revenues are expected to rise 3%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 18–19%, while Fx is likely to have a negative impact of 1–2% on revenues.
Excluding currency headwinds and structural changes, PBT is expected to increase 7–8%.
Foreign exchange is expected to hurt PBT by 3–4%. Structural changes are likely to have a 5–6% negative impact on PBT.
The company expects adjusted EPS to be down 1% to 4% from the prior year’s comparable EPS of $1.91.
The company expects to buy back shares worth $2.0 billion in 2017. Adjusted effective tax rate is likely to be 24%.
1Q17 Guidance
Foreign exchange is expected to hurt net revenues by 1–2% and PBT by 3–4%.
Additionally, acquisitions/divestitures/structural items are expected to impact revenues by 12–13% and PBT by 3–4%.
2018 Guidance
Foreign exchange is expected to hurt PBT by low-single digit.
Additionally, acquisitions/divestitures/structural items are expected to impact revenues by 16–17% and PBT by 1–2%.
Underlying Effective Tax rate is expected to be 26%.
Long-term Goals
The company expects mid-single digit growth for net revenue with balanced contribution of volume and price/mix.
The company expects 6-8% growth for PBT and high single-digit growth for EPS.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
At this time, Coca-Cola's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
While estimates have been broadly trending downward for the stock the magnitude of this revision is net zero. The stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
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Why Is Coca-Cola (KO) Up 2.5% Since the Last Earnings Report?
It has been about a month since the last earnings report for Coca-Cola Company (The) (KO - Free Report) . Shares have added about 2.5% in that time frame, underperforming the market.
Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Coca-Cola Tops Q4 Earnings, Revenues; Issues '17 View
Earnings Beat
Fourth-quarter 2016 adjusted earnings of the company were $0.37 per share, which beat the Zacks Consensus Estimate of $0.36 by 2.8%.
Earnings declined 2.6% year over year due to currency headwinds. Excluding the 11% negative Fx impact and 51% from other items impacting comparability, earnings declined 55%.
Full-year earnings (non-GAAP) came in at $1.91, down 4.5%. Excluding the 9% negative Fx impact and 6% from other items hurting comparability, earnings declined 10%.
Sales Beat; Organic Revenues Improve
Net revenue declined 6% year over year to $9.40 billion due to currency headwinds and the negative impact of structural items. Currency headwinds hurt sales by 2%.
Acquisitions/divestitures and structural items had a 10% impact on revenues.
After adjusting for the negative Fx impact and acquisitions/divestitures, organic revenues rose 6%, higher than 3% growth in the previous quarter, driven by 6% price/mix growth.
Revenues surpassed the Zacks Consensus Estimate of $9.10 billion.
Margins
Adjusted consolidated gross margins contracted 10 basis points (bps) year over year to 59.4% as positive pricing and productivity gains were offset by currency headwinds.
Adjusted selling, general and administrative (SG&A) expenses declined 8% on a currency-neutral basis to $3.95 billion.
Adjusted operating income, on a constant currency basis, was $1.98 billion, up 7% year over year. Adjusted operating margin was 21.1%, up 110 bps from 20% a year ago.
Profit-before-tax (PBT) declined 5% to $2.05 billion. Currency translations hurt PBT by 11%. Structural changes had a negative impact of 7% on PBT. Excluding currency headwinds and structural changes, PBT rose 14%.
The structural changes mainly include the impact of bottler re-franchising efforts and the brand transfer agreement with Monster which closed in 2015.
Volume and Pricing
Coca-Cola witnessed 1% unit case volume decline in the quarter. Low single-digit unit case volume growth in developed markets was offset by continued macroeconomic challenges in several Latin American markets.
Unit case volume grew 1% in the quarter in North America that includes 1% growth in sparkling beverages.
Sparkling beverage unit case volume was down 2% while still beverage unit case volume grew 2%.
Price/mix increased 6% compared with a 1% rise in the previous quarter.
Developed markets increased volume ahead of emerging markets during the quarter led by 2% volume growth in Asia Pacific (led by Japan) and 1% volume growth in both North America and EMEA. Volumes in parts of Central Latin America, Brazil and Argentina declined mainly due to macroeconomic challenges in those regions.
Geographic Analysis
The company has five operating segments – Europe, Middle East and Africa (EMEA); Latin America; North America; Asia Pacific; Bottling Investments.
EMEA division recorded revenues of $1,645 million, down 4% year over year, due to currency headwinds and acquisitions, divestitures and structural items. Organic revenues rose 5%.
Volumes grew 1%, comparing favorably to 1% decline in the previous quarter. Price/mix remains neutral, lower than 3% last quarter. Even price/mix for the quarter included 1 point of unfavorable geographic mix.
Sparkling beverages volume were flat and Still beverages rose 6%.
The Latin America segment recorded revenues of $982 million, down 4% year over year due to 14% currency headwinds. Organic revenues increased 10% on strong price/mix which offset negative volume.
Price/mix increased 15% driven by inflationary price gains. Volumes were down 4%, comparing unfavorably with flat volume levels last quarter. Sparkling beverage volumes declined 5%, wider than the 2% decline in the previous quarter. Still beverages were flat compared with a decline of 1% in the previous quarter.
The North America segment revenues totaled $2,473 million, up 8% year over year on higher price/mix.
Volumes grew 1%, in line with the previous quarter. Price/mix increased 5% due to the company’s disciplined approach to pricing and packaging strategies.
Sparkling beverage volume growth was 1% and still beverage volume grew 1%.
The Asia-Pacific segment recorded revenues of $1,039 million, up 8% year over year, on account of positive currency impact and higher price/mix. Organic revenues were 7%, up from flat in the previous quarter as price/mix (up 9%) and positive currency impact (up 4%), were offset by flat volume and structural headwinds (down 3%).
Sparkling beverage volume was down 1%. Still beverage volume increased 1%.
Bottling Investments segment revenues declined 20% (up 3% on an organic basis) to $4,138 million as volumes declined 25% and structural headwinds impacted revenues by 23%.
Financial Details
As of Dec 31, 2016, cash and cash equivalents were $8,555 million, up from $7,309 million as of Dec 31, 2015. Long-term debt was $29,684 million as of Dec 31, 2016, up from $28,311 million as of Dec 31, 2015.
2017 Guidance
Organic revenues are expected to rise 3%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 18–19%, while Fx is likely to have a negative impact of 1–2% on revenues.
Excluding currency headwinds and structural changes, PBT is expected to increase 7–8%.
Foreign exchange is expected to hurt PBT by 3–4%. Structural changes are likely to have a 5–6% negative impact on PBT.
The company expects adjusted EPS to be down 1% to 4% from the prior year’s comparable EPS of $1.91.
The company expects to buy back shares worth $2.0 billion in 2017. Adjusted effective tax rate is likely to be 24%.
1Q17 Guidance
Foreign exchange is expected to hurt net revenues by 1–2% and PBT by 3–4%.
Additionally, acquisitions/divestitures/structural items are expected to impact revenues by 12–13% and PBT by 3–4%.
2018 Guidance
Foreign exchange is expected to hurt PBT by low-single digit.
Additionally, acquisitions/divestitures/structural items are expected to impact revenues by 16–17% and PBT by 1–2%.
Underlying Effective Tax rate is expected to be 26%.
Long-term Goals
The company expects mid-single digit growth for net revenue with balanced contribution of volume and price/mix.
The company expects 6-8% growth for PBT and high single-digit growth for EPS.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.
Coca-Cola Company (The) Price and Consensus
Coca-Cola Company (The) Price and Consensus | Coca-Cola Company (The) Quote
VGM Scores
At this time, Coca-Cola's stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'F' on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for momentum based on our styles scores.
Outlook
While estimates have been broadly trending downward for the stock the magnitude of this revision is net zero. The stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.