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Coca-Cola (KO) Up 4.1% Since Earnings Report: Can It Continue?
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A month has gone by since the last earnings report for The Coca-Cola Company (KO - Free Report) . Shares have added about 4.1% in that time frame, outperforming 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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
The Coca-Cola Company’s first-quarter 2016 adjusted earnings of the company were $0.43 per share, shy of the Zacks Consensus Estimate of $0.44 by 2.3%.
Earnings declined 4.4% year over year due to currency headwinds as well as higher costs associated with its refranchising efforts.
Sales Beat
Net revenue declined 11% year over year to $9.12 billion due to currency headwinds and the negative impact of structural items. Currency headwinds hurt sales by 1%.
Acquisitions/divestitures and structural items had a 10% impact on revenues, partly offset by 3% positive contribution of price/mix.
Revenues surpassed the Zacks Consensus Estimate of $8.97 billion.
Margins
Adjusted consolidated gross margins expanded 20 basis points (bps) year over year to 61.3% as currency headwinds were offset by positive pricing and productivity gains.
Adjusted selling, general and administrative (SG&A) expenses declined 11% on a currency-neutral basis.
The company’s comparable currency neutral operating margin (non-GAAP) expanded 226 bps, while comparable operating margin grew 137 bps.
Comparable income before income tax declined 2% to $2.48 billion. It declined 19% on a currency neutral basis.
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’s total unit case volume was even in the quarter (compared with 2% growth in the year ago quarter and 1% decline in the preceding one), which included less than a half point of growth from the acquired brands. Unit case volume was impacted by macroeconomic headwinds in some Latin American markets. Again, the shift of the Easter holiday into the second quarter compounded the woes. Brazil and Venezuela accounted for over a 1% drag on consolidated unit case volume growth.
From a market segmentation viewpoint, the company’s developed markets delivered 1% unit case volume growth.
Sparkling beverage unit case volume was down 1%; Juice, dairy, and plant-based beverages were even; Water, enhanced water, and sports drinks were up 3%; and Tea and Coffee was up 2%.
Price/mix increased 3% compared with a 3% rise in the previous quarter.
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, income before tax is expected to increase 7–8%.
Foreign exchange is expected to hurt income for tax by 3%. Structural changes are likely to have a 5–6% negative impact on it.
The company expects adjusted EPS to be down 1% to 3% from the prior year’s comparable EPS of $1.91.
The company expects to buy back shares worth $2.0 billion in 2017. The adjusted effective tax rate is likely to be 24%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been four upward revisions in the last two months.
At this time, Coca-Cola Company's stock has a poor Growth Score of 'F'. Its Momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. 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 investors based on our style scores.
Outlook
While estimates have been moving upward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.
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Coca-Cola (KO) Up 4.1% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for The Coca-Cola Company (KO - Free Report) . Shares have added about 4.1% in that time frame, outperforming 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 of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Coca-Cola Q1 Earnings Miss, Refranchising Costs Hurt
Earnings Miss
The Coca-Cola Company’s first-quarter 2016 adjusted earnings of the company were $0.43 per share, shy of the Zacks Consensus Estimate of $0.44 by 2.3%.
Earnings declined 4.4% year over year due to currency headwinds as well as higher costs associated with its refranchising efforts.
Sales Beat
Net revenue declined 11% year over year to $9.12 billion due to currency headwinds and the negative impact of structural items. Currency headwinds hurt sales by 1%.
Acquisitions/divestitures and structural items had a 10% impact on revenues, partly offset by 3% positive contribution of price/mix.
Revenues surpassed the Zacks Consensus Estimate of $8.97 billion.
Margins
Adjusted consolidated gross margins expanded 20 basis points (bps) year over year to 61.3% as currency headwinds were offset by positive pricing and productivity gains.
Adjusted selling, general and administrative (SG&A) expenses declined 11% on a currency-neutral basis.
The company’s comparable currency neutral operating margin (non-GAAP) expanded 226 bps, while comparable operating margin grew 137 bps.
Comparable income before income tax declined 2% to $2.48 billion. It declined 19% on a currency neutral basis.
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’s total unit case volume was even in the quarter (compared with 2% growth in the year ago quarter and 1% decline in the preceding one), which included less than a half point of growth from the acquired brands. Unit case volume was impacted by macroeconomic headwinds in some Latin American markets. Again, the shift of the Easter holiday into the second quarter compounded the woes. Brazil and Venezuela accounted for over a 1% drag on consolidated unit case volume growth.
From a market segmentation viewpoint, the company’s developed markets delivered 1% unit case volume growth.
Sparkling beverage unit case volume was down 1%; Juice, dairy, and plant-based beverages were even; Water, enhanced water, and sports drinks were up 3%; and Tea and Coffee was up 2%.
Price/mix increased 3% compared with a 3% rise in the previous quarter.
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, income before tax is expected to increase 7–8%.
Foreign exchange is expected to hurt income for tax by 3%. Structural changes are likely to have a 5–6% negative impact on it.
The company expects adjusted EPS to be down 1% to 3% from the prior year’s comparable EPS of $1.91.
The company expects to buy back shares worth $2.0 billion in 2017. The adjusted effective tax rate is likely to be 24%.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been four upward revisions in the last two months.
The Coca-Cola Company Price and Consensus
Coca-Cola Company (The) Price and Consensus | Coca-Cola Company (The) Quote
VGM Scores
At this time, Coca-Cola Company's stock has a poor Growth Score of 'F'. Its Momentum is doing a lot better with a 'B'. However, the stock was allocated a grade of 'D' on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'F'. 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 investors based on our style scores.
Outlook
While estimates have been moving upward, the magnitude of the revision is net zero. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.