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Coca-Cola (KO) Surpasses Q1 Earnings & Revenue Estimates

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The Coca-Cola Company (KO - Free Report) has delivered first-quarter 2021 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year. Comparable earnings of 55 cents per share beat the Zacks Consensus Estimate of 50 cents and improved 8% from the year-ago period. Currency translations negatively impacted earnings by 2%. Comparable currency-neutral earnings per share rose 10%.

Revenues of $9,020 million surpassed the Zacks Consensus Estimate of $8,466 million and improved 5% year over year. Organic revenues rose 6% from the prior-year quarter. The company’s top line benefited from better price/mix and an increase in concentrate sales. Also, five additional days in the quarter aided revenue growth by 6 percentage points.

In the quarter, the company lost a global value share in total non-alcoholic ready-to-drink beverages. Coca-Cola benefited from underlying share gains in both at-home and away-from-home channels, which were largely offset by negative channel mix due to pressures in the away-from-home channel. Notably, the company has a majority share position in the away-from-home channel.

Notably, Coca-Cola’s shares gained 1.2% in the pre-market trading session, owing to the better-than-expected first-quarter 2021 performance. Overall, the Zacks Rank #3 (Hold) stock has rallied 10.2% in the past three months compared with the industry’s growth of 4.2%.

 

 

Volume and Pricing

In the quarter, concentrate sales were up 5%, while price/mix was rose 1%. However, currency headwinds hurt the company’s top line by 1%.

Price/mix benefited from pricing gains in North America and Latin America, offset by adverse channel and package mix in key markets due to the coronavirus outbreak. Concentrate sales were 5 points ahead of unit case volume, owing to five additional days in the quarter, offset by the timing of concentrate shipments.

Coca-Cola’s total unit case volume was even in the first quarter as continued strength in at-home channels was offset by pressures in the away-from-home channels due to the coronavirus outbreak. The company witnessed strength in the developing and emerging markets, driven by China and India. Yet, the developed markets, including the United States and Western Europe, remained under pressure.

CocaCola Company The Price, Consensus and EPS Surprise

 

CocaCola Company The Price, Consensus and EPS Surprise

CocaCola Company The price-consensus-eps-surprise-chart | CocaCola Company The Quote

Category Cluster Performance: In the quarter, volume gains in trademark Coca-Cola, sparkling flavors, and the nutrition, juice, dairy and plant-based beverages category were offset by headwinds in the hydration category.

Sparkling soft drinks’ unit case volume improved 4% (compared with a 1% decline in the prior quarter), driven by robust gains in China, India and Latin America. This was partly negated by declines in the fountain business in North America and away-from-home channels in Europe. The Coca-Cola trademark was up 4% (compared with a 1% increase in the last reported quarter) on strong gains in the Asia Pacific and Latin America as well as Coca-Cola Zero Sugar. Notably, Coca-Cola Zero Sugar improved 8%, backed by strength across all geographic segments. Moreover, the sparkling flavors category improved 2% on growth in Trademark Sprite in the Asia Pacific.

Volume for nutrition, juice, dairy and plant-based beverages was up 3%. The category primarily gained from growth in Minute Maid Pulpy in China and Mazaa in India. In North America, strong growth in Simply and fairlife performance was more than offset by declines in Minute Maid.

Hydration, sports, coffee and tea category declined 11% in the first quarter. The company witnessed a 12% decline in hydration on broad-based declines across all geographies. Sports drinks were down 1%, owing to a fall in Europe, Middle East & Africa (“EMEA”), partly negated by strength in premium offerings and the zero/lights portfolio in North America. Tea volume dropped 6%, owing to declines in North America and the Asia Pacific. The coffee business witnessed a 21% decline on the pandemic-led impacts on Costa retail outlets.

Segmental Details

Revenues rose 3% for North America, 24% for the Asia Pacific and 14% for Bottling Investments. Meanwhile, revenues declined 2% for Latin America, 6% for EMEA and 1% for Global Ventures segments.

Organic revenues improved 8% in Latin America, 4% in North America, 18% in the Asia Pacific and 17% in Bottling Investments, offset by a 7% decline in EMEA and a 5% fall in Global Ventures.

Margins

Comparable currency-neutral operating income improved 7% year over year, driven by effective cost-management initiatives, partly offset by currency headwinds. In dollar terms, comparable operating income rose 6.1% to $2,794 million. Comparable operating margin expanded 30 basis points to 31%.

Other Developments

Concurrent to the earnings release, the company and Coca-Cola Beverages Africa (“CCBA”) announced plans to list CCBA as a publicly-traded company through an initial public offering (“IPO”). For the offering, Coca-Cola intends to sell a portion of its shareholding in CCBA. The companies expect to launch the IPO in the next 18 months. The shares will be listed in Amsterdam and Johannesburg, with Amsterdam being the primary exchange.

Following the IPO, CCBA will operate as an independent company, with operations focused in Africa and headquartered in South Africa.

Guidance

Though the uncertainties related to the coronavirus pandemic remain, the company retained its organic revenue and comparable EPS growth guidance for 2021. It estimates organic net sales growth in high-single digits for 2021. It expects a comparable EPS growth rate of high-single to low-double-digits, whereas it reported $1.95 in 2020.

Comparable net revenues are now anticipated to be aided by a 1-2% currency tailwind, based on current rates and hedge positions. The company now expects an underlying effective tax rate of 19.1% for 2021. Earlier, it anticipated 2-3% currency tailwinds on net revenues and an effective tax rate of 19.5%.

Comparable EPS is now expected to include a favorable currency impact of 2-3% compared with the previously mentioned 3-4% currency tailwinds.

Additionally, the company estimates free cash flow of at least $8.5 billion for 2021, with cash flow of at least $10 billion and capital expenditure of $1.5 billion.

Moreover, for second-quarter 2021, it anticipates comparable net revenues and comparable EPS to include currency tailwinds of 3-4% and 5-6%, respectively, based on current rates.

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