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Coca-Cola (KO) Stock Gains on Q1 Earnings & Revenue Beat

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The Coca-Cola Company (KO - Free Report) kicked off 2018 on a strong note, beating the Zacks Consensus Estimate on both counts in the first quarter. Apart from a significant rise in soda volumes, the cola giant gained from its growing beverage portfolio and restructuring efforts. Cost-cutting initiatives led by refranchising of its low-margin bottling operations, helped it to come up with better numbers.

Coca-Cola’s shares have rallied 1.6% in the pre-trading session following the earnings release.

Earnings Beat

First-quarter 2018 comparable earnings of the company were 47 cents per share, surpassing the Zacks Consensus Estimate of 46 cents.

Earnings also improved 8% from the year-ago profit level of 43 cents, helped by ongoing productivity efforts.

Sales Beat

Revenues of $7.63 billion in the quarter surpassed the Zacks Consensus Estimate of $7.43 billion. However, net revenues declined 16% year over year due to the negative impact of structural items, marking the 12th consecutive quarterly fall. Acquisitions/divestitures and structural items had 26% negative impact on revenues. The structural changes primarily include the impact of bottler refranchising efforts.

Organic revenues grew 5% in the quarter, aided by concentrate sales improvement of 4% and price/mix growth of 1%. Currency also impacted revenues positively by 2%.

Volume and Pricing

Coca-Cola’s total unit case volume grew 3% in the quarter versus flat growth in the preceding quarter.

Category Cluster Performance: Sparkling beverage unit case volume increased 4% (versus no growth in the prior quarter). Juice, dairy and plant-based beverages witnessed 3% decline (versus 2% growth in the preceding quarter). Water, enhanced water and sports drinks were up 1% (versus 2% in Q4), and Tea and Coffee were up 5% (compared with 2% growth in Q4).

Notably, Diet Coke’s North America volume grew in the quarter following a full brand revamp. The introduction of four bold, new flavors, along with contemporary, sleek packaging and innovative marketing, helped in the upside.

Quarterly Segment Details

Revenues grew 11% at North America, 13% at Europe, the Middle East & Africa, and 8% at Latin America segment. However, revenues at Asia Pacific segment increased modestly by 1%.

Organic revenues grew across the board, increasing 1% in North America, 8% in Europe, Middle East & Africa, 6% in Latin America, 3% in Asia Pacific and 13% in Bottling Investments.

Margins

Comparable gross margin expanded 270 basis points (bps) year over year to 64%. The company’s comparable operating margin grew 600 bps to 30.7% in the quarter, given the divestitures of lower-margin bottling businesses and ongoing productivity efforts. The upside was partly offset by the adoption of the new revenue recognition accounting standard.

2018 Guidance Reaffirmed

Organic revenues are expected to rise 4%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 17%, while Fx is likely to have a positive impact of 1% on revenues. Again, revenues will be positively impacted by 1-2% from Accounting Standards Update 2014-09.

Comparable currency income before income taxes (structurally adjusted) is expected to increase 8-9%. Foreign exchange is expected to hurt comparable income before taxes by 0-1%. Structural changes are likely to have a 2% negative impact on it.

The company expects adjusted EPS to grow 8-10% from the prior -year’s comparable EPS of $1.91.

The company expects to buy back shares worth $1 billion in 2018. The adjusted effective tax rate is likely to be 21%. Cash from operations is likely to be at least $8.5 billion.

Zacks Rank

Coca-Cola has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Peer Releases

PepsiCo, Inc. (PEP - Free Report) is slated to report first-quarter results on Apr 26. Monster Beverage (MNST - Free Report) is expected to report first-quarter results on May 3. Cott Corporation (COT - Free Report) is scheduled to report quarterly results on May 3.

 

Coca-Cola Company (The) Price, Consensus and EPS Surprise

 

Coca-Cola Company (The) Price, Consensus and EPS Surprise | Coca-Cola Company (The) Quote

 

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