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Coca-Cola (KO) Beats on Q2 Earnings & Revenues, Updates View

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The Coca-Cola Company (KO - Free Report) delivered a strong second-quarter 2018 with better-than-expected earnings and sales. This marked the fifth straight quarter of an earnings beat while sales topped estimates for the fourth consecutive quarter. Second-quarter results gained from the effective execution of the company’s strategies to evolve as a consumer-centric, total beverage company.

Alongside introduction of new products, the company is focused on lifting and shifting successful brands globally. It also benefited from the acceleration of its sparkling soft drinks category through investment and innovation. Notably, this category reflected 5% retail value growth in the second quarter.

Shares of Coca-Cola jumped 1.2% after the solid second-quarter results. Moreover, the stock has increased 5.8% in the last three months, outperforming the industry’s growth of 2.8%.

Q2 in Detail

The company’s second-quarter 2018 comparable earnings were 61 cents per share, surpassing the Zacks Consensus Estimate of 60 cents. The bottom line also improved 3% from the year-ago period, driven by ongoing productivity efforts. Currency translation negatively impacted earnings by 2%.

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

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

Revenues of $8.9 billion outpaced the Zacks Consensus Estimate of $8.6 billion. However, net revenues declined 8% year over year due to a 15% adverse effect from the refranchising of company-owned bottling operations. This represented the company’s 13th successive quarterly fall.

However, organic revenues grew 5%, aided by concentrate sales improvement of more than 2% and price/mix growth of more than 2%.

Volume and Pricing

Coca-Cola’s total unit case volume expanded 2%, boosted by growth in the Coca-Cola Trademark. This included a double-digit increase for Coca-Cola Zero Sugar and the consistent gains at Fuze Tea. Further, the company witnessed a 2% rise in price/mix, backed by continued strength in pricing and mix in the company's international operations.

Category Cluster Performance: Sparkling beverage unit case volume increased 2% (compared with 4% growth in the prior quarter). Juice, dairy and plant-based beverages witnessed a 2% decline (compared with 3% decrease in the preceding quarter). Water, enhanced water and sports drinks were up 4% (in comparison to 1% in Q1), and Tea and Coffee slipped 1% (compared with 5% growth in Q1).

Segment Details

Revenues grew 7% each in North America and Europe, the Middle East & Africa (EMEA), and 8% at Latin America segment. However, revenues at Asia Pacific segment inched up modestly by 1%.

Organic revenues grew across the board except North America. While organic revenues for North America dipped 1%, it improved 7% in Europe, Middle East & Africa, 11% in Latin America, 6% in Asia Pacific and 11% for Bottling Investments.


Comparable operating margin expanded more than 300 basis points (bps), 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 and currency headwinds.

2018 Guidance

Organic revenues are expected to rise at least 4%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 17% while currency is likely to affect revenues by 1%. Again, revenues will be positively impacted by 1-2% from Accounting Standards Update 2014-09.

Comparable currency-neutral operating income (structurally adjusted) is expected to increase at least 9%. Foreign exchange is expected to hurt comparable operating income by 4%. 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 nearly $8 billion.

The company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Upcoming Peer Releases

Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) is scheduled to report quarterly results on Jul 27.

Keurig Dr Pepper Inc. (KDP - Free Report) is expected to release quarterly results on Jul 26.

Monster Beverage Corp. (MNST - Free Report) is scheduled to announce quarterly results on Aug 8.

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