A month has gone by since the last earnings report for Coca-Cola (KO - Free Report) . Shares have added about 3.8% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Coke 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 catalysts.
Coca-Cola Tops Q3 Earnings & Revenues, Retains View
Coca-Cola delivered a strong third-quarter 2018, with better-than-expected earnings and sales. This marked the sixth straight quarter of an earnings beat while sales topped estimates for the fifth consecutive quarter. Third-quarter results gained from the effective execution of the company’s strategies to evolve as a consumer-centric total beverage company.
Alongside the introduction of 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.
Q3 in Detail
The company’s third-quarter 2018 comparable earnings were 58 cents per share that surpassed the Zacks Consensus Estimate of 55 cents. The bottom line also improved 14% from the year-ago period, driven by ongoing productivity efforts and disciplined growth strategies. Currency translation negatively impacted earnings by 8%.
Revenues of $8,245 million beat the Zacks Consensus Estimate of $8,227 million. However, net revenues declined 9% year over year due to 13% adverse effect from the refranchising of company-owned bottling operations. This represented the company’s 14th consecutive quarterly fall.
However, organic revenues grew 6%, aided by concentrate sales improvement of 4% and price/mix growth of 2%.
Volume and Pricing
Coca-Cola’s total unit case volume expanded 2%, boosted by growth in the Coca-Cola Trademark. Further, the company witnessed 2% rise in price/mix, backed by continued strength in the core business.
Category Cluster Performance: Sparkling beverage unit case volume increased 2% (compared with 2% growth in the prior quarter). Juice, dairy and plant-based beverages witnessed a 3% decline (compared with 2% decrease in the last reported quarter). Water, enhanced water and sports drinks were up 5% (in comparison with 4% growth in Q2), and Tea and Coffee slipped 2% (compared with 1% decline in Q2).
Revenues grew 12% in North America, and 1% in Europe, the Middle East & Africa (EMEA). However, revenues at the Asia Pacific segment edged down 1% while revenues dipped 3% at the Latin America segment. Bottling Investments were down 62% in the quarter under review.
Organic revenues grew across the board, backed by persistent innovation and revenue growth management initiatives within sparkling soft drinks, with double-digit volume growth of Coca-Cola Zero Sugar across all groups. Additionally, Fuze Tea and smartwater brands witnessed strong growth. Organic revenues for North America were up 2% while it improved 9% for EMEA, 19% for Latin America, 4% for the Asia Pacific and 10% for Bottling Investments segments.
Comparable operating margin expanded 575 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.
Organic revenues are expected to rise by at least 4%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 16% while currency is likely to affect revenues by 1%. The Accounting Standards Update 2014-09 will positively impact revenues by 2%.
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 3% negative impact on comparable operating income. The company expects adjusted EPS to grow 8-10% from the prior year’s comparable EPS of $1.91.
Coca-Cola expects to buy back shares worth $1 billion in 2018. The adjusted effective tax rate is likely to be 20.3%. Cash from operations is likely to be nearly $8 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -5.83% due to these changes.
At this time, Coke has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Coke has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.