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Can Coca-Cola (KO) Keep Earnings Beat Trend Alive in Q4?

Zacks Equity Research

The Coca-Cola Company KO is scheduled to report fourth-quarter 2018 earnings on Feb 14, before the opening bell. The company boasts an impressive surprise history, having surpassed earnings estimates in the last six quarters and delivering sales beat for the last five quarters.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 43 cents, which reflects an increase of 10.3% from the year-ago quarter. Moreover, estimates moved up by a penny in the last 30 days.

Coca-Cola Company (The) Price and EPS Surprise


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

Further, the consensus estimate for quarterly revenues is pegged at $7,055 million, mirroring a year-over-year decline of 6.1%.

Notably, Coca-Cola witnessed a year-over-year decline in revenues for the 14 straight quarters. In the last reported quarter, revenues declined 9% year over year due to adverse impact of the refranchising of company-owned bottling operations.

Let’s see how things are shaping up for this announcement.

Factors to Influence Q4 Performance

Coca-Cola remains committed to the productivity and reinvestment program that focuses on initiatives like restructuring the global supply chain, investing in technology to streamline operations, implementing a zero-based budgeting program, headcount reductions and driving efficiency in direct marketing investments. Notably, the company is on track to deliver savings of about $3.8 billion by 2019 through productivity programs.

The company’s quarterly results persistently gained from ongoing productivity efforts and disciplined growth strategies in the last few quarters. Its strategy of introducing new products, alongside focus on lifting and shifting successful brands globally, is aiding performance. The company’s earnings and sales are also benefiting from the acceleration of sparkling soft drinks category through investment and innovation. All these initiatives are expected to drive the top line and profitability in the fourth quarter.

Driven by these positives, the Coca-Cola stock showed resilience. The stock has surged 14.3% in the past year against the industry’s decline of 5.5%.


However, Coca-Cola undertook price increases across its system, effective from the third quarter, with a view to address the pressure from higher import and freight costs. Higher tariff on aluminum import is among the many other factors that led to the price increase. Escalating freight costs and increase in other input costs, which is impacting the bottling system and some of the company’s finished products, are other factors. While these price increases led to sequential improvements in price/mix in many regions, higher freight and import costs continued to partly offset results.

Further, the company expects unfavorable currency to hurt revenues and operating margin in the fourth quarter. Currency headwinds are likely to affect fourth-quarter revenues by 4-5% and comparable operating income by 10-11%. For 2018, the company is expected to witness currency headwinds of 1% and 4%, respectively, on revenues and comparable operating income.

Segmental Discussion

Europe, Middle East and Africa or EMEA

Coca-Cola’s EMEA division delivered positive results in the last reported quarter, courtesy of solid price/mix and higher unit case volume. Revenues at this segment increased 1% year over year in third-quarter 2018. Further, the company maintained value in total NARTD beverages and gained value share juice, dairy and plant-based beverages cluster.

For the fourth quarter, the Zacks Consensus Estimate for the EMEA segment’s revenues is pegged at $1,643 million, reflecting a decrease of 5.9% year over year and a decline of 16.7% from the last reported quarter.

Further, estimates for the segment’s operating income is pegged at $755 million, reflecting nearly 1% decline from the prior-year quarter and 19.7% decline from third-quarter 2018.

Latin America

In the Latin America division, Coca-Cola has been gaining from strong performance in Mexico and pricing in Argentina. The segment’s revenues improved 11% in the last quarter. Further, the company maintained value in total NARTD beverages and gained value share in all category clusters, except for juice, dairy and plant-based beverages cluster.

The Zacks Consensus Estimate for the segment’s fourth-quarter revenues is pegged at $942 million, mirroring a decline of 15.7% from the prior-year quarter and a decline of 6.1% from the last reported quarter.

Further, estimates for the segment’s operating income stands at $520 million, down 11.7% year over year and 18.9% sequentially.

North America

Coca-Cola delivered robust performance in the North America region. Revenues in the region grew 2% year over year. However, the segment’s price/mix was slightly positive as gains from pricing in the market were offset by higher freight costs and business mix. Nevertheless, the consensus mark for revenues stands at $2,964 million, which reflects substantial growth from $1,268 million reported in the year-ago quarter but, represents a decline of 5.2% on a sequential basis.

The consensus estimate for the segment’s operating income stands at $790 million, up 29.3% year over year and 7.3% sequentially.

The Asia Pacific

Revenues at the Asia Pacific segment rose 3% year over year in the third quarter. While price/mix remained flat, volume gains in China and India mainly aided top-line growth. However, the consensus estimate for revenues for the division is pegged at $1,005 million, down 2.3% from fourth-quarter 2017 and 29.4% from third-quarter 2018.

Moreover, estimates for the segment’s operating income stands at $337 million, up 2.7% from the prior-year quarter but, reflects a sequential decline of 45%.

Bottling Investments

Revenues at the Bottling Investments segment improved 13% in third-quarter 2018. Further, the consensus mark for the division’s revenues is expected to be $638 million, down 42.9% year over year and 29.8% sequentially.

Bottom Line

Despite the odds, we expect the company’s strategic efforts — including improved marketing, innovation, strong brand power, focus on driving revenues by improved price/mix and refranchising initiatives — to boost fourth-quarter 2018 results.

Zacks Model

Our proven model does not show that Coca-Cola is likely to beat earnings estimates this quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Coca-Cola currently has a Zacks Rank #3 and an Earnings ESP of -0.29%. The combination of the company’s positive rank and negative Earnings ESP makes surprise prediction difficult.

Stocks Likely to Beat on Earnings

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Coca-Cola European Partners PLC CCEP has an Earnings ESP of +2.34% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Monster Beverage Corporation MNST has an Earnings ESP of +0.31% and a Zacks Rank #2.

Turning Point Brands, Inc. TPB has an Earnings ESP of +11.11% and a Zacks Rank #2.

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