Can Coca-Cola (KO) Q3 Earnings Beat Countering Inflation Woes?
The Coca-Cola Company KO is expected to register top-line growth when it reports third-quarter 2023 numbers on Oct 24, before the opening bell. The Zacks Consensus Estimate for the company’s third-quarter revenues is pegged at $11.5 billion, suggesting 3.6% growth from the prior-year quarter’s reported figure.
For third-quarter earnings, the consensus mark is pegged at 69 cents, suggesting flat results with the year-ago quarter’s reported figure. The consensus mark has been unchanged in the past 30 days.
In the last reported quarter, the leading soft drink behemoth’s earnings beat the Zacks Consensus Estimate by 8.3%. The company has delivered an earnings surprise of 5.2%, on average, in the trailing four quarters.
CocaCola Company (The) Price and EPS Surprise
CocaCola Company (The) price-eps-surprise | CocaCola Company (The) Quote
Key Points to Note
Coca-Cola’s performances in recent quarters have been benefiting from strategic transformation and ongoing recovery around the world. The company’s third-quarter performance is expected to have gained from revenue growth across its operating segments, aided by an improved price/mix and an increase in concentrate sales. Underlying share gains in at-home and away-from-home channels are also expected to have bolstered the performance.
The company’s volumes in the third quarter are expected to have benefited from the ongoing recovery in markets. Category-wise, volumes have been benefiting from growth in trademark Coca-Cola; sparkling flavors; the nutrition, juice, dairy and plant-based beverages; and hydration, sports, coffee and tea categories.
Our model predicts year-over-year organic revenue growth of 6.4% for the third quarter, mainly driven by 5% growth of the price/mix and a 1.4% rise in concentrate sales volume. Consequently, reported revenue growth is expected to be 3.4%.
Coca-Cola’s third-quarter results are likely to reflect gains from innovations and accelerating digital investments. The company has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. KO has been accelerating investments to build strong digital capabilities. It has been consistently strengthening consumer connections and piloting various digital initiatives through fulfillment methods to capture the online demand, which are likely to have boosted third-quarter sales.
However, Coca-Cola has been witnessing pressures from higher supply-chain costs, including rising commodity input costs and transportation expenses. The pressures from input cost inflation and other costs are likely to have hurt the company’s performance in the third quarter.
Our model predicts the cost of products sold, as a percentage of sales, to expand 50 bps year over year to 41.3% in the third quarter. Higher cost of products sold rate is likely to have partly offset the rise in gross margin in the quarter. We estimate the gross margin to expand 20 bps to 41.5% in the to-be-reported quarter. On a dollar basis, gross profit is expected to increase 4.1% year over year in the third quarter.
Coca-Cola has been investing in its markets and brands to support sales growth, with higher spending on consumer-facing activities. This has led to increased marketing investments in the past few quarters. Rising marketing spending, and growth in short-term incentives and stock-based compensation are expected to have led to increased selling, general and administrative expenses in the third quarter.
As a percentage of sales, we expect adjusted SG&A expenses to increase 20 basis points to 29.9% in the third quarter.
On the last reported quarter’s earnings call, the company expected adverse currency rates to hurt the top and bottom lines in the third quarter. It expects a currency headwind of 2% on comparable revenues and 2% on comparable earnings per share for the third quarter. Additionally, revenues are expected to reflect a 1% negative impact of acquisitions, divestitures and structural changes.
Zacks Model
Our proven model does not conclusively predict an earnings beat for Coca-Cola this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Coca-Cola has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.09%.
Stocks With Favorable Combination
Here are some companies you may want to consider, as our model shows that they have the right combination of elements to deliver an earnings beat.
Hershey HSY has an Earnings ESP of +1.29% and a Zacks Rank #3 at present. The company is expected to see top and bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for its quarterly revenues is pegged at $2.97 billion, which suggests growth of 9% from the figure reported in the prior-year quarter.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Hershey’s quarterly earnings has moved down by a penny in the past seven days to $2.47 per share. The consensus mark suggests growth of 13.8% from the year-ago quarter’s reported number. HSY has delivered an earnings surprise of 8.9%, on average, in the trailing four quarters.
Colgate-Palmolive CL has an Earnings ESP of +0.37% and a Zacks Rank #3 at present. The company is expected to witness top and bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for CL’s quarterly earnings has been unchanged in the past 30 days at 80 cents per share. The consensus mark suggests 8.1% growth from that reported in the year-ago quarter.
The Zacks Consensus Estimate Colgate’s quarterly revenues is pegged at $4.8 billion, which indicates growth of 8.3% from the figure reported in the prior-year quarter. CL has delivered an earnings surprise of 1.7%, on average, in the trailing four quarters.
The Boston Beer Company SAM has an Earnings ESP of +0.17% and a Zacks Rank #3 at present. The company is slated to witness bottom-line growth when it reports third-quarter 2023 results. The Zacks Consensus Estimate for SAM’s quarterly earnings has moved up by a penny in the past seven days to $4.25 per share, suggesting growth of 11.3% from the year-ago quarter’s reported number.
The Zacks Consensus Estimate for Boston Beer’s quarterly revenues is pegged at $892.9 million, which suggests a decline of 0.6% from the figure reported in the prior-year quarter. SAM has delivered a negative earnings surprise of 74.9%, on average, in the trailing four quarters.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
Hershey Company (The) (HSY) : Free Stock Analysis Report
Colgate-Palmolive Company (CL) : Free Stock Analysis Report
The Boston Beer Company, Inc. (SAM) : Free Stock Analysis Report
