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Coca-Cola (KO) to Report Q3 Earnings: What Should You Expect?

Zacks Equity Research

The Coca-Cola Company KO is scheduled to report third-quarter 2019 earnings on Oct 18, before the opening bell. The company boasts an impressive surprise history, having surpassed earnings estimates in eight of the past nine quarters. Moresover, it delivered sales beat in the last eight quarters.

The Zacks Consensus Estimate for the company’s third-quarter earnings is pegged at 56 cents, which suggests a 3.5% decline from the year-ago quarter’s reported figure. However, estimates remained unchanged in the last 30 days. The consensus estimate for its quarterly revenues is pegged at $9.48 billion, indicating growth of 15% from the year-ago quarter’s reported number.

Coca-Cola Company (The) Price and EPS Surprise

 

Coca-Cola Company (The) Price and EPS Surprise

Coca-Cola Company (The) price-eps-surprise | Coca-Cola Company (The) Quote

Let’s see how things are shaping up for this announcement.
 
Factors to Influence Q3 Performance

Coca-Cola’s positive surprise trend is well supported by the effective execution of strategies to evolve as a consumer-centric total beverage company. Its strategy of introducing products alongside focus on lifting and shifting successful brands globally is aiding performance. It is also benefiting from the acceleration of sparkling soft drink category through investment and innovation. All these initiatives should continue to aid the company’s results in the upcoming quarter.

Notably, Coca-Cola is keen on reviving its sparkling soft drinks brand – Coke – through updates to the flagship product and its many variants. Recent momentum at the Coke brand is attributed to the success of Coke Zero Sugar over time, with more growth potential ahead. The Coke Zero Sugar delivered double-digit growth globally for the seventh straight time in second-quarter 2019. The company’s sparkling portfolio has been the prime beneficiary of the momentum in Coke Zero Sugar and other flavor innovations like Orange Vanilla Coke and Orange Vanilla Coke Zero Sugar.

In April 2019, innovations for the Coca-Cola trademark began a new chapter, with the launch of Coca-Cola Energy — another variant of Coke — with more energy-boosting characteristics and new taste. The company launched the brand in select European countries in the quarter. Coca-Cola Energy has now been launched in 14 countries, including recent rollouts in Japan, Australia and South Africa. The company expects to expand Coca-Cola Energy to about 20 markets by the end of 2019, including Mexico and Brazil.

Furthermore, Coca-Cola is on track with its productivity and reinvestment program that focuses on initiatives like restructuring the global supply chain — including the optimization of the manufacturing footprint in North America, investing in technology to streamline operations, implementing a zero-based budgeting program, headcount reductions and driving increased efficiency in direct marketing investments.

Savings from the program are being used to fund marketing programs and innovation to re-accelerate top-line growth, margin expansion and returns on capital. As of the end of 2018, the company had about $600 million remaining in growth productivity savings to be captured in 2019. These savings should aid bottom-line growth in the to-be-reported quarter to some extent.

Driven by these positives, the Coca-Cola stock showed resilience. The stock has gained 20.6% in the past year compared with the industry’s growth of 16.1%.

 


Despite witnessing robust growth, the company’s sales and earnings have persistently been hurt by adverse currency rates. It estimates currency headwinds to persist and impact results in the third quarter and 2019, as is reflected by its guidance. The company estimates unfavorable currency to affect revenues by 3% and comparable operating income by 6% in the third quarter. For 2019, unfavorable currency is now likely to affect revenues by 4% (compared with the previously mentioned 3-4% headwinds) and comparable operating income by 7-8% (compared with currency headwinds of 6-7% stated earlier).

Though Coca-Cola raised sales and operating income view for 2019, it reiterated the soft earnings outlook. For 2019, the company continues to expect comparable earnings to be down 1% to up 1% from $2.08 recorded in 2018. Currency headwinds are likely to be key deterrents to earnings.

We expect the company’s efforts — including improved marketing, innovation, strong brand power, focus on driving revenues by improved price/mix, and refranchising initiatives — to boost third-quarter 2019 results. However, currency-related headwinds should continue to mar results.

Zacks Model

Our proven model does not predict that Coca-Cola is likely to beat earnings estimates this quarter. This is because a stock needs to have — 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 #4 (Sell) and an Earnings ESP of 0.00%.

We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

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:

Church & Dwight Co., Inc CHD has an Earnings ESP of +3.45% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Estee Lauder Companies Inc EL presently has an Earnings ESP of +0.88% and a Zacks Rank #2.

Kimberly-Clark Corporation KMB currently has an Earnings ESP of +1.29% and a Zacks Rank #3.

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Kimberly-Clark Corporation (KMB) : Free Stock Analysis Report
 
Coca-Cola Company (The) (KO) : Free Stock Analysis Report
 
The Estee Lauder Companies Inc. (EL) : Free Stock Analysis Report
 
Church & Dwight Co., Inc. (CHD) : Free Stock Analysis Report
 
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