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Can Coca-Cola (KO) Retain Its Positive Earnings Streak in Q2?

Zacks Equity Research

The Coca-Cola Company KO is scheduled to report second-quarter 2019 earnings on Jul 23, before the opening bell. The company boasts an impressive surprise history, having surpassed earnings estimates in seven of the past eight quarters. Moreover, it delivered sales beat in the last seven quarters.

The Zacks Consensus Estimate for the company’s second-quarter earnings is pegged at 62 cents, which reflects a 1.6% increase from the year-ago quarter. Further, estimates remained unchanged in the last 30 days. The consensus estimate for its quarterly revenues is pegged at $9.68 billion, indicating growth of 8.4% from the year-ago quarter.

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 Q2 Performance

Coca-Cola’s positive surprise trend is well supported by the effective execution of the strategies to evolve as a consumer-centric total beverage company. Its strategy of introducing new 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 sixth straight time in first-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.

Bringing innovation for Coke to the next level, the company is testing Coca-Cola coffee in several Asia markets. Encouraged by the initial test results, it now plans to launch Coke coffee in more than 25 markets around the world by the end of 2019. Additionally, it is testing the Coke Energy — another variant of Coke — with more energy-boosting characteristics and new taste. These innovations to the flagship as well as other brands are likely to bolster top and bottom-line growth in the second quarter as well.

Furthermore, Coca-Cola’s commitment to the productivity and reinvestment program positions it for increased savings in the quarters to come. The company is on track to achieve almost $5 billion in savings from 2008 through 2019, with the help of productivity and reinvestment programs. 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 has shown resilience. The stock has gained 10.3% in the past three months compared with the industry’s growth of 5.6%.


Despite witnessing robust growth, the company’s sales and earnings have persistently been hurt by adverse currency rates. The company estimates currency headwinds to continue impacting results in the second quarter and 2019 as is reflected by its guidance. It estimates unfavorable currency to affect revenues by 3-4% and comparable operating income by 6-7% in 2019. Meanwhile, currency headwinds are likely to hurt comparable net revenues by 4-5% and comparable operating income by 7% in second-quarter 2019.

Moreover, the company’s overall outlook for 2019 remained drab. It estimates organic revenues to rise nearly 4% in 2019, lower than 5% growth witnessed in 2018. Comparable earnings are expected to either decline 1% or increase 1% from earnings of $2.08 per share recorded in 2018.

Segmental Discussion

Europe, Middle East and Africa or EMEA

Coca-Cola’s EMEA division delivered robust results in the last reported quarter, courtesy of higher price/mix and increase in unit case volume, offset by adverse currency. Revenues at this segment rose 5% year over year in first-quarter 2019. Further, the company gained value share in total NARTD beverages, led by market share gains in Europe, offset by value share declines in sparkling soft drinks in Nigeria.

For the second quarter of 2019, the Zacks Consensus Estimate for the EMEA segment’s revenues is pegged at $1,938 million, suggesting nearly 10.7% decrease from the year-ago quarter and a 9.4% increase from the last reported quarter.

Further, estimates for the segment’s operating income is pegged at $1,037 million, reflecting nearly 5.3% decline from the prior-year quarter and 6% growth from first-quarter 2019.

Latin America

In the Latin America division, Coca-Cola has been gaining from strong performance in Mexico through revenue growth initiatives and positive price/mix. However, the segment’s revenues declined 10% in the last quarter due to adverse currency and lower unit case volume despite solid price/mix. Further, the company gained value share in total NARTD beverages and majority category clusters.

The Zacks Consensus Estimate for the segment’s second-quarter revenues is pegged at $1,017 million, indicating a 1.4% decline from the prior-year quarter but a 13.5% increase from the last reported quarter.

Further, estimates for the segment’s operating income stands at $613 million, suggesting 3.2% growth from the year-ago quarter and 23.6% gain sequentially.

North America

The company delivered robust performance in the North America region. Revenues in the region grew 1% year over year. The segment’s price/mix improved 4%, driven by strong pricing and mix within the sparkling soft drink portfolio as well as benefit of robust product mix. Further, the consensus mark for the segment’s revenues stands at $3,180 million, which suggests 2% growth from the year-ago quarter and 18.5% gain on a sequential basis.

The consensus estimate for the segment’s operating income stands at $747 million, almost flat with $745 million reported in the year-ago quarter and up 27.5% sequentially.

The Asia Pacific

Revenues at the Asia Pacific segment dipped 2% year over year in the first quarter. Price/mix declined 2% as growth in emerging and developing markets outpaced developed markets. Unit case volume benefited from positive performance across key markets, except for Australia. The consensus estimate for revenues for the division is pegged at $1,514 million, nearly flat with $1,517 million reported in second-quarter 2018.

Estimates for the segment’s operating income stands at $712 million, implying 0.8% growth from the prior-year quarter and 31.4% gain on a sequential basis.

Bottling Investments

Revenues at the Bottling Investments segment declined 5% in first-quarter 2019. The consensus mark for the division’s revenues is pegged at $1,589 million, suggesting 28.7% growth from the year-ago quarter and 59.5% gain sequentially.

Bottom Line

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 second-quarter 2019 results. However, currency-related headwinds will likely 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 -1.01%. 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:

The Procter & Gamble Company PG has an Earnings ESP of +0.84% and a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kimberly-Clark Corporation KMB currently has an Earnings ESP of +0.10% and a Zacks Rank #2.

Philip Morris International Inc. PM presently has an Earnings ESP of +0.38% and a Zacks Rank #2.

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