It has been about a month since the last earnings report for Coca-Cola (KO). Shares have added about 3.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.
Coca-Cola Q3 Earnings & Sales Beat Estimates
Coca-Cola has delivered third-quarter 2020 results, wherein earnings and sales beat estimates. Comparable earnings of 55 cents per share beat the Zacks Consensus Estimate of 45 cents but declined 2% from the year-ago period. Currency translations negatively impacted earnings by 7%. Comparable currency-neutral earnings per share rose 5%.
Revenues of $8,652 million surpassed the Zacks Consensus Estimate of $8,353 million but declined 9% year over year. Organic revenues were down 6% from the prior-year quarter. The company’s top line declined from the prior year, owing to headwinds in the away-from-home channels, which accounts for nearly half of its total revenues. This was partly offset by sustained improvement in the at-home channels. Nonetheless, the company’s third-quarter revenues reflected improved trends from the second quarter.
During the quarter, concentrate sales declined 4% and price/mix was down 3%. Moreover, currency headwinds hurt the company’s top line by 3%.
During the quarter, it lost global value share in total non-alcoholic ready-to-drink (NARTD) beverages. The decline was attributed to a negative channel mix due to softness in the away-from-home channels, where it has a majority share position. This more than offset the overall underlying share gains.
Volume and Pricing
Price/mix was down 3%, driven by adverse channel and package mix in key markets due to the coronavirus outbreak. Also, negative mix in the Global Ventures and Bottling Investments segment impacted price/mix. Concentrate sales were in line with unit case volume.
Coca-Cola’s total unit case volume was down 4% in the third quarter on declines in all operating segments, owing to pressures in the away-from-home channels due to the coronavirus outbreak. This was partly offset by continued strength in at-home channels.
Category Cluster Performance: Sparkling soft drinks’ unit case volume edged down 1% (compared with a 12% decline in the prior quarter), driven by declines in the fountain business in North America and Mexico, mainly owing to a decline in away-from-home channels. The Coca-Cola trademark was up 1%, with Coca-Cola Zero Sugar improving 7%. Volume for juice, dairy and plant-based beverages declined 6% (compared with a 20% fall in the last reported quarter). This category was primarily impacted by softness in the Asia Pacific and Latin America operating segments, which more than offset the strength in Simply and fairlife in North America.
Water, enhanced water and sports drinks fell 11% (compared with a 24% decline in the second quarter), mainly owing to broad-based declines across operating segments, particularly for the lower-margin water brands. Tea and coffee volume dropped 15% (compared with a 31% decline in the second quarter), owing to pandemic-led disruptions at the Costa retail stores as well as headwinds in the dogadan tea business in Turkey.
Revenues declined 2% for North America, 23% for Latin America, 9% for the Asia Pacific, 7% for Europe, Middle East & Africa (“EMEA”), 12% for Bottling Investments, and 19% for Global Ventures segments.
Organic revenues fell 4% in Latin America, 3% in North America, 8% in the Asia Pacific, 6% in EMEA, 20% in Global Ventures segments and 6% in Bottling Investments.
Comparable currency-neutral operating income improved 7% year over year, driven by effective cost-management initiatives across all operations, partly offset by top-line pressures due to the pandemic. Comparable operating margin expanded 230 basis points (bps) to 30.4%. In dollar terms, comparable operating income declined 1.4% to $2,629 million.
Though the company did not provide guidance for the fourth quarter and 2020 due to the uncertainties related to the coronavirus pandemic, it outlined the expected currency impacts on its results for both periods.
For 2020, it estimates currency headwinds of 3% on comparable net revenues and 6% on comparable operating income, based on current rates and hedge positions. The company expects underlying effective tax rate of 19.5% for 2020.
For the fourth quarter, it expects currency impacts of 3% on comparable net revenues and 9% on comparable operating income.
Additionally, the company estimates minimal currency impacts on comparable net revenues and comparable operating income in 2021.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Coke has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, 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 C. 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 has been net zero. Notably, Coke has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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CocaCola Company The (KO) : Free Stock Analysis Report
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