Soft drinks beverage bellwethers like The Coca-Cola Company KO and PepsiCo, Inc. PEP, along with a few other players are lined up to report earnings this week. Notably, these companies fall under the broader Consumer Staples sector that houses daily products, including a broad range of categories from agriculture operations to food and beverage companies.
Soft drinks are non-alcoholic beverages like sparkling soft drinks, enhanced water, sports and energy drinks, and plant-based beverages. Notably, the U.S. soft drinks industry has been battling industry-wide sluggishness in the carbonated soft-drinks category (CSD) on rising consumer health awareness. In addition, the zero or low-calorie alternatives are causing health hazards due to the use of artificial sweeteners. Slowdown of CSD sales remains a major concern for soft drink makers and might result in lower sales and margin declines.
Consequently, the Zacks Beverages - Soft drinks industry has declined 6.7% against the S&P 500 Index’s 1.9% growth in a year’s time. Currently, the industry is placed in the bottom 34%, displaying a Zacks Industry Rank of 171 out of more than 250 industries.
Nevertheless, product innovation including introduction of healthy non-carbonated drinks holds the key to success for these industry players. Apparently, major companies in the space are resorting to strategic buyouts to enrich their portfolio with fast-growing sparkling water and sports drinks. It is also imperative to mention that some of the industry players are enticed by the cannabis-infused drinks, which can be one of the best alternatives to the sugary sodas.
Now, let’s peep into these companies’ current affairs to know how they are placed and what lies in store for their upcoming earnings releases. Prior to that, a brief glance at the fourth-quarter 2018 earnings scenario, shows that the bottom line for the Consumer Staples space is likely to rise 2.6% year over year, per the latest Earnings Preview. Further, the top line for the sector is estimated to inch up 0.1%, while margins are projected to expand 0.3%.
Further, as of Feb 8, roughly 66.7% of the S&P 500 companies in this space have released the quarterly numbers. Out of these, 70% delivered earnings beat, while 55% trumped sales estimates. On a combined basis, 40% delivered both earnings and sales beat.
So, let’s see what awaits the following soft drinks stocks that are queued up for fourth-quarter 2018 earnings this week.
Coca-Cola, the non-alcoholic beverage giant, is benefiting from its robust brand identity, ongoing productivity efforts and strategic initiatives. Its strategy of introducing new products, besides focusing on lifting and shifting successful brands globally is an added positive. Further, the company has surpassed earnings estimates in the last six quarters, with five straight sales beats. 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. Meanwhile, currency headwinds are likely to hurt fourth-quarter revenues by 4-5% and comparable operating income by 10-11%. (Read more: Can Coca-Cola Keep Earnings Beat Trend Alive in Q4?)
Coca-Cola Company (The) Price and EPS Surprise
Coca-Cola Company (The) Price and EPS Surprise | Coca-Cola Company (The) Quote
Nevertheless, the Zacks Consensus Estimate for fourth-quarter earnings is pegged at 43 cents, mirroring a 10.3% improvement year over year. For revenues, the same is pinned at $7.06 billion, down nearly 6% from the year-ago period.
According to the Zacks model, Coca-Cola is likely to beat estimates this quarter. This is because our research shows that when a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) stock is combined with a positive Earnings ESP the chance of beating earnings estimates is high. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Coca-Cola’s Earnings ESP of +0.88% and a Zacks Rank #3 make us confident about earnings beat in the upcoming release. You can see the complete list of today’s Zacks #1 Rank stocks here.
Next in the list is PepsiCo, a leading global food and beverage company. It has outpaced earnings estimates in the last 11 quarters, with a sales beat in five of the trailing seven quarters. PepsiCo’s results are benefiting from strong performances in its international divisions, propelled by higher revenue growth in developing and emerging markets. Strong net revenues and operating profit growth at Frito-Lay North America along with sequential revenue gains in the North America Beverages segment has also been aiding its performance. Moreover, the company’s fundamental strength is evident from its solid brand portfolio, product innovation and strong snacks business. (Read more: Can PepsiCo Retain Positive Earnings Trend in Q4?)
Pepsico, Inc. Price and EPS Surprise
Pepsico, Inc. Price and EPS Surprise | Pepsico, Inc. Quote
The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.49, mirroring 13.7% year-over-year growth. Further, the consensus mark for quarterly revenues stands at $19.5 billion, reflecting 0.1% decline from the prior-year quarter. Nonetheless, PepsiCo is expected to beat earnings estimates according to the Zacks model. This is because it has an Earnings ESP of +0.20% and a Zacks Rank #3.
Coca-Cola European Partners plc CCEP, the maker of non-alcoholic ready-to-drink beverages, has surpassed earnings estimates in the trailing four quarters, the average being 3.3%. However, the Zacks model does not conclusively show that the company is likely to beat earnings estimates in the quarter under review. It has Earnings ESP of 0.00% and a Zacks Rank #2. Nevertheless, the Zacks Consensus Estimate for fourth-quarter earnings stands at 62 cents, up 6.9% from the year-ago quarter, while the same for revenues is pinned at $3.2 billion representing a 2.7% growth.
Coca-Cola European Partners PLC Price and EPS Surprise
Coca-Cola European Partners PLC Price and EPS Surprise | Coca-Cola European Partners PLC Quote
Next is New Age Beverages Corporation NBEV, which delivered a positive earnings surprise of 11.1% in the last reported quarter. The Zacks model shows that the company is unlikely to beat earnings estimates this quarter as it has an Earnings ESP of 0.00% and a Zacks Rank of 2. Further, the Zacks Consensus Estimate for the to-be-reported quarter is pegged at a loss of 4 cents, while the same for revenues stands at $14.1 million.
New Age Beverages Corporation Price and EPS Surprise
New Age Beverages Corporation Price and EPS Surprise | New Age Beverages Corporation Quote
Finally, Barfresh Food Group, Inc. BRFH, which is the producer of frozen, ready-to-blend beverages. The company has witnessed a negative earnings surprise of 100% in the third quarter. According to the Zacks model, the company is unlikely to beat earnings estimates this quarter. This is because it has an Earnings ESP of 0.00% and a Zacks Rank #3. Further, the Zacks Consensus Estimate for the quarter stands at break-even earnings. For revenues, the same is pegged at $5.3 million.
Barfresh Food Group Inc. Price and EPS Surprise
Barfresh Food Group Inc. Price and EPS Surprise | Barfresh Food Group Inc. Quote
Zacks' Best Stock-Picking Strategy
It's hard to believe, even for us at Zacks. But from 2000-2018, while the market gained +4.8% per year, our top stock-picking strategy averaged +54.3% per year.
How has that screen done lately? From 2017-2018, it sextupled the market's +15.8% gain with a soaring +98.3% return.
Free – See the Stocks It Turned Up for Today >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Pepsico, Inc. (PEP) : Free Stock Analysis Report
Barfresh Food Group Inc. (BRFH) : Free Stock Analysis Report
New Age Beverage Corporation (NBEV) : Free Stock Analysis Report
To read this article on Zacks.com click here.