Coca-Cola (KO) Down 0.4% Since Last Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for Coca-Cola (KO). Shares have lost about 0.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Coca-Cola due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Coca-Cola Tops on Q1 Earnings & Revenues, Raises View
Coca-Cola has reported first-quarter 2024 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and improved year over year. The company’s results have benefited from its continued business momentum. Backed by the strong results, KO has raised its view for 2024.
Comparable earnings of 72 cents per share rose 7% from the year-ago period and beat the Zacks Consensus Estimate of 69 cents. Unfavorable currency translations hurt comparable earnings by 9 percentage points. Comparable currency-neutral earnings per share rose 15% year over year.
Revenues of $11,300 million surpassed the Zacks Consensus Estimate of $10,948 million and improved 3% year over year. Organic revenues rose 11% from the prior-year quarter. Coca-Cola’s top line benefited from strong revenue growth across most of its operating segments, aided by an improved price/mix, offset by a decline in concentrate sales. In the reported quarter, Coca-Cola gained a global value share in the total non-alcoholic ready-to-drink beverages.
Volume & Pricing
In the reported quarter, concentrate sales dipped 2% year over year, whereas the price/mix improved 13%. The price/mix benefited from pricing actions in the marketplace and a favorable mix. In the quarter, concentrate sales were 3 points lower than the unit case volume. The decline was driven by the timing of concentrate shipments and the impacts of one less day in the quarter.
Coca-Cola’s total unit case volume increased 1% year over year in the first quarter. The unit case volume for the developed markets was flat with the prior-year quarter. The volumes for the developing and emerging markets improved in the low-single digits on growth in Brazil, the Philippines and Nigeria.
Our model had predicted year-over-year organic revenue growth of 6.4% for the first quarter, with a 6.8% gain from the price/mix and a 0.4% decline in the concentrate sales volume.
Coming to the category cluster performance, the unit case volume increased 2% year over year for sparkling soft drinks. The sparkling soft drinks category benefited from growth in Latin America. The trademark Coca-Cola reported 2% growth in volumes, whereas Coca-Cola Zero Sugar witnessed a 6% rise. Meanwhile, the sparkling flavors category was flat year over year due to gains in EMEA and Latin America, offset by a decline in the Asia Pacific.
Volumes for juice, value-added dairy and plant-based beverages were up 2% in the first quarter, aided by growth in North America.
Unit volumes for the water, sports, coffee and tea category declined 2% year over year in the first quarter. Coca-Cola witnessed a 2% volume decline in the water category, driven by gains in the Asia Pacific and North America. Sports drinks fell 3% driven by decline in North America, which was partly offset by growth in Latin America and EMEA. The coffee business declined 3% due to a soft Costa coffee performance in the U.K. The tea volume improved 2% on growth in Latin America and EMEA.
Segmental Details
Revenues rose 10% year over year for Latin America, 7% each for North America and the Asia Pacific, and 3% for Global Ventures. However, revenues declined 3% for EMEA and 7% for Bottling Investments.
Organic revenues improved 15% year over year in EMEA, 22% in Latin America, 7% each in North America and the Asia Pacific, 1% in Global Ventures, and 13% in Bottling Investments.
Margins
In dollar terms, the operating income declined 36% year over year to $2,141 million, including an 8-point impact of currency headwinds. Comparable operating income rose 4.4% year over year. Comparable currency-neutral operating income advanced 13% on strong organic revenue growth across all segments, offset by higher marketing investments.
The operating margin of 18.9% in the first quarter contracted significantly from 30.7% in the prior-year quarter. The comparable operating margin expanded 60 bps to 32.4%.
Our model had predicted the first-quarter adjusted operating margin to expand 50 bps year over year to 32.3% on 50-bps growth in the gross margin.
Guidance
Management has raised its view for 2024. It anticipates organic revenue growth of 8-9% for 2024 compared with 6-7% growth mentioned earlier. Comparable net revenues are expected to include a 4-5% currency headwind based on current rates and hedge positions. The guidance includes a 4-5% negative impact of acquisitions, divestitures and structural changes.
The company anticipates an underlying effective tax rate of 19% for 2024 versus 19.2% stated earlier.
Comparable currency-neutral earnings per share are estimated to increase 11-13% year over year compared with the prior mentioned 8-10% growth. The company anticipates year-over-year comparable earnings per share growth of 4-5% for 2024. Comparable earnings per share growth is likely to include a headwind of 7-8% from currency and a 2% headwind from acquisitions, divestitures and structural changes. The company expects most of the currency headwinds to result from currency devaluation due to intense inflation.
Management envisions an adjusted free cash flow of $9.2 billion for 2024, including $11.4 billion in cash flow from operations. Capital expenditure is likely to be $2.2 billion.
For second-quarter 2024, comparable revenues are expected to include a 6% currency headwind, and a 5-6% negative impact of acquisitions, divestitures and structural changes. Comparable earnings per share are estimated to include a currency headwind of 8-9%, and a 2% negative impact of acquisitions, divestitures and structural changes.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Coca-Cola has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Coca-Cola has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Coca-Cola is part of the Zacks Beverages - Soft drinks industry. Over the past month, Keurig Dr Pepper, Inc (KDP), a stock from the same industry, has gained 1%. The company reported its results for the quarter ended March 2024 more than a month ago.
Keurig Dr Pepper reported revenues of $3.47 billion in the last reported quarter, representing a year-over-year change of +3.4%. EPS of $0.38 for the same period compares with $0.34 a year ago.
For the current quarter, Keurig Dr Pepper is expected to post earnings of $0.46 per share, indicating a change of +9.5% from the year-ago quarter. The Zacks Consensus Estimate remained unchanged over the last 30 days.
Keurig Dr Pepper has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of F.
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