Coca-Cola (KO) Gain on Q3 Earnings & Revenue Beat, Revised View
The Coca-Cola Company KO has reported third-quarter 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Earnings and sales also improved year over year. The company’s results have benefited from its continued business momentum. KO has raised its view for 2023.
Comparable earnings of 74 cents per share grew 7% from the year-ago period and beat the Zacks Consensus Estimate of 69 cents. However, unfavorable currency translations hurt comparable earnings by 4 percentage points. Comparable currency-neutral earnings per share rose 11% year over year.
Revenues of $11,953 million surpassed the Zacks Consensus Estimate of $11,451 million and improved 8% 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 and increased concentrate sales. In the reported quarter, Coca-Cola gained a global value share in total non-alcoholic ready-to-drink beverages.
Shares of Coca-Cola rose 2.4% in the pre-market session following the strong results on Oct 24, 2023. The Zacks Rank #4 (Sell) stock has lost 13.2% in the past three months compared with the industry’s decline of 11.6%.
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Volume and Pricing
In the reported quarter, concentrate sales rose 2% year over year, while the price/mix improved 9%. The price/mix benefited from pricing actions in the marketplace, including the impacts of hyperinflationary markets, and a favorable segmental mix. In the quarter, concentrate sales were in line with unit case volume.
Coca-Cola’s total unit case volume increased 2% year over year in the third quarter. The unit case volume for the developed markets rose 2% from the prior-year quarter, driven by growth in Mexico and Japan. The volumes for the developing and emerging markets also improved 2% on growth in India and the Philippines.
Our model had predicted organic revenue growth of 6.4% year over year for the third quarter, with a 5% gain from price/mix and 1.4% growth in concentrate sales volume.
CocaCola Company (The) Price, Consensus and EPS Surprise
CocaCola Company (The) price-consensus-eps-surprise-chart | CocaCola Company (The) Quote
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 and the Asia Pacific. The trademark Coca-Cola reported 2% growth in volumes, while Coca-Cola Zero Sugar witnessed 3% growth. Meanwhile, the sparkling flavors category reported an increase of 1% due to gains in Latin America, the Asia Pacific and North America.
Volumes for juice, value-added dairy and plant-based beverages were up 2% in the third quarter. Strong growth in fairlife in the United States, Santa Clara in Mexico and Minute Maid Pulpy in China aided the results.
Unit volumes for the water, sports, coffee and tea category rose 1% in the third quarter. Coca-Cola witnessed 1% volume growth in the water category, driven by gains in Latin America. Sports drinks improved 3% due to growth of Powerade in Latin America and EMEA. The coffee business witnessed 6% growth on strong Costa coffee performances in the U.K. and China. Tea volume was down 1%, driven by declines in Latin America and dogadan in Turkiye, which more than offset growth in the Asia Pacific.
Segmental Details
Revenues rose 24% year over year for Latin America, 10% for EMEA, 6% for North America, 15% for Global Ventures and 4% for Bottling Investments. However, the company witnessed a revenue decline of 2% for the Asia Pacific.
Organic revenues improved 21% year over year in EMEA, 6% in North America, 20% in Latin America, 2% in the Asia Pacific, 9% in Global Ventures and 18% in Bottling Investments.
Margins
In dollar terms, the operating income increased 6% year over year to $3,270 million, including a 4-point impact of currency headwinds. Comparable operating income rose 8.5% 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 27.4% in the third quarter contracted 50 basis points (bps) from 27.9% in the prior-year quarter. The comparable operating margin expanded 20 bps to 29.7%.
Our model had predicted the third-quarter adjusted operating margin to decline 70 bps year over year to 28.8%, driven by the dip in the gross margin, and a 20-bps increase in selling, general and administrative expense rate.
Guidance
Management has raised its view for 2023. It anticipates organic revenue growth of 10-11% for 2023 compared with 8-9% growth expected earlier. Comparable revenues are expected to be impacted by a 4% currency headwind based on current rates. The guidance includes a 1% negative impact of acquisition and divestiture. The company previously anticipated a 3-4% currency headwind on comparable revenues.
KO expects an impact of a mid-single-digit percentage from commodity price inflation on the comparable cost of goods sold. It anticipates an underlying effective tax rate of 19.3% for 2023. The company expects an underlying effective tax rate of 19% for 2023.
Comparable currency-neutral earnings per share are estimated to increase 13-14% versus 9-11% growth mentioned earlier. The company anticipates year-over-year comparable earnings per share growth of 7-8% for 2023 compared with 5-6% growth stated earlier. Its comparable earnings per share growth is likely to include a headwind of 6% from currency, and a slight headwind from acquisitions and divestitures. The company previously anticipated a 4-5% currency headwind on comparable earnings per share.
For fourth-quarter 2023, comparable revenues are expected to include a 4% currency headwind, and a 1% negative impact of acquisitions, divestitures and structural changes. Comparable earnings per share are estimated to include a currency headwind of 8%.
Management envisions an adjusted free cash flow of $9.5 billion for 2023, including $11.4 billion in cash flow from operations. Capital expenditure is likely to be $1.9 billion.
For 2023, the company expects to continue repurchasing shares to offset dilution resulting from employee stock-based compensation plans. It plans to use a portion of these proceeds from non-operating activities for repurchasing additional shares.
The company also outlined its initial view for 2024. It expects comparable revenues to include a currency headwind of low-single digits, based on current rates and hedge positions. Comparable earnings per share are likely to include a currency headwind of a mid-single-digit percentage.
Stocks to Consider
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Dutch Bros BROS, PepsiCo Inc. PEP and Constellation Brands STZ.
Dutch Bros currently sports a Zacks Rank #1 (Strong Buy). Shares of BROS have lost 15.6% in the past three months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Dutch Bros’ current financial-year sales and EPS suggests growth of 29.6% and 31.3%, respectively, from the year-ago period’s reported figures. BROS has a trailing four-quarter earnings surprise of 44.6%, on average.
PepsiCo currently has a Zacks Rank #2 (Buy). Shares of PEP have declined 16.4% in the past three months. The company has a trailing four-quarter negative earnings surprise of 5.6%, on average.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings suggests growth of 6.2% and 10.9%, respectively, from the year-ago period’s reported figures.
Constellation Brands has a trailing four-quarter earnings surprise of 4.3%, on average. It currently carries a Zacks Rank #2. Shares of STZ have declined 14.6% in the past three months.
The Zacks Consensus Estimate for Constellation Brands’ current financial-year sales and earnings suggests growth of 6.7% and 11.5%, respectively, from the year-ago period's reported figures.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
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