Coca-Cola (KO) Q4 Earnings & Revenues Beat Estimates, Stock Up

The Coca-Cola Company KO has delivered top and bottom-line beat in fourth-quarter 2019. Revenues benefited from robust volume and strong pricing. Further, the company provided the outlook for 2020.

Coca-Cola’s fourth-quarter 2019 comparable earnings of 44 cents per share beat the Zacks Consensus Estimate of 43 cents and improved 1% from the year-ago period. Currency translations negatively impacted earnings by 8%.

Revenues of $9,068 million surpassed the Zacks Consensus Estimate of $8,893 million and rose 16% year over year. Organic revenues grew 7%. The increase in reported as well as organic revenues was attributed to higher concentrate sales and price/mix. Further, increase in global value share, particularly in total non-alcoholic ready-to-drink (NARTD) beverages, aided the top line.

Coca-Cola Company (The) Price, Consensus and EPS Surprise

Coca-Cola Company (The) Price, Consensus and EPS Surprise

Coca-Cola Company (The) price-consensus-eps-surprise-chart | Coca-Cola Company (The) Quote

Backed by the strong results, shares of Coca-Cola gained about 1.4% in the pre-market session. Moreover, the Zacks Rank #2 (Buy) stock has gained 18.5% in the past year compared with the industry’s growth of 14.8%.

Volume and Pricing

Price/mix rose 5%, driven by favorable contributions from all geographic regions and Bottling Investments. Meanwhile, concentrate sales improved 2%, owing to nearly 1% gain from one extra day in the quarter. However, concentrate sales lagged unit case volume growth by 1 percentage point on reduction in bottler inventory levels related to Brexit.

Coca-Cola’s total unit case volume was up 3% in the fourth quarter on robust growth in developing and emerging markets along with strength in developed markets.

Category Cluster Performance: Sparkling soft drinks unit case volume was up 3% (compared with a 2% increase in the prior quarter), aided by strong growth in China, Brazil and Southeast Asia. Sparkling soft drinks growth was led by the Coca-Cola trademark, with rise in volume across all geographic segments. Volume for juice, dairy and plant-based beverages were flat year over year (compared with flat volume in the last reported quarter) on strong gains from Chi in West Africa and Innocent Juices in Europe, offset by a decline in Rani in the Middle East. Strategic downsizing of key packages in the China juice portfolio impacted juice volume growth in the reported quarter. Water, enhanced water and sports drinks improved 2% (same as growth witnessed in the third quarter), and tea and coffee volume grew 4% (compared with 4% growth in the third quarter).

Segmental Details

Revenues grew 4% for North America, 20% for Latin America and 10% for the Asia Pacific segment. Meanwhile, revenues for the Europe, Middle East & Africa (“EMEA”) segment declined 3%. The Bottling Investments segment’s revenues grew 29% in the quarter under review. However, the Global Ventures segment reported substantial revenue growth of 292%, gaining from the Costa acquisition.

Organic revenues grew across all segments, except for EMEA, backed by consistent innovation and revenue growth initiatives within sparkling soft drinks, with solid pricing and mix across all regions. Organic revenues improved 26% for Latin America, 4% for North America and 8% for the Asia Pacific, and 11% for the Global Ventures segment. The Bottling Investments segment recorded organic revenue growth of 4%. However, organic revenues for EMEA declined 2% in the reported quarter.

Margins

Comparable currency-neutral operating income grew 23% on strong organic revenue growth as well as gains from productivity initiatives and acquisitions. Comparable operating margin expanded 108 basis points (bps).

Guidance

Coca-Cola outlined the outlook for 2020. It estimates organic revenue growth of 5% in 2020, driven by slight gains from acquisitions, divestitures and structural items. Further, it expects currency headwinds of 0-1% on revenues in 2020.

The company anticipates comparable currency-neutral operating income growth of 8%. It expects the impacts of acquisitions, divestitures and structural items to be immaterial on comparable operating income for the year. However, foreign exchange is expected to hurt comparable operating income by 2-3%.

It expects comparable earnings per share of $2.25 in 2020, reflecting a 7% increase from $2.11 reported in 2019. Underlying effective tax rate is estimated at 19.5%.

Moreover, the company expects cash from operations of $10 billion in 2020, with capital expenditure of $2 billion. This is likely to result in free cash flow (non-GAAP) of $8 billion.

For the first quarter of 2020, it anticipates comparable net revenues to include 0-1% benefit from acquisitions, divestitures and structural items. Meanwhile, currency headwinds are likely to hurt comparable net revenues by 2% and comparable operating income by 5%.

Don’t Miss These Other Top-Ranked Beverage Stocks

Coca-Cola European Partners PLC CCEP, with a long-term earnings growth rate of 8.9%, currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Monster Beverage Corporation MNST has a long-term earnings growth rate of 14.3%. The stock presently carries a Zacks Rank #2.

Constellation Brands Inc. STZ, with a long-term earnings growth rate of 8.2%, currently carries a Zacks Rank #2.

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