Will North America Sales Drive Coca-Cola's (KO) Q1 Earnings?

The Coca-Cola Company’s KO North America segment’s revenues, comprising about 30% of its top line, are expected to witness growth in the first quarter of 2018, when it reports on Tuesday, Apr 24.

A Look at Coca-Cola’s North America Performance in Q4

The North America segmental revenues totaled $2.62 billion last quarter, up 6% year over year on 2% growth in price/mix. Organically, revenues rose 3% in the quarter while unit case volume grew 1%. Price/mix increased on the company’s disciplined approach to occasion, brand, price and package strategy, as well as positive business and category mix.

Notably, sparkling beverage volumes have shown no growth during the quarter with 1% decline in juice, dairy and plant-based beverages, as mid-single digit growth in Minute Maid and Simply was offset by a decline in Hi-C. The company registered an 8% rise in tea and coffee, while water, enhanced water and sports drinks accelerated to 3% growth.

Precisely, the company’s sparkling beverage unit case volume remained flat in the respective fourth, third and second quarters with a 1% decline witnessed in the first quarter of 2017. Notably, the sparkling beverage accounted for 69% of the company’s 2017 worldwide unit case volume. Hence, such vast exposure puts Coca-Cola in a weak spot.

Coca-Cola’s North American sparkling beverage business has been delivering sluggish results due to headwinds in the carbonated soft drinks (CSD) category. Cross-category competition, and growing health and wellness consciousness are hurting demand for CSDs. Consumer tastes are swiftly shifting from CSDs to healthier beverages like energy drinks, tea juices and flavored waters.

The challenges in the CSD category have been affecting all major soft drink makers namely Coca-Cola, PepsiCo PEP, Monster Beverage MNST and Dr Pepper Snapple Group DPS, leading to lower volumes and soft sales.

Q1 Expectation

Though Coca-Cola has increased marketing investments, and is driving package and product innovation to boost its carbonated beverage business, these efforts are yet to show meaningful results with the trend unlikely to change in the first quarter as well.

Overall, the Zacks Consensus Estimate called for Coca-Cola’s North American segmental revenues of $2.49 billion, reflecting an increase from $2.39 billion a year ago but a decline from $2.62 billion in the prior quarter.

Apart from the North American segment, Coca-Cola’s Latin American segment is likely to register revenues of $1.01 billion versus $1.12 billion in the prior quarter and $926 million in the year-ago quarter. The consensus estimate for Europe, Middle East and Africa segment’s revenues of $1.73 billion indicates a marginal decrease from $1.75 billion sequentially but an increase from $1.63 billion in the prior-year quarter. Bottling Investments revenues are anticipated to decrease to $1.1 billion from $1.27 billion in the third quarter and $3.87 billion a year ago. Again, Asia Pacific revenues are expected to increase to $1.2 billion from $1 billion in the prior quarter. However, on a year-over-year basis, revenues are likely to remain almost flat.

Overall Earnings & Revenue Expectations

Overall, the beverage behemoth’s first-quarter revenues are likely to decline on structural changes. Meanwhile, the company had earlier stated that the first quarter will have one less day than the same period last year. Coca-Cola expects the net impact of acquisitions, divestitures and other structural items to impart a 26-point headwind and 6-point headwind on net revenues and profit before tax, respectively, in the first quarter.

That said, we feel pricing gains, cost cuts and productivity savings should continue to support the bottom line of this Zacks Rank #2 (Buy) company to some extent. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Again, currencies are likely to have a one point tailwind on its first-quarter operating income.

The Zacks Consensus Estimate of 46 cents for first-quarter earnings reflects 7% growth from the prior-year period’s profit of 43 cents per share. Also, the consensus mark for revenues of $7.43 billion represents a 18.6% decrease on a year-over-year basis.

(Read More: Will Cost Cut, Innovations Drive Coca-Cola Q1 Earnings?)

Coca-Cola Company (The) Revenue (TTM)

 

Coca-Cola Company (The) Revenue (TTM) | Coca-Cola Company (The) Quote

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