The Coca-Cola Company KO has
delivered a strong fourth-quarter 2018, with earnings and sales
almost in line with estimates. Fourth-quarter results gained from
the effective execution of the companyâs strategies to evolve as a
consumer-centric total beverage company.
Alongside the introduction of products, the company is focused on
lifting and shifting successful brands globally. It also benefited
from the acceleration of the sparkling soft drinks category through
investment and innovation. However, adverse impacts of currency
fluctuation and refranchising of company-owned bottling operations
hurt top and bottom lines.
Shares of Coca-Cola dropped as much as 4.2% in the pre-market
session, owing to a soft outlook for 2019 due to concerns regarding
increased impacts of foreign currency. This is likely to reduce
organic revenues and earnings in 2019.
The company expects increased impacts of adverse currency in the
first quarter and 2019. Currency headwinds are likely to hurt
comparable revenues by 6-7% and comparable operating income by
10-11% in the first quarter. For the year, foreign currency is
likely to affect comparable revenues by 3-4% and operating income
by 6-7%.
Consequently, the company estimates organic revenues to rise nearly
4% in 2019, lower than 5% increase witnessed in 2018. Comparable
earnings are expected to either decline 1% or increase 1% from
earnings of $2.08 per share reported in 2018.
Nonetheless, this Zacks Rank #3 (Hold) stock has surged 11.1% in
the past year against the industryâs decline of 7%. This is mostly
attributed to the companyâs growth strategies.
Q4 in Detail
Coca-Colaâs fourth-quarter 2018 comparable earnings were 43 cents
per share, in line with the Zacks Consensus Estimate. The bottom
line improved 14% from the year-ago period, driven by ongoing
productivity efforts and disciplined growth strategies. Currency
translations negatively impacted earnings by 10%.
Coca-Cola Company (The) Price, Consensus and EPS Surprise | Coca-Cola Company (The) Quote
Revenues of $7,058 million were nearly in line
(marginally up) with the Zacks Consensus Estimate of $7,055
million. However, net revenues decreased 6% year over year due to
13% adverse effects of the refranchising of company-owned bottling
operations and currency headwinds. This represented the companyâs
15th consecutive quarterly decline.
However, organic revenues grew 5% as concentrate sales improved 1%
and price/mix increased 4%. For the sixth straight quarter, organic
revenues grew within the companyâs long-term target.
Volume and Pricing
Coca-Colaâs total unit case volume remained flat in the fourth
quarter as strong growth in Central and Eastern Europe as, well as
India, was negated by the challenging economic conditions in some
emerging markets, including Argentina and Central America.
Price/mix increase of 4% was backed by continued strength in the
core business and a 1-point benefit of segment mix from bottling
investments.
Category Cluster Performance: Sparkling soft drinks unit case
volume declined 1% (compared with 2% decrease in the prior
quarter). Juice, dairy and plant-based beverages witnessed a 2%
decline (compared with 3% decrease in the last reported quarter).
Water, enhanced water and sports drinks were up 1% (in comparison
with 5% growth in Q3), and Tea and Coffee grew 3% (compared with 2%
decline in Q3).
Segmental Details
Revenues grew 7% in North America and 1% in the Asia Pacific
segment. However, revenues at Europe, the Middle East & Africa
(EMEA); and Latin America segments declined 2% and 12%,
respectively. Meanwhile, Bottling Investments were down 53% in the
quarter under review.
Organic revenues grew across the board, backed by consistent
innovation and revenue growth initiatives within sparkling soft
drinks, with solid volume growth for Coca-Cola Zero Sugar across
all regions. Additionally, tea and coffee categories witnessed
strong growth. Organic revenues for North America were flat while
it improved 5% for EMEA, and 7% for both Latin America and the Asia
Pacific segments. Bottling Investments segment recorded
organic revenue growth of 11%.
Margins
Comparable currency neutral operating income grew 8% on the back of
strong organic revenue growth and ongoing benefits from
productivity initiatives. Comparable operating margin expanded 13
basis points (bps), given the divestitures of lower-margin bottling
businesses and ongoing productivity efforts. The upside was partly
offset by the adoption of the new revenue recognition accounting
standard and currency headwinds.
Guidance
For 2019, the company estimates organic revenue rise of nearly 4%.
Comparable currency neutral revenues are expected to increase
12-13%, aided by 8-9% benefit from acquisitions, divestitures and
structural items. However, unfavorable currency is likely to affect
revenues by 3-4%.
Comparable currency neutral operating income for 2019 is expected
to increase 10-11%. Acquisitions, divestitures and structural
changes will positively impact operating income by a low-single
digit. However, foreign exchange is expected to hurt comparable
operating income by 6-7%.
The company expects comparable earnings to be down 1% to up 1% from
$2.08 recorded in 2018. Underlying effective tax rate is estimate
at 19.5%.
Moreover, the company expects cash from operations of at least $8
billion in 2019, with capital expenditure of nearly $2
billion.
Donât Miss These Better-Ranked Soft-Drink
Stocks
Monster Beverage Corp. MNST, with long-term earnings growth rate of
16%, currently carries a Zacks Rank #2 (Buy). You can see
the complete list of todayâs Zacks #1 Rank (Strong Buy)
stocks here.
Coca-Cola European Partners PLC CCEP, with long-term earnings
growth rate of 8.7%, presently carries a Zacks Rank #2.
New Age Beverage Corp. NBEV delivered a positive earnings surprise
of 11.1% in the last reported quarter. It currently carries a Zacks
Rank #2.
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Coca-Cola Company (The)
(KO) : Free Stock Analysis Report
Monster Beverage
Corporation (MNST) : Free Stock Analysis Report
Coca-Cola European Partners
PLC (CCEP) : Free Stock Analysis Report
New Age Beverage
Corporation (NBEV) : Free Stock Analysis Report
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