Coca-Cola (KO) Down 0.4% Since Last Earnings Report: Can It Rebound?

About a month has passed since Coca-Cola’s (KO) last earnings report. Shares lost about 0.4% in that time, 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 key drivers.

Coca-Cola increases profits and revenues in the first quarter, increases viewership

Coca-Cola reported first-quarter 2024 earnings, with top- and bottom-line earnings that surpassed the Zacks Consensus Estimate and improved year over year. The company’s results benefited from the continued dynamics of its operations. Based on good results, KO raised its forecast for 2024.

Comparable earnings per share of 72 cents increased 7% from the year-ago period and surpassed the Zacks Consensus Estimate of 69 cents. Unfavorable currency translations hurt comparable earnings by 9 percentage points. Comparable currency-neutral earnings per share increased 15% year over year.

Revenues of $11,300 million surpassed the Zacks Consensus Estimate of $10,948 million and increased 3% year-over-year. Organic revenue increased 11% compared to the prior-year quarter. Coca-Cola’s financial results benefited from strong revenue growth across most operating segments, supported by improved pricing/mix, offset by a decline in concentrate sales. During the reporting quarter, Coca-Cola gained global value share in the total volume of non-alcoholic ready-to-drink beverages.

Quantity and prices

In the reported quarter, concentrate sales decreased by 2% year-on-year, while price/mix improved by 13%. The price/mix benefited from market price action and a favorable mix. In the quarter, sales of concentrates were 3 points lower than the volume of unit packages. The decline was due to concentrate delivery schedules and the effects of one less day in the quarter.

In the first quarter, Coca-Cola’s total unit package volume increased by 1% year over year. Single-pack volumes in developed markets remained flat compared to the prior-year quarter. Volumes in developing and emerging markets improved at a low-single-digit pace, driven by growth in Brazil, the Philippines and Nigeria.

Our model projected first-quarter organic revenue growth of 6.4% year-over-year, with price/mix growth of 6.8% and concentrate sales volume decline of 0.4%.

In terms of cluster category performance, unit case volume increased 2% year-over-year for carbonated beverages. The carbonated soft drinks category benefited from growth in Latin America. Trademark Coca-Cola saw a 2% increase in volumes, while Coca-Cola Zero Sugar saw a 6% increase. Meanwhile, the sparkling flavors category was flat year over year due to gains in EMEA and Latin America, offset by declines in Asia Pacific.

Juice, value-added dairy and plant-based beverage volumes increased 2% in the first quarter, led by growth in North America.

Unit volumes in the water, sports, coffee and tea categories decreased by 2% year-on-year in the first quarter. Coca-Cola reported a 2% volume decline in the water category, driven by gains in Asia Pacific and North America. Sports drinks declined 3% due to decline in North America, which was partially offset by growth in Latin America and EMEA. Coffee sales fell 3% due to strong performance of Costa soft coffee in the UK. Tea sales volume increased 2% driven by growth in Latin America and EMEA.

The story continues

Segment details

Revenues increased year-over-year by 10% in Latin America, 7% each in North America and Asia-Pacific, and 3% in Global Ventures. However, revenues were down 3% in EMEA and 7% for Bottling Investments.

Organic revenues grew year over year by 15% in EMEA, 22% in Latin America, 7% each in North America and Asia Pacific, 1% in Global Ventures and 13% in Bottling Investments.

Margins

On a dollar basis, operating income declined 36% year-over-year to $2,141 million, which includes an 8 percentage point impact from unfavorable foreign exchange conditions. Comparable operating income increased 4.4% year over year. Comparable currency-neutral operating income increased 13% due to strong organic revenue growth across all segments, offset by higher marketing investments.

Operating margin of 18.9% in the first quarter decreased significantly from 30.7% in the prior-year quarter. Comparable operating margin increased 60 bps to 32.4%.

Our model projected first quarter adjusted operating margin to increase 50 basis points year-over-year to 32.3% with gross margin increasing 50 basis points.

Conductivity

The management board increased its assessment for 2024. It forecasts organic revenue growth in 2024 at 8-9% compared to the previously mentioned growth of 6-7%. Comparable net revenues are expected to include 4-5% currency fluctuations based on current interest rates and hedging positions. The guidelines take into account the negative impact of acquisitions, divestitures and structural changes at the level of 4-5%.

The company anticipates that the effective tax rate will be 19% in 2024, compared to the previously reported 19.2%.

Comparable currency neutral earnings per share are estimated to grow 11-13% year-over-year compared to the previously mentioned 8-10% growth. In 2024, the company expects comparable earnings per share to grow 4-5% year-over-year. Comparable earnings per share growth is likely to include a 7-8% unfavorable currency impact and a 2% unfavorable impact from acquisitions, divestitures and structural changes. The company expects that most of the currency problems will result from currency devaluation caused by intense inflation.

Management projects adjusted free cash flow of $9.2 billion for 2024, including $11.4 billion of operating cash flow. Capital expenditure is likely to be $2.2 billion.

In the second quarter of 2024, comparable revenues are expected to include a 6% unfavorable currency impact and a 5-6% negative impact from acquisitions, divestitures and structural changes. Comparable earnings per share are estimated to include an unfavorable currency impact of 8-9% and an unfavorable impact of 2% from acquisitions, divestitures and structural changes.

How have estimates changed since then?

Investors have witnessed a downward trend in estimate revisions over the last month.

VGM results

At this point, Coca-Cola has a weak Growth Score of D, but its Momentum Score is slightly better at C. Plotting a somewhat similar path, the stock is rated D on the value side, placing it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Coca-Cola has a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

Industry player performance

Coca-Cola is part of the Zacks Beverages – Soft Drinks industry. Over the past month, Keurig Dr Pepper, Inc (KDP) in the same industry has gained 1%. More than a month ago, the company published its results for the quarter ended March 2024.

In the most recent quarter, Keurig Dr Pepper reported revenues of $3.47 billion, representing a year-over-year change of +3.4%. EPS of $0.38 for the same period compared to $0.34 a year ago.

For the current quarter, Keurig Dr Pepper is expected to report earnings of $0.46 per share, representing a change of +9.5% from the year-ago quarter. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

Keurig Dr Pepper carries a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Rating of F.

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