Yahoo Finance Why Is Coke (KO) Up 1.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Coca-Cola (KO). Shares have added about 1.4% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Coke due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Coca-Cola Q4 Earnings Meet Estimates, Revenues Beat
Coca-Cola has reported better-than-expected top-line results for fourth-quarter 2022, while the bottom line was in line with the Zacks Consensus Estimate. Earnings and sales improved year over year and surpassed our estimate in the quarter. The company’s results have benefited from the continued momentum in its business. KO has outlined its view for 2023.
Comparable earnings of 45 cents per share were in line with the Zacks Consensus Estimate and the year-ago period. Meanwhile, comparable earnings surpassed our estimate of 44 cents. However, unfavorable currency translations hurt comparable earnings by 11 percentage points. Comparable currency-neutral earnings per share rose 11% year over year.
Revenues of $10,125 million surpassed the Zacks Consensus Estimate of $10,005 million and improved 7% year over year. Revenues also beat our estimate of $9,603.7 million. Organic revenues rose 15% from the prior-year quarter. Coca-Cola’s top line benefited from strong revenue growth across its operating segments, aided by an improved price/mix and increased concentrate sales. Sales also benefited from a 1-point gain from one additional day in the quarter.
In the reported quarter, Coca-Cola gained a global value share in total non-alcoholic ready-to-drink beverages. The company benefited from underlying share gains in both at-home and away-from-home channels.
Volume and Pricing
In the reported quarter, concentrate sales advanced 2% year over year, while the price/mix rose 12%. The price/mix benefited from pricing actions in the marketplace across all operating segments, coupled with a favorable channel and package mix. Price/mix also gained from a positive segment mix. In the quarter, concentrate sales were 3 points ahead of the unit volume due to an additional day and the timing of concentrate shipments.
Coca-Cola’s total unit case volume declined 1% in the fourth quarter, owing to the suspension of its business in Russia, which more than offset gains across Brazil, India, Great Britain and Mexico. Strength across all operating segments, ongoing investments in the marketplace and strength in the away-from-home channel were other positives. Volume for the developed markets improved in the low-single digits in the quarter, driven by strength across markets. Meanwhile, the developing and emerging markets declined in the low-single digits.
Coming to the category cluster performance, volume growth was even for sparkling soft drinks, driven by even sales for the trademark Coca-Cola, 9% growth for Coca-Cola Zero Sugar and a 2% decline in sparkling flavors. The sparkling soft drinks category benefited from the strong performances in Latin America and the Asia Pacific, offset by the suspension of business in Russia.
Volume for nutrition, juice, value-added dairy and plant-based beverages declined 7% in the fourth quarter. The category was primarily hurt by the suspension of the business in Russia, offset by strong growth in developed markets.
The water, sports, coffee and tea category were flat in the fourth quarter. Coca-Cola witnessed flat results for the water category as growth in Latin America was almost fully offset by declines in China, owing to the varying levels of pandemic-related mobility restrictions. Sports drinks rose 1% due to solid performances in Latin America, and Europe, Middle East and Africa. Tea volume was down 9%, as gains in Fuze Tea in Latin America were negated by the softness in dogadan in Turkey. The coffee business witnessed 11% growth on the cycling impacts of the closure of Costa retail outlets in the U.K. in the prior year and the expansion of Costa coffee across markets.
Segmental Details
Revenues rose 25% for Latin America, 14% for North America, 3% for the Asia Pacific and 4% for Bottling Investments, while the same declined 7% for EMEA and 5% for Global Ventures.
Organic revenues improved 9% in EMEA, 32% in Latin America, 12% in North America, 15% in the Asia Pacific, 8% in Global Ventures and 16% in Bottling Investments.
Margins
In dollar terms, the operating income increased 24% year over year to $2,075 million, including a 10-point impact of currency headwinds. Comparable operating income rose 10.9% year over year. Comparable currency-neutral operating income advanced 21% on strong organic revenue growth across all segments, offset by higher operating costs and marketing investments.
The operating margin of 20.5% in the fourth quarter expanded 280 basis points (bps) from 17.7% in the prior-year quarter. The comparable operating margin expanded 60 bps to 22.7%, driven by higher operating revenues, offset by the impacts of the BODYARMOR acquisition, higher operating costs, elevated marketing investments and currency headwinds.
Guidance
Management has outlined its view for 2023. It anticipates organic revenue growth of 7-8% for 2023. Comparable revenues are expected to be impacted by a 2-3% currency headwind based on current rates. The guidance includes a 1% negative impact of acquisition and divestiture.
The company expects an impact of a mid-single-digit percentage from commodity price inflation on comparable cost of goods sold. The company anticipates an underlying effective tax rate of 19.5% for 2023.
Comparable currency-neutral earnings per share are estimated to increase 7-9%. The company anticipates year-over-year comparable earnings per share growth of 4-5%. Its comparable earnings per share growth is likely to include a headwind of 3-4% from currency and a slight headwind from acquisitions and divestitures.
For first-quarter 2023, comparable revenues are expected to include a 5-6% currency headwind and a 1% negative impact of acquisitions. Comparable earnings per share are estimated to include a currency headwind of 6-7%.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision.
VGM Scores
Currently, Coke has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Coke has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Coke is part of the Zacks Beverages - Soft drinks industry. Over the past month, PepsiCo (PEP), a stock from the same industry, has gained 0.4%. The company reported its results for the quarter ended December 2022 more than a month ago.
PepsiCo reported revenues of $28 billion in the last reported quarter, representing a year-over-year change of +10.9%. EPS of $1.67 for the same period compares with $1.53 a year ago.
PepsiCo is expected to post earnings of $1.37 per share for the current quarter, representing a year-over-year change of +6.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.1%.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for PepsiCo. Also, the stock has a VGM Score of B.
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CocaCola Company (The) (KO) : Free Stock Analysis Report
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