Markets
KO

Factors Likely to Influence Coca-Cola's (KO) Q3 Earnings

The Coca-Cola CompanyKO is scheduled to report third-quarter 2018 numbers on Oct 30, before the opening bell. The company boasts an impressive surprise history, having surpassed earnings estimates in 16 of the trailing 17 quarters.

The Zacks Consensus Estimate for third-quarter earnings is pegged at 55 cents, which reflects an increase of 10% from 50 cents in year-ago quarter. However, estimates remained stable over the last 30 days.

Further, the consensus estimate for quarterly revenues is pegged at $8,227 million, mirroring a year-over-year decline of more than 9%.

In the last reported quarter, revenues declined 8% year over year due to adverse impact from the refranchising of company-owned bottling operations. In fact, the company has witnessed year-over-year decline in revenues for 13 straight quarters now.

Let's see how things are shaping up for this announcement.

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

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

Factors Influencing Coca-Cola's Q3 Performance

Coca-Cola remains committed to its productivity and reinvestment program that focuses on initiatives like restructuring the global supply chain, investing in technology to streamline operations, implementing a zero-based budgeting program, headcount reductions and driving increased efficiency in direct marketing investments. Notably, the company is on track to deliver savings of about $3.8 billion by 2019 through its productivity programs.

Moreover, the company is gaining from the effective execution of its strategies to evolve as a consumer-centric, total beverage company. Further, the acceleration of its sparkling soft drinks category through investments and innovations bode well. Markedly, Coca-Cola's healthier soda options including the restaged Zero Sugar and new flavors of Diet Coke have been aiding results. Also, the company introduced slimmer packaging and no-sugar beverages in smaller markets such as New Zealand in the last reported quarter. All these initiatives are expected to drive top line and profitability in the upcoming quarter.

However, Coca-Cola anticipates hiking prices for its sodas owing to the recently imposed tariffs on steel and aluminum by the Trump administration, which has increased the cost of producing cans for sodas. This, along with escalating freight costs and rise in other input costs is likely to impact the company's bottling system, which might hurt profitability.

Further, the company expects unfavorable currency to hurt both revenues and operating margin in the second half of 2018. This remains a major concern for the to-be-reported quarter as well.

Segment Discussion

Europe, Middle East and Africa or EMEA

Coca-Cola's EMEA division delivered a solid performance in the last reported quarter, courtesy of solid price/mix. Revenues at this segment increased 7% year over year in second-quarter 2018. Further, the company maintained value share in the juice, dairy and plant-based beverages cluster.

For the third quarter, the Zacks Consensus Estimate for the EMEA segment's revenues is pegged at $1,928 million, reflecting a decrease of 1.6% year over year and a decline of 11.2% from last quarter.

Further, the segment's estimate for operating income is pegged at $929 million, reflecting 0.7% decline from the prior-year quarter and 15.2% decline from first-quarter 2018.

Latin America

In the Latin America division, Coca-Cola has been gaining from strong price/mix in its Mexico, Brazil and South Latin businesses. The segment's revenues improved 8% last quarter. The Zacks Consensus Estimate for the segment's third-quarter revenues is pegged at $997 million, mirroring a decline of 3.7% from the prior-year quarter and a decline of 3.3% from last quarter.

Further, the segment's operating income estimate stands at $558 million, down 0.9% year over year and 6.1% sequentially.

North America

Coca-Cola delivered robust performance in the North America region. Also, revenues at the region grew 7% year over year. However, the segment's price/mix declined year over year due to low single-digit underlying price. Moreover, higher freight costs remained a major headwind in the last quarter, primarily in North America. Nevertheless, the consensus mark for revenues stands at $3,082 million, which reflects growth of 12.1% year over year but decline of 1.1% on a sequential basis.

The consensus estimate for the segment's operating income stands at $808 million, up 25.1% year over year and 8.5% sequentially.

Asia Pacific

Revenues at the Asia Pacific segment inched up 1% year over year in the second quarter. Notably, volume of the Coca-Cola brand in China grew 5% in the quarter, driven by strong performance in China and India. Moreover, all business units grew volume except South Pacific. However, the consensus estimate for revenues at the division is pegged at $1,367 million, down 4.5% from second-quarter 2017 and 9.9% from first-quarter 2018.

Moreover, the segment's operating income estimate stands at $578 million, almost flat with the prior-year quarter figure but reflects a sequential decline of 18.1%.

Bottling Investments

Revenues at the Bottling Investments segment plunged 59% in second-quarter 2018 due to items impacting comparability. Further, the consensus mark for the division's revenues is expected to be $1,058 million, down 56.5% year over year and 14.3% sequentially.

In addition, currency translation risks remain concerns for the company. In third-quarter 2018, currency headwinds are likely to hurt operating income by about 7% and net revenues by 3%, both on a non-GAAP basis.

Bottom Line

Despite the odds, we expect the company's strategic efforts, including improved marketing, innovation, strong brand power, focus on driving revenues by improved price/mix and refranchising initiatives to boost third-quarter 2018 results.

Zacks Model

Our proven model does not show that Coca-Cola is likely to beat earnings estimates this quarter. This is because a stock needs to have both - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) - for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Coca-Cola has a Zacks Rank #3 but an Earnings ESP of 0.00%, which makes surprise prediction difficult.

Stocks Likely to Beat Earnings

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Turning Point Brands, Inc. TPB has an Earnings ESP of +8.74% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Monster Beverage Corporation MNST has an Earnings ESP of +3.01% and a Zacks Rank #3.

The Estée Lauder Companies Inc. EL has an Earnings ESP of +1.19% and a Zacks Rank #3.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Coca-Cola Company (The) (KO): Free Stock Analysis Report

Monster Beverage Corporation (MNST): Free Stock Analysis Report

The Estee Lauder Companies Inc. (EL): Free Stock Analysis Report

Turning Point Brands, Inc. (TPB): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

KO MNST TPB EL

Other Topics

Earnings Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More