Factors to Decide the Fate of Coca-Cola (KO) in Q2 Earnings

The Coca-Cola Company KO is scheduled to report second-quarter 2020 earnings on Jul 21, before the opening bell. In the last reported quarter, the leading soft-drink maker delivered an earnings surprise of 15.9%. Moreover, its bottom line beat the Zacks Consensus Estimate by 4.96%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s second-quarter earnings stands at 43 cents, suggesting a decline of 31.8% from the year-ago quarter’s reported figure. Further, the consensus mark has been unchanged in the past 30 days. For second-quarter revenues, the consensus mark is pegged at $7.45 billion, suggesting a 25.5% increase from the prior-year quarter’s reported figure.

Key Points to Note

In response to the coronavirus outbreak, Coca-Cola has been relentlessly working with its bottlers and retail customers to keep the supply chain going. Driven by the lockdowns, the company has been witnessing significant declines in away-from-home channels. Meanwhile, the at-home channel has been experiencing normalized demand levels since April.

CocaCola Company The Price and EPS Surprise


CocaCola Company The Price and EPS Surprise

CocaCola Company The price-eps-surprise | CocaCola Company The Quote

On its lastearnings call the company expected to witness altered consumer purchase patterns to significantly impact second-quarter results, as away-from-home channels contribute nearly 50% of its revenues. Notably, it experienced a nearly 25% decline in global volume since the start of April, most of which is attributed to declines in the away-from-home channel.

Moreover, it expects the persistence of the adverse currency rates to mar results in the second quarter of 2020. On the lastearnings call it predicted unfavorable currency to affect second-quarter revenues by 4-5% and comparable operating income by 5-6%.

However, Coca-Cola has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries on a shift to seismic consumer behavior due to the coronavirus pandemic. The company has been accelerating investments to expand presence in this channel compared with the pre-crisis levels. In North America, it has been investing in e-commerce to support retailers and meal delivery services, shifting toward fit-for-purpose package sizes for online sales, and redeploying consumer and trade promotions toward digital.

It has been strengthening consumer connections and further piloting numerous different digital-enabled initiatives through fulfillment methods be it B2B to home or B2C platforms in many countries to capture online demand for at-home consumption. The company has seen favorable results initially and is looking to scale similar partnerships with more customers. The efforts are likely to have cushioned its top-line performance in the second quarter.

Zacks Model

Our proven model does not predict an earnings beat for Coca-Cola this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Coca-Cola has a Zacks Rank #3, an Earnings ESP of -6.40% makes surprise prediction difficult.

Stocks Likely to Beat on 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:

Nu Skin Enterprises, Inc. NUS presently has an Earnings ESP of +13.74% and it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Clorox Company CLX currently has an Earnings ESP of +0.67% and a Zacks Rank #2.

The Procter Gamble Company PG has an Earnings ESP of +1.51% and a Zacks Rank #2 at present.

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CocaCola Company The (KO): Free Stock Analysis Report
Procter Gamble Company The (PG): Free Stock Analysis Report
The Clorox Company (CLX): Free Stock Analysis Report
Nu Skin Enterprises, Inc. (NUS): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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