Will Coca-Cola (KO) Retain Positive Earnings Trend in Q3?

The Coca-Cola Company KO is scheduled to report third-quarter 2020 earnings on Oct 22, before the opening bell. In the last reported quarter, the leading soft-drink maker delivered an earnings surprise of 5%. Moreover, its bottom line beat the Zacks Consensus Estimate by 5.8%, on average, over the trailing four quarters.

The Zacks Consensus Estimate for the company’s third-quarter earnings stands at 45 cents, suggesting a decline of 19.6% from the year-ago quarter’s reported figure. Further, the consensus mark has been unchanged in the past 30 days. For third-quarter revenues, the consensus mark is pegged at $8.35 billion, suggesting a 12.1% decline from the prior-year quarter’s reported figure.

Key Points to Note

Coca-Cola has been witnessing a decrease in total unit case volume on declines in all operating segments, owing to pressures in the away-from-home channels due to the coronavirus outbreak. However, in the last reported quarter, the company noted that unit case volume improved sequentially despite recording an overall decline.

CocaCola Company The Price and EPS Surprise


CocaCola Company The Price and EPS Surprise

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

Further, it noted that unit volume fell in mid-single digits in early July. The sequential gain indicates a gradual improvement in the away-from-home channels due to the easing of restrictions related to the lockdowns alongside sustained growth trends in the at-home channels. Consequently, management predicted the improving volume trend to continue in the second half of 2020, which is also likely to get reflected in the third-quarter results.

The company has also been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries mainly due to a shift in consumer preference during the pandemic. In response, it 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. These investments and actions are expected to have contributed to the top line in the to-be-reported quarter.

Moreover, the company has been progressing well with its strategy of weeding out unproductive brands and introducing lucrative ones. As part of the first elimination of these brands, it shut its Odwalla juice brand and its chilled direct store delivery, effective Jul 31. Additionally, the company’s launch of Topo Chico hard seltzer in Latin America markets, including Mexico and Brazil, is likely to have aided volume and sales in the third quarter.

Zacks Model

Our proven model predicts 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.

Coca-Cola has a Zacks Rank #3 and an Earnings ESP of +1.26%.

Stocks Likely to Beat on Earnings

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

Nu Skin Enterprises, Inc. NUS presently has an Earnings ESP of +3.54% and it sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Newell Brands Inc. NWL currently has an Earnings ESP of +17.06% and a Zacks Rank #2.

Church Dwight Co., Inc. CHD has an Earnings ESP of +6.71% and a Zacks Rank #3 at present.

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