Coca-Cola (KO) Stock Rises On Q1 Earnings And Sales Beat

The Coca-Cola Company (NYSE:KO) has delivered a strong first-quarter 2019, wherein earnings and sales beat estimates. Results gained from the effective execution of the company’s strategies to evolve as a consumer-centric total beverage company. Backed by the strong results, shares of Coca-Cola gained 3.9% in the pre-market session.

Moreover, this Zacks Rank #3 (Hold) stock has gained 10.1% in the past year compared with the industry’s growth of 0.2%. This is mostly attributed to the company’s growth strategies.

Q1 in Detail

Coca-Cola’s first-quarter 2019 comparable earnings of 48 cents per share beat the Zacks Consensus Estimate of 46 cents. The bottom line also improved 2% from the year-ago period, driven by ongoing productivity efforts and disciplined growth strategies. Currency translations negatively impacted earnings by 11%. However, earnings included a 2-cents positive effect of timing mainly from bottler inventory build related to Brexit.

Revenues of $8,020 million surpassed the Zacks Consensus Estimate of $7,890 million and increased 5% year over year. The increase was attributed to robust performance across all segments as well as a 2 points revenue benefit from timing due to bottler inventory build to manage the uncertainty related to Brexit. This represented the company’s first revenue growth after 15 consecutive quarterly declines.

Organic revenues grew 6% as concentrate sales improved 1% and price/mix increased 5%. In addition to the timing effects, concentrate sales and price/mix benefited from consumer-focused innovations and solid revenue growth management initiatives. However, concentrate sales included a 1-point negative impact of one less day in the reported quarter.

Volume and Pricing

Coca-Cola’s total unit case volume increased 2% in the first quarter as robust growth in the key markets across Asia and Europe was negated by declines in Argentina, the Middle East and North America.

Category Cluster Performance: Sparkling soft drinks unit case volume was up 1% (compared with a 1% decrease in the prior quarter). Juice, dairy and plant-based beverages remained flat year over year (compared with 2% decrease in the last reported quarter). Water, enhanced water and sports drinks improved 6% (in comparison with 1% growth in Q4), and Tea and Coffee was flat (compared with 3% growth in Q4).

Segmental Details

Revenues grew 1% in North America and 5% for the Europe, Middle East & Africa (EMEA) segment. However, revenues at the Asia Pacific and Latin America segments declined 2% and 10%, respectively. Meanwhile, Bottling Investments were down 5% in the quarter under review. However, Global Ventures segment reported substantial revenue growth of 201%, gaining from the completion of the Costa acquisition during the quarter.

Organic revenues grew across the board, backed by consistent innovation and revenue growth initiatives within sparkling soft drinks, with solid pricing and mix across all regions. Additionally, tea and coffee categories witnessed strong growth. Organic revenues for North America and Global Ventures segments were up 1% each. Meanwhile, organic revenues improved 14% for EMEA, 6% for Latin America, and 4% for the Asia Pacific segment. Bottling Investments segment recorded organic revenue growth of 9%.

Margins

Comparable currency-neutral operating income grew 16% on the back of strong organic revenue growth, gain from acquisition and ongoing benefits of productivity initiatives. Comparable operating margin contracted 20 basis points (bps) as a 260-bps negative impact of unfavorable currency and net acquisitions more than offset the strong underlying margin expansion.

Guidance

The company remains confident of the previously-stated guidance for 2019, driven by ongoing progress on its growth initiatives. Further, it outlined some expectations for the second quarter.

For 2019, the company continues to estimate organic revenue growth of nearly 4%. Comparable currency-neutral revenues are expected to increase 12-13%, aided by 8-9% benefit from acquisitions, divestitures and structural items. However, unfavorable currency is likely to affect revenues by 3-4%.

Comparable currency-neutral operating income for 2019 is expected to increase 10-11%. Acquisitions, divestitures and structural changes will positively impact operating income by a low-single digit. However, foreign exchange is expected to hurt comparable operating income by 6-7%.

The company expects comparable earnings to be down 1% to up 1% from $2.08 recorded in 2018. Underlying effective tax rate is estimated at 19.5%.

Moreover, the company expects cash from operations of at least $8 billion in 2019, with capital expenditure of nearly $2 billion.

For the second quarter of 2019, it anticipates comparable net revenues to include about 6% benefit from acquisitions, divestitures and structural items. Meanwhile, currency headwinds are likely to hurt comparable net revenues by 4-5% and comparable operating income by 7%.

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