Coca-Cola's (KO) Healthy Drive Helps Q2 Earnings To Beat

The Coca-Cola Company (NYSE:KO) reported better-than-expected second-quarter 2017 results. Innocent juice and smoothie business in Europe, organic revenue growth in sparkling soft drinks, led by innovation in and marketing support for its low and no-sugar options like Coca-Cola Zero Sugar have helped it in coming up with better numbers.

Earnings Beat

Second-quarter 2017 adjusted earnings of the company were 59 cents per share, surpassing the Zacks Consensus Estimate of 57 cents by 3.5%.

Earnings, however, decreased 1.7% year over year due to currency headwinds as well as higher costs associated with refranchising efforts.

Sales Discussion

Net revenue declined 16% year over year to $9.7 billion due to currency headwinds and negative impact of structural items, marking the ninth consecutive quarterly decline in revenues. Currency headwinds hurt sales by 2%.

Acquisitions/divestitures and structural items had a 17% impact on revenues, partly offset by 3% positive contribution of price/mix.

Revenues marginally missed the Zacks Consensus Estimate of $9.71 billion.

Margins

Adjusted consolidated gross margins expanded 210 basis points (bps) year over year to 62.6%, as currency headwinds were offset by positive pricing and productivity gains.

The company’s comparable operating margin grew 370 bps to 30.2% in the quarter.

Comparable income before income tax was down 1.3% to $3.35 billion.

The structural changes primarily include the impact of bottler refranchising efforts.

Volume and Pricing

Coca-Cola’s total unit case volume remained unchanged with no growth in the quarter (similar to the preceding quarter), which included positive performance in four of the five category clusters. Unit case volume continued to be impacted by macroeconomic headwinds in some Latin American markets. Brazil and Venezuela accounted for more than 1% drag on consolidated unit case volume growth.

From a market segmentation viewpoint, the company’s developed markets delivered 1% unit case volume growth, led by Mexico and Spain.

Sparkling beverage unit case volume remained unchanged; Juice, dairy, and plant-based beverages saw 3% growth; Water, enhanced water, and sports drinks were up 1%; and Tea and Coffee was up 2%.

Price/mix increased 3%, similar to the previous quarter.

2017 Guidance

Organic revenues are expected to rise 3%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 18–19%, while Fx is likely to have a negative impact of 1–2% on revenues.

Comparable currency income before income taxes (structurally adjusted) is expected to increase 7–8%.

Foreign exchange is expected to hurt comparable income before taxes by 2%. Structural changes are likely to have a 5–6% negative impact on it.

The company expects adjusted EPS to decline 0–2% from the prior year’s comparable EPS of $1.91.

The company expects to buy back shares worth $2.0 billion in 2017. The adjusted effective tax rate is likely to be 24%.

Zacks Rank

Currently, Coca-Cola has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Release

PepsiCo, Inc. (NYSE:PEP) reported better-than-expected results in second-quarter 2017 (ending Jun 17), with both earnings and revenues beating the Zacks Consensus Estimate. PepsiCo’s second-quarter core earnings per share of $1.50 beat the Zacks Consensus Estimate of $1.40 by 7.1%.

Upcoming Peer Releases

Dr Pepper Snapple Group Inc. (NYSE:DPS) is slated to report quarterly results on Jul 27.

Monster Beverage Corp. (NASDAQ:MNST) is expected to report quarterly results on Aug 3.

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