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Investing in Coca-Cola (KO) Before Q2 Earnings: Smart Move?
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The Coca-Cola Company (KO - Free Report) is slated to report second-quarter 2024 earnings on Jul 23, before the opening bell. The company is expected to register bottom-line growth when it reports second-quarter numbers.
The Zacks Consensus Estimate for second-quarter earnings is pegged at 80 cents, suggesting 2.6% growth from the 78 cents reported in the prior-year quarter. The consensus mark has been unchanged in the past 30 days. For quarterly revenues, the consensus mark is pegged at $11.9 billion, implying a 0.6% decline from the year-ago quarter's reported figure.
Image Source: Zacks Investment Research
The Atlanta, GA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. KO has a trailing four-quarter earnings surprise of 5.5%, on average. Additionally, the top line has surpassed the Zacks Consensus Estimate in the trailing 13 quarters. Given its positive record, the question is, can KO maintain the momentum?
Our proven model does not conclusively 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. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
KO's Q2 Countdown: Trends to Watch Before the Big Reveal
Coca-Cola has displayed resilience, driven by positive business trends mainly on a strong brand portfolio, investments across the business and revenue growth across its operating segments, aided by an improved price/mix and volume growth. The company’s volume trends have been reflecting value share gains across both at-home and away-from-home channels.
KO’s volumes in the second quarter are expected to have benefited from the momentum across most emerging and developed markets. Category-wise, volumes are likely to have gained from growth in trademark Coca-Cola; sparkling flavors; the nutrition, juice, dairy and plant-based beverages; and hydration, sports, coffee and tea categories.
We expect the company’s strong volumes and favorable price/mix to have driven its performance. Our model predicts 10.2% year-over-year organic revenue growth for the second quarter, thanks to an 8.5% rise in price/mix and a 1.7% increase in concentrate sales volume.
Coca-Cola’s second-quarter results are likely to reflect gains from innovations and accelerated digital investments. The company has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. KO has been accelerating investments to build strong digital capabilities. It has been consistently strengthening consumer connections and piloting various digital initiatives through fulfillment methods to capture online demand, which is likely to have boosted second-quarter sales.
Although volume trends look favorable across most markets, the company is likely to have succumbed to macroeconomic disruptions across some markets, which is anticipated to have affected its second-quarter performance. Some of these include low consumer confidence levels in China; geopolitical and economic challenges in Eurasia and the Middle East; and high inflationary conditions in Argentina. These factors are expected to have negatively impacted KO’s top-line performance.
On the last reported quarter’s earnings call, management noted that the overall inflationary environment started normalizing across developed markets. However, a handful of markets across the developing and emerging markets continue to experience intense inflation, which is driving elevated pricing, offset by incremental currency headwinds. The inflationary trends with currency headwinds are likely to have marred the performances of some segments in the second quarter.
Based on the current rates and including the impacts of hedged positions, the company expects currency headwinds to impact second-quarter 2024 comparable revenues by 6%. Additionally, acquisitions, divestitures and structural changes are expected to negatively impact revenues by 5-6% in the second quarter. Our model estimates currency headwinds to impact revenues by 6% in the second quarter, while we estimate a 5.1% impact of acquisitions, divestitures and structural changes for the same period.
Price Performance & Valuation
Coca-Cola’s shares have exhibited an uptrend in the past three months, rising 7.7%, leaving behind its industry peers and the Zacks Consumer Staples sector. In the past year, the beverage giant’s shares have risen 4.5%, outperforming the industry’s growth of 0.5% and the sector’s 3.2% decline.
Not only that, the Coca-Cola stock has rallied ahead, leaving arch-rival PepsiCo (PEP - Free Report) struggling with a 10% drop in the same period. Also, Coca-Cola's stability stands out against other competitors, including Keurig Dr Pepper’s (KDP - Free Report) modest 2.2% gain and Monster Beverage’s (MNST - Free Report) 11.4% slump in the past year.
Image Source: Zacks Investment Research
KO’s uptrend is further highlighted by the fact that it attained a new 52-high of $65.81 on Jul 18 before closing yesterday’s trade at $65.19. At this level, Coca-Cola’s share price reflects a 26.5% premium to its 52-week low of $51.55.
From the valuation standpoint, KO trades at a forward 12-month P/E multiple of 22.24X, exceeding the industry average of 20.75X and the S&P 500’s average of 21.59X. Coca-Cola’s valuation appears quite pricey.
Image Source: Zacks Investment Research
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The consumer goods market is becoming increasingly competitive, and Coca-Cola’s innovation and market expansion may not be enough to drive significant growth. Macroeconomic headwinds and increased competition could hinder KO’s ability to maintain its current growth trajectory.
Investment Thesis
Coca-Cola’s strong brand equity, marketing, research and innovation have helped it garner a market share of more than 40% in the non-alcoholic beverage industry. KO has been putting its best foot forward to evolve its business model, transforming into a total beverage company with something for everyone to drink. The company looks well-poised for long-term growth, backed by innovation efforts and accelerated digital investments. Coca-Cola continues to reward shareholders with substantial dividends and share repurchases, underpinned by a strong cash flow and operational resilience.
However, inflationary pressures from rising commodity and material costs, with increased marketing expenses, pose challenges for KO. If these trends persist, they could squeeze the company's margins and profitability in the near term.
Conclusion
Regardless of what course the KO stock takes after the second-quarter 2024 earnings results, it is still a solid long-term buy, given its strong fundamentals. While Coca-Cola’s future looks bright, investors should avoid jumping in too quickly. Instead, keep an eye on developments to find the perfect entry point, as rushing in might hurt your portfolio gains. If you already hold the KO stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Image: Bigstock
Investing in Coca-Cola (KO) Before Q2 Earnings: Smart Move?
The Coca-Cola Company (KO - Free Report) is slated to report second-quarter 2024 earnings on Jul 23, before the opening bell. The company is expected to register bottom-line growth when it reports second-quarter numbers.
The Zacks Consensus Estimate for second-quarter earnings is pegged at 80 cents, suggesting 2.6% growth from the 78 cents reported in the prior-year quarter. The consensus mark has been unchanged in the past 30 days. For quarterly revenues, the consensus mark is pegged at $11.9 billion, implying a 0.6% decline from the year-ago quarter's reported figure.
Image Source: Zacks Investment Research
The Atlanta, GA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. KO has a trailing four-quarter earnings surprise of 5.5%, on average. Additionally, the top line has surpassed the Zacks Consensus Estimate in the trailing 13 quarters. Given its positive record, the question is, can KO maintain the momentum?
CocaCola Company (The) Price and EPS Surprise
CocaCola Company (The) price-eps-surprise | CocaCola Company (The) Quote
Earnings Whispers
Our proven model does not conclusively 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. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
Coca-Cola has a Zacks Rank #3 and an Earnings ESP of -0.48%. You can see the complete list of today’s Zacks #1 Rank stocks here.
KO's Q2 Countdown: Trends to Watch Before the Big Reveal
Coca-Cola has displayed resilience, driven by positive business trends mainly on a strong brand portfolio, investments across the business and revenue growth across its operating segments, aided by an improved price/mix and volume growth. The company’s volume trends have been reflecting value share gains across both at-home and away-from-home channels.
KO’s volumes in the second quarter are expected to have benefited from the momentum across most emerging and developed markets. Category-wise, volumes are likely to have gained from growth in trademark Coca-Cola; sparkling flavors; the nutrition, juice, dairy and plant-based beverages; and hydration, sports, coffee and tea categories.
We expect the company’s strong volumes and favorable price/mix to have driven its performance. Our model predicts 10.2% year-over-year organic revenue growth for the second quarter, thanks to an 8.5% rise in price/mix and a 1.7% increase in concentrate sales volume.
Coca-Cola’s second-quarter results are likely to reflect gains from innovations and accelerated digital investments. The company has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. KO has been accelerating investments to build strong digital capabilities. It has been consistently strengthening consumer connections and piloting various digital initiatives through fulfillment methods to capture online demand, which is likely to have boosted second-quarter sales.
Although volume trends look favorable across most markets, the company is likely to have succumbed to macroeconomic disruptions across some markets, which is anticipated to have affected its second-quarter performance. Some of these include low consumer confidence levels in China; geopolitical and economic challenges in Eurasia and the Middle East; and high inflationary conditions in Argentina. These factors are expected to have negatively impacted KO’s top-line performance.
On the last reported quarter’s earnings call, management noted that the overall inflationary environment started normalizing across developed markets. However, a handful of markets across the developing and emerging markets continue to experience intense inflation, which is driving elevated pricing, offset by incremental currency headwinds. The inflationary trends with currency headwinds are likely to have marred the performances of some segments in the second quarter.
Based on the current rates and including the impacts of hedged positions, the company expects currency headwinds to impact second-quarter 2024 comparable revenues by 6%. Additionally, acquisitions, divestitures and structural changes are expected to negatively impact revenues by 5-6% in the second quarter. Our model estimates currency headwinds to impact revenues by 6% in the second quarter, while we estimate a 5.1% impact of acquisitions, divestitures and structural changes for the same period.
Price Performance & Valuation
Coca-Cola’s shares have exhibited an uptrend in the past three months, rising 7.7%, leaving behind its industry peers and the Zacks Consumer Staples sector. In the past year, the beverage giant’s shares have risen 4.5%, outperforming the industry’s growth of 0.5% and the sector’s 3.2% decline.
Not only that, the Coca-Cola stock has rallied ahead, leaving arch-rival PepsiCo (PEP - Free Report) struggling with a 10% drop in the same period. Also, Coca-Cola's stability stands out against other competitors, including Keurig Dr Pepper’s (KDP - Free Report) modest 2.2% gain and Monster Beverage’s (MNST - Free Report) 11.4% slump in the past year.
Image Source: Zacks Investment Research
KO’s uptrend is further highlighted by the fact that it attained a new 52-high of $65.81 on Jul 18 before closing yesterday’s trade at $65.19. At this level, Coca-Cola’s share price reflects a 26.5% premium to its 52-week low of $51.55.
From the valuation standpoint, KO trades at a forward 12-month P/E multiple of 22.24X, exceeding the industry average of 20.75X and the S&P 500’s average of 21.59X. Coca-Cola’s valuation appears quite pricey.
Image Source: Zacks Investment Research
Given the premium valuation, investors could face significant risks if the company's future performance does not meet expectations. The consumer goods market is becoming increasingly competitive, and Coca-Cola’s innovation and market expansion may not be enough to drive significant growth. Macroeconomic headwinds and increased competition could hinder KO’s ability to maintain its current growth trajectory.
Investment Thesis
Coca-Cola’s strong brand equity, marketing, research and innovation have helped it garner a market share of more than 40% in the non-alcoholic beverage industry. KO has been putting its best foot forward to evolve its business model, transforming into a total beverage company with something for everyone to drink. The company looks well-poised for long-term growth, backed by innovation efforts and accelerated digital investments. Coca-Cola continues to reward shareholders with substantial dividends and share repurchases, underpinned by a strong cash flow and operational resilience.
However, inflationary pressures from rising commodity and material costs, with increased marketing expenses, pose challenges for KO. If these trends persist, they could squeeze the company's margins and profitability in the near term.
Conclusion
Regardless of what course the KO stock takes after the second-quarter 2024 earnings results, it is still a solid long-term buy, given its strong fundamentals. While Coca-Cola’s future looks bright, investors should avoid jumping in too quickly. Instead, keep an eye on developments to find the perfect entry point, as rushing in might hurt your portfolio gains. If you already hold the KO stock in your portfolio, sit tight, as the upcoming earnings report is likely to confirm the company's strong performance.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.