The Coca-Cola Company KO has reported better-than-expected top and bottom-line results for second-quarter 2023. Earnings and sales also improved year over year. The company’s results have benefited from its continued business momentum. KO has raised its view for 2023.
Comparable earnings of 78 cents per share grew 11% from the year-ago period and beat the Zacks Consensus Estimate of 72 cents. However, unfavorable currency translations hurt comparable earnings by 6 percentage points. Comparable currency-neutral earnings per share rose 17% year over year.
Revenues of $11,972 million surpassed the Zacks Consensus Estimate of $11,734 million and improved 6% year over year. Organic revenues rose 11% from the prior-year quarter. Coca-Cola’s top line benefited from strong revenue growth across most of its operating segments, aided by an improved price/mix and increased concentrate sales. In the reported quarter, Coca-Cola gained a global value share in total non-alcoholic ready-to-drink beverages.
The Zacks Rank #3 (Hold) stock has declined 2.3% in the past three months against the industry’s growth of 2.3%.
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Volume and Pricing
In the reported quarter, concentrate sales rose 1% year over year, while the price/mix rose 10%. The price/mix benefited from pricing actions in the marketplace. In the quarter, concentrate sales were 1 point higher than unit case volume due to the timing of concentrate shipments.
Coca-Cola’s total unit case volume was flat year over year in the second quarter. The unit case volume for the developed markets was even with the prior-year quarter, driven by growth in Mexico, fully offset by declines in the United States and Spain. The volumes for the developing and emerging markets were also flat, as growth in India and Brazil was fully offset by the suspension of its business in Russia and a decline in Pakistan.
Our model had predicted organic revenue growth of 7.1% for the second quarter, with a 7.4% gain from price/mix and a 0.2% decline in concentrate sales volume.
CocaCola Company (The) Price, Consensus and EPS Surprise
CocaCola Company (The) price-consensus-eps-surprise-chart | CocaCola Company (The) Quote
Coming to the category cluster performance, the volume was flat for sparkling soft drinks. The sparkling soft drinks category benefited from growth in Latin America and the Asia Pacific, offset by the suspension of its business in Russia, which hurt the results of Europe, the Middle East & Africa. The trademark Coca-Cola reported flat volumes, while Coca-Cola Zero Sugar witnessed 5% growth. Meanwhile, the sparkling flavors category reported a decline of 1%.
Volumes for juice, value-added dairy and plant-based beverages were even in the second quarter. Strong growth in fairlife in the United States and Minute Maid Pulpy in China were largely offset by the suspension of the business in Russia.
The water, sports, coffee and tea category also reported flat volume in the second quarter. Coca-Cola witnessed flat volume in the water category, driven by gains in Latin America, offset by Europe, the Middle East & Africa, and North America. Sports drinks dipped 3% due to declines in BODYARMOR and Powerade in the United States. Tea volume was up 1%, driven by growth in Latin America, offset by a decline in dogadan in Turkiye. The coffee business witnessed 5% growth on strong Costa coffee performances in the U.K. and China.
Revenues rose 21% for Latin America, 8% for North America and 10% for Global Ventures. However, the company witnessed flat revenues for EMEA and the Asia Pacific. Revenues declined 2% for Bottling Investments.
Organic revenues improved 9% each in EMEA and North America, 25% in Latin America, 4% in the Asia Pacific, 10% in Global Ventures, and 15% in Bottling Investments.
In dollar terms, the operating income rose 3% year over year to $2,401 million, including a 10-point impact of currency headwinds. Comparable operating income rose 9.1% year over year. Comparable currency-neutral operating income advanced 15% on strong organic revenue growth across all segments, offset by higher operating costs and marketing investments.
The operating margin of 20.1% in the second quarter contracted 60 basis points (bps) from 20.7% in the prior-year quarter. The comparable operating margin expanded 90 bps to 31.6%.
Management has raised its view for 2023. It anticipates organic revenue growth of 8-9% for 2023 compared with 7-8% growth expected earlier. Comparable revenues are expected to be impacted by a 3-4% currency headwind based on current rates. The guidance includes a 1% negative impact of acquisition and divestiture. The company previously anticipated a 2-3% currency headwind on comparable revenues.
KO expects an impact of a mid-single-digit percentage from commodity price inflation on the comparable cost of goods sold. It anticipates an underlying effective tax rate of 19.3% for 2023.
Comparable currency-neutral earnings per share are estimated to increase 9-11% versus 7-9% growth mentioned earlier. The company anticipates year-over-year comparable earnings per share growth of 5-6% for 2023 compared with 4-5% growth stated earlier. Its comparable earnings per share growth is likely to include a headwind of 4-5% from currency, and a slight headwind from acquisitions and divestitures. The company previously anticipated a 3-4% currency headwind on comparable earnings per share.
For third-quarter 2023, comparable revenues are expected to include a 2% currency headwind, and a 1% negative impact of acquisitions, divestitures and structural changes. Comparable earnings per share are estimated to include a currency headwind of 3%.
Management envisions an adjusted free cash flow of $9.5 billion for 2023, including $11.4 billion in cash flow from operations. Capital expenditure is likely to be $1.9 billion.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely Molson Coors TAP, PepsiCo PEP and Fomento Economico Mexicano FMX.
Molson Coors currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 7.1%. TAP has a trailing four-quarter negative earnings surprise of 32.1%, on average. The company has gained 19.6% in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Molson Coors’ current financial-year sales and earnings suggests growth of 5.3% and 11.7%, respectively, from the year-ago reported numbers. The consensus mark for TAP’s earnings per share has moved up 0.7% in the past seven days.
PepsiCo currently has a Zacks Rank of 2 (Buy). PEP has a trailing four-quarter earnings surprise of 6.3%, on average. It has a long-term earnings growth rate of 8.1%. The company has gained 0.8% in the past three months.
The Zacks Consensus Estimate for PepsiCo’s current financial-year sales and earnings per share suggests growth of 6.4% and 9.9%, respectively, from the prior-year reported numbers. The consensus mark for PEP’s earnings per share has moved up 2.2% in the past 30 days.
Fomento Economico Mexicano, alias FEMSA, currently flaunts a Zacks Rank #2. FMX has a trailing four-quarter negative earnings surprise of 1.3%, on average. The company has rallied 13.7% in the past three months.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales and earnings per share suggests growth of 31.6% and 33.5%, respectively, from the year-ago quarter. The consensus mark for FMX’s earnings has been unchanged in the past 30 days.
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