Category: KO

KO – Coke (KO) Up 3.9% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Coca-Cola (KO Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Coke due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Coca-Cola Q3 Earnings & Sales Beat Estimates

Coca-Cola has delivered third-quarter 2020 results, wherein earnings and sales beat estimates. Comparable earnings of 55 cents per share beat the Zacks Consensus Estimate of 45 cents but declined 2% from the year-ago period. Currency translations negatively impacted earnings by 7%. Comparable currency-neutral earnings per share rose 5%.

Revenues of $8,652 million surpassed the Zacks Consensus Estimate of $8,353 million but declined 9% year over year. Organic revenues were down 6% from the prior-year quarter. The company’s top line declined from the prior year, owing to headwinds in the away-from-home channels, which accounts for nearly half of its total revenues. This was partly offset by sustained improvement in the at-home channels. Nonetheless, the company’s third-quarter revenues reflected improved trends from the second quarter.

During the quarter, concentrate sales declined 4% and price/mix was down 3%. Moreover, currency headwinds hurt the company’s top line by 3%.

During the quarter, it lost global value share in total non-alcoholic ready-to-drink (NARTD) beverages. The decline was attributed to a negative channel mix due to softness in the away-from-home channels, where it has a majority share position. This more than offset the overall underlying share gains.

Volume and Pricing

Price/mix was down 3%, driven by adverse channel and package mix in key markets due to the coronavirus outbreak. Also, negative mix in the Global Ventures and Bottling Investments segment impacted price/mix. Concentrate sales were in line with unit case volume.

Coca-Cola’s total unit case volume was down 4% in the third quarter on declines in all operating segments, owing to pressures in the away-from-home channels due to the coronavirus outbreak. This was partly offset by continued strength in at-home channels.

Category Cluster Performance: Sparkling soft drinks’ unit case volume edged down 1% (compared with a 12% decline in the prior quarter), driven by declines in the fountain business in North America and Mexico, mainly owing to a decline in away-from-home channels. The Coca-Cola trademark was up 1%, with Coca-Cola Zero Sugar improving 7%. Volume for juice, dairy and plant-based beverages declined 6% (compared with a 20% fall in the last reported quarter). This category was primarily impacted by softness in the Asia Pacific and Latin America operating segments, which more than offset the strength in Simply and fairlife in North America.

Water, enhanced water and sports drinks fell 11% (compared with a 24% decline in the second quarter), mainly owing to broad-based declines across operating segments, particularly for the lower-margin water brands. Tea and coffee volume dropped 15% (compared with a 31% decline in the second quarter), owing to pandemic-led disruptions at the Costa retail stores as well as headwinds in the dogadan tea business in Turkey.

Segmental Details

Revenues declined 2% for North America, 23% for Latin America, 9% for the Asia Pacific, 7% for Europe, Middle East & Africa (“EMEA”), 12% for Bottling Investments, and 19% for Global Ventures segments.

Organic revenues fell 4% in Latin America, 3% in North America, 8% in the Asia Pacific, 6% in EMEA, 20% in Global Ventures segments and 6% in Bottling Investments.

Margins

Comparable currency-neutral operating income improved 7% year over year, driven by effective cost-management initiatives across all operations, partly offset by top-line pressures due to the pandemic. Comparable operating margin expanded 230 basis points (bps) to 30.4%. In dollar terms, comparable operating income declined 1.4% to $2,629 million.

Guidance

Though the company did not provide guidance for the fourth quarter and 2020 due to the uncertainties related to the coronavirus pandemic, it outlined the expected currency impacts on its results for both periods.

For 2020, it estimates currency headwinds of 3% on comparable net revenues and 6% on comparable operating income, based on current rates and hedge positions. The company expects underlying effective tax rate of 19.5% for 2020.

For the fourth quarter, it expects currency impacts of 3% on comparable net revenues and 9% on comparable operating income.

Additionally, the company estimates minimal currency impacts on comparable net revenues and comparable operating income in 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Coke has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Coke has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

KO – Coca-Cola Agrees to Sell Stake in Australian Bottler for $1.6 Billion as Part of Wider Buyout Deal

Coca-Cola (NYSE:KO) has agreed in principle to divest one of its top equity stakes as part of a multibillion-dollar deal between two of its peers. Coca-Cola European Partners (NYSE:CCEP), a bottler based on that continent, has made a non-binding offer to buy out Australian bottler Coca-Cola Amatil in a transaction valued at 9.28 billion Australian dollars ($6.6 billion).

Coca-Cola is a major shareholder in the latter company, holding a nearly 31% stake, and will be a major part of the transaction. For handing over its shares to European Partners, the beverage giant will receive roughly $1.6 billion in cash and stock.

A glass of cola.

Image source: Getty Images.

European Partners was formed in 2016 by three European companies that specialized in the bottling of Coca-Cola Products. In terms of net revenue, it claims it is the largest independent Coca-Cola bottler on the Earth. As with Amatil but to a lesser degree, Coca-Cola has a stake in European Partners (of just over 19%).

In a company presentation on its offer, European Partners said that tying up with Amatil “brings together two of the world’s best Coca-Cola bottlers, providing access to complementary, developed markets with attractive long term macro growth fundamentals.” In addition to its native Australia, Amatil also serves crucial regional markets such as Indonesia.

Coca-Cola has not yet officially commented on European Partners’ offer. 

On a per-share basis, the American company will be paid less than Amatil, as it is selling only a minority stake. 

The Amatil deal is subject to approval from that company’s shareholders, and approval from the relevant regulators.

KO – Coca-Cola Is About To Break Out

Image source

Drinks maker Coca-Cola (KO) has been performing quite well of late. The stock took a fair bit of punishment earlier this year, and while that was certainly warranted given the conditions, it appears to me the recovery is visible enough to support the buying we’ve seen of late.

I’ve annotated this chart much more than I normally do because I firmly believe we’re seeing a breakout forming.

If we look at the period of June to late August, we can see that the stock formed an ascending triangle, with the top of it being around $48/$49. The breakout occurred in late August and shares ran up to ~$52. There’s been a period of consolidation since then, but if we look at the very right side of the chart, we can see another ascending triangle forming.

There is trendline support (blue arrow) that has been holding since the late June bottom, and higher lows have been made in recent weeks. While there may be one or two more connect points with the trendline, I firmly believe we’re about to see Coca-Cola break out above the $52 level and make a run at pre-pandemic highs.

The good news is that if the ascending triangle pattern fails, there is strong support at the former breakout level of ~$48, which is also annotated above. Therefore, I think you’ve got some pretty clearly defined parameters for this one and you’ll know fairly soon if the break out is occurring or not.

Earnings support the bulls

Coca-Cola reported Q3 earnings just a few days ago, and results were weak compared to last year. That, of course, is expected given the fact that away-from-home venues remain incredibly weak for Coca-Cola. This segment includes things like movie theaters, sports stadiums, and other places where people would normally congregate in large groups, but aren’t allowed to. It is, of course, anyone’s guess as to when this segment will return to normal, but Coca-Cola is proving its immense diversification can help it thrive in just about any environment, including one with a pandemic.

Source: Q3 earnings presentation

What I think is most telling about the company’s results is not that case volumes are down or that pricing and mix were a headwind in Q3; neither of those things is a positive by any means. However, we knew Q3 would be ugly given pandemic conditions haven’t lifted.

I think the impressive thing about Coca-Cola’s performance is that it managed a 7% boost in adjusted operating income while organic revenue was down 6%. Generally, if organic revenue is performing poorly, margins tend to follow suit due to deleveraging of fixed and operating costs. Coca-Cola’s intense focus on margin improvement in recent years is bearing fruit in a tremendous way in 2020, and the extension of that is that when revenue does eventually recover, the operating leverage from that revenue should be sizable.

It is pretty easy to believe that Q4 will be bumpy as well given that management stated that October was off to a rough start. But as we look forward to 2021, and away-from-home channels begin to reopen in earnest, Coca-Cola stands to benefit immensely.

When you couple the improvement in organic revenue that should be coming in 2021 with Coca-Cola’s never-ending push for innovation, I think the future looks quite bright. Coca-Cola’s strategy has long centered around extensions of current products, such as flavored Coke and Diet Coke lines. In recent years, however, it is has moved into coffee with its Costa acquisition, and into selling alcoholic beverages in the US for the first time ever with its Topo Chico brand. Coca-Cola is late to the hard seltzer party, but its marketing and supply chain might collectively give it a huge advantage over the other players in the space.

To be fair, management has been very forthcoming about the fact that the recovery is likely to see stops and starts. Given the enormous geographical reach of Coca-Cola’s revenue globally, that makes sense. Different countries are still in initial lockdowns, while others are coming out of them into a new normal. Indeed, we are seeing the same thing in the US in different cities and states are in different modes of recovery.

This will lead to uneven performance for Coca-Cola, so do not expect a straight-line recovery back to the top. This will be a process, but the important thing is that the pieces are in place for recovery, and initial signs are quite good.

The bottom line

I’m obviously bullish on Coca-Cola these days for all the reasons I’ve mentioned above. The good news is that you get the opportunity to own Coca-Cola for what I believe is a fairly compelling valuation as well. Permit me to explain.

Source: Seeking Alpha

Shares trade today at 24 times next year’s earnings, which should be normalized, more or less. The good news is that the stock’s five-year average forward PE ratio happens to be 24, so Coca-Cola is trading for essentially what is a normal valuation.

The thing that makes it compelling is that in the past few years, earnings haven’t moved much. Coca-Cola has struggled to move the needle on EPS, but traded at 24 times earnings anyway. Today, if we look at the growth numbers above, the company is in a much better spot from a growth perspective, so it should trade for a higher valuation to account for improved growth prospects. Indeed, shares traded near 30 times earnings prior to the pandemic selloff, so this sort of thing isn’t without precedent.

With Coca-Cola’s focus on operating margin gains, constant product innovation, and a recovery in away-from-home on the horizon, I see plenty of reasons to be bullish. In addition, the stock is set up very bullishly from a technical perspective, so I think it is a buy.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in KO over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

KO – Coca-Cola is slashing 200 brands like Tab, Zico, and Odwalla. Here's the list so far of drinks you'll never be able to get again.

Coca Cola bottling plantCoca Cola bottling plant

REUTERS/Lucy Nicholson

  • Coca-Cola plans to drop around 200 of its drink brands, it said on an earnings call.
  • Since the summer, it has announced it will scrap Tab and Zico, but the whole list hasn’t been released.
  • The company says it will focus on its higher-earning brands.
  • Visit Business Insider’s homepage for more stories.

Beverage giant Coca-Cola will stop selling about 200 brands soon, cutting its offerings in half. Tab, Zico, and Odwalla have been publicly axed, with more to come, the company said on an earnings call.

Coke hasn’t yet named all the brands it will drop, but CEO James Quincey said that there will likely be more cuts in the “hydration” category that encompasses Smart Water and Powerade. Back in July, Quincey said that half of Coca-Cola’s portfolio generated only 2% of revenue. Going forward, the company will focus on the biggest brands, like Coke and Sprite.

Here are all the brands that have been discontinued so far.

Coca-Cola is retiring 70s icon Tab at the end of 2020, triggering nostalgia in some fans.

Tab soda

Tab. Ramin Talaie/Getty Images

Source: Business Insider

In early October, Coke confirmed it would stop producing Zico coconut water in coming months.

GettyImages 1166629858

Zico. Photo by Rachel Murray/Getty Images for Fitbit Local

Source: Business Insider

Back in July, Coke announced plans to drop struggling juice brand Odwalla, along with 300 jobs.

odwalla

Jeffrey Greenberg/Education Images/Universal Images Group via Getty Images

Source: Business Insider

The company confirmed that Coke Life, a version of Coke flavored with Stevia leaf extract that debuted in 2014, is on the chopping block.

cokeLife

Coke Life. Coca-Cola

Source: Internet Archive/Coca-Cola

Diet Coke Feisty Cherry is another flavor getting cut.

Screen Shot 2020 10 23 at 3.24.56 PM

Feisty Cherry. Coca-Cola

Regional Virginia brand Great Neck Northern Ale is another casualty, although Gov. Ralph Northam tweeted that he is reaching out to Coca-Cola to keep the drink on shelves.

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Northern Neck Ginger Ale. Coca-Cola.

Source: WRIC

Regional grape drink Delaware Punch was also eliminated.

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Delware Punch. Coca-Cola

Source: Coca-Cola

Sprite Lymonade is another flavor getting discontinued by Coke.

GettyImages 1157469307

Sprite Lymonade. Photo by Alberto E. Rodriguez/Getty Images for BET

Source: WSJ

Some brands under Coke’s “hydration” category, which includes Dasani and Smart Water, are also likely to be removed going forward.

dasani water controversy

Dasani bottled water moves down a production line at a Coco-Cola bottling plant on February 10, 2017 in Salt Lake City, Utah. George Frey/Getty Images

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KO – Coca-Cola European Partners in talks to buy Coca-Cola Amatil

Cans of Coca-Cola sit on a shelf in a store in London, Britain March 16, 2016. REUTERS/Stefan Wermuth/File Photo

(Reuters) – Coca-Cola European Partners is in advanced talks to acquire Australia’s Coca-Cola Amatil, Bloomberg News reported on Saturday.

The details of the deal which has not yet been finalised could be announced within few days, Bloomberg reported, citing people familiar with the matter.

A deal would be the largest involving an Australian company this year, Bloomberg said.

U.S.-based Coca-Cola Co owns a 19.11% stake in Coca-Cola European Partners, the world’s largest independent bottler of Coca-Cola, Refinitiv Eikon data shows.

Shares in bottler Coca-Cola Amatil were halted on Thursday pending an announcement on a “potential material transaction”.

Nieth company could be reached for comment outside business hours.

Reporting by Rebekah Mathew in Bengaluru; editing by Jason Neely

KO – Coke Won't Say Which 200 Brands It Dumped and That's a Problem

Consumer Products

Coca-Cola Co. (NYSE: KO) has announced what has to be considered a major restructuring. It has decided to eliminate about 200 of its brands. That’s about half of its stable. Asked which ones will go, the company refused to answer. Outsiders will never know what part of Coke’s strategy failed and how that shapes its stable going forward. That’s a problem for anyone who wants to know how management thinks and to judge whether the new strategy of fewer brands will work. It is particularly critical since CEO James Quincey’s tenure has been a disappointment.
24/7 Wall St. asked the company for a list of discontinued brands. The answer was a dodge. A spokesperson said, “our focus is on our future portfolio.” Of course, Coke almost certainly won’t give out that list either.

The markets have been less than sanguine about Coke’s future. Shares are off 8.4% this year. The S&P 500 is up 6.9% over the same period. Shares of rival PepsiCo Inc. (NASDAQ: PEP) have risen 2.2%.
Earnings for the quarter that ended on September 25 were ugly, with revenue off 9% to $8.7 billion, compared with the same quarter last year. Earnings dropped 33% to $0.40 per share. The company said this about its plans:

Shaping a winning growth portfolio: The company continues to pursue its beverages for life ambition by calibrating a portfolio with an optimal set of global, regional and local brands with the strongest potential to grow their consumer bases, increase frequency and drive system margins. The company expects to offer a portfolio of approximately 200 master brands, an approximate 50% reduction from the current number, and phase out some products, such as ZICO and TaB.

Quincey pointed to other brands that would survive and those that had been or would be eliminated. He became chief executive in May 2017. In the past three years, the company’s stock has languished. It is up 9.7%, but compared to 24.5% for PepsiCo and 34.3% for the S&P 500.

The lack of detail says a few things about management. First, that it refuses to be transparent about one of the most important decisions it could make about its business. Investors, partners and suppliers are left to guess what management did and why. Another question left open is exactly how much revenue goes away with these brands. As for showing how the decision was made strategically, management has elected to remain silent.

Coca-Cola had the chance to show the world that management is smart about how it has navigated and will navigate a choppy future. Instead, it decided to keep an important part of its plans a secret.