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Coca-Cola Earnings Preview: Looking For New Growth

Coca-Cola Earnings Preview: Looking For New Growth

Coca-Cola (NYSE: KO), which recently announced a major strategic partnership with Green Mountain Coffee Roasters (NASDAQ: GMCR), is scheduled to report its fourth-quarter and full-year 2013 results Tuesday, February 18, before the markets open.

Investors will be thirsty for more details about how the Green Mountain venture, and any other efforts, will help the iconic beverage giant face headwinds in its core beverage business brought on by changes in consumer preferences, both at home and other places in the world.

See also: What Is The Tell From The Coca-Cola Deal With Green Mountain?


Analysts on average predict Coca-Cola will report that revenue for the quarter shrank less than two percent year-over-year to $11.31 billion. Earnings of $0.46 per share are also in the consensus forecast. That would be barely up from a reported profit of $0.45 per share in the comparable period of last year, as well as down from $0.53 in the previous quarter.

The consensus earnings per share (EPS) estimate has slipped by a penny in the past 60 days, and the individual estimates only range from $0.44 to $0.47 per share. Coca-Cola has not fallen short of consensus EPS estimates in the past four quarters; third-quarter EPS were in line with expectations.

In the third quarter, the company attributed a three percent drop in sales to currency fluctuations and the removal of some bottling operations from the consolidated results. Cost-cutting measures helped buoy the net income. The share price rose almost four percent in the days following the report.

The analysts' consensus full-year forecast calls for $2.08 per share in earnings on revenue of $47.24 billion. Here too growth has stalled, as Coca-Cola posted $2.01 per share and $48.03 billion in the previous year. That consensus EPS estimate has also dropped by penny over the past 60 days.

The Company

The Coca-Cola Company is a global manufacturer, retailer and marketer of nonalcoholic beverages. Besides its flagship product, other brands include Fanta, Sprite, Dasani, Powerade, Minute Maid, Fuze and Odwalla. It offers more than 500 brands in all.

The company was founded in 1886, and its headquarters are in Atlanta. It is a component of both the Dow Jones Industrial Average and the S&P 500, and the company now has a market capitalization of about $172 billion. Muhtar Kent has been chief executive officer since July 2008 and chairman since April 2009.

Competitors include Dr Pepper Snapple (NYSE: DPS), which last week reported year-over-year declines in fourth-quarter EPS and sales, and PepsiCo (NYSE: PEP), which beat fourth-quarter EPS expectations in last week's report and hiked its dividend. Both rivals are expected to show flat revenues in the current quarter.

During the three months that ended in December, Coca-Cola opened facilities in China and Romania, released its 2012-2013 Global Sustainability Report, acquired ZICO Beverages and announced management and organizational changes in to Coca-Cola Americas.

See also: Coca-Cola To Invest Over $4 Billion In China


Coca-Cola has a long-term EPS growth forecast of more than six percent, and its price-to-earnings (P/E) ratio is greater than the industry average. But the operating margin also is greater than the industry average, the return on equity is about 27 percent and the return on investment is more than 12 percent.

The number of Coca-Cola shares sold short, as of the most recent settlement date, represents about one percent of the total float. That was the highest level of short interest in the past year. It would take about three days to close out all short positions.

The consensus recommendation of the 22 analysts surveyed by Thomson/First Call who follow the stock is to buy shares. Seven of them rate the stock at Strong Buy. The analysts' mean price target, or where they expect the stock to go, is more than 13 percent higher than the current share price. That would be a new multiyear high.

The share price is more than three percent lower than 90 days ago, despite trading up more than two percent in the past week. The share price is below the 50-day and 200-day moving averages. Over the past six months, the stock has underperformed the broader markets but outperformed PepsiCo.

At the time of this writing, the author had no position in the mentioned equities.

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