The Coca-Cola Company (KO – Free Coca-Cola Stock Report) got off to an encouraging start in 2018. Revenues continued to shrink in the March quarter (down 16% year over year), reflecting the ongoing effects of refranchising the beverage giant's bottling system. However, the company made solid progress across most other key metrics. In particular, earnings climbed 9%, to $0.47 a share, beating our estimate by two pennies.
Meanwhile, organic revenues rose 5% from the prior-year period. Price and mix changes, which were the key drivers of 2017's 3% growth, clocked in at a more-modest 1% in the March period. But, unit case volume, which was stuck in neutral last year, helped to pick up the slack, rising 3%. Notably, sparkling soft drinks helped lead the way, logging 4% growth. This advance, which comes on the heels of a 1% decline last year, was led by Trademark Coca Cola, including double-digit gains for Coca-Cola Zero Sugar. The company's efforts to rejuvenate the Diet Coke franchise also showed some promise, with the recent introduction of new flavors and packaging helping to return this brand to growth in North America.
Moving down the income statement, operating margins continued to improve, expanding 600 basis points on a comparable basis. This mostly reflected the absence of low-margin bottling businesses, though productivity gains also made a positive contribution.
Looking ahead, the company's March-quarter results have not prompted any changes to management's full-year guidance. As it stands, the beverage giant is still targeting 4% growth in organic revenues and an 8% to 10% improvement in earnings. For now, we are leaving our 2018 share-net estimate unchanged at $2.10. This would mark the first bottom-line advance since 2013 and represent a 10% increase from 2017's tally of $1.91.
Coke's March-quarter results failed to excite the market, as the stock traded down modestly on the news. Overall, KO shares have badly lagged behind the broader market throughout most of this long-running bull market, and are unlikely to appeal to momentum-oriented investors. This issue, though, still possesses a number of defensive attributes, which would likely be in greater demand should the recent uptick in turbulence in the equity markets continue. In particular, the stock carries our Highest rank (1) for Safety and gets our top score (100) for Price Stability. Meanwhile, the shares also provide a decent measure of current income, offering a yield that is roughly 150 basis points higher than the Value Line average of 2.0%.
About the Company: The Coca-Cola Company is the world's leading marketer of ready-to-serve, nonalcoholic beverages. On any given day, 1.7 billion individual servings of the company's brands are consumed by people around the globe. The Atlanta-based company currently has more than 500 wholly owned and licensed brands, including 15 that generate $1 billion or more in annual sales.
— Robert M. Greene
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
