June-quarter results for The Coca-Cola Company (KO – Free Coca-Cola Stock Report) came in modestly ahead of the market's expectations. Overall, comparable earnings at the beverage giant slipped 2% from the prior-year period, to $0.59 a share, the ninth consecutive quarter of lower year-over-year comparisons. Share net, though, still surpassed Wall Street's consensus by a couple of pennies.
On the top line, revenues declined 16% year over year, largely reflecting the refranchising of the company's bottling operations, as well as continued foreign currency headwinds. Adjusted for these items, organic revenues rose 3%, led by improved pricing and mix, particularly in North America and South America. Case volumes were flat, as economic-related weakness in some Latin American countries helped to offset progress in developed markets.
Notably, efforts to reposition the product portfolio to meet changing consumer preferences appear to be making progress. The company reported mid-single-digit volume growth for its low- and no-calorie soft drinks. In particular, management cited the performance of Coca-Cola Zero Sugar, which is generating double-digit volume growth in the Europe-Middle East-Africa and Latin America regions. The continued roll out of this product (it is scheduled to debut next month in the United States) should help to offset ongoing weakness in the Diet Coke brand.
Meanwhile, the company slightly increased its profit guidance for the full year, indicating that comparable earnings would likely be flat to down 2% from 2016's tally of $1.91 a share, versus earlier expectations for a 1%-3% decline. Management attributed the improved outlook to the prospect of diminished foreign-currency headwinds, which now seem likely to clip 2% from comparable pretax income (versus earlier expectations of 3%). Of note, structural changes, particularly the refranchising of bottling operations, are still expected to reduce comparable pre-tax income by 5%-6%.
Coke's second-quarter performance, while showing signs of progress, seems unlikely to jump start its stock. Overall, KO shares have lagged a bit behind the broader market so far in 2017, and we don't foresee a catalyst in the near term to change this dynamic. This equity, though, will still have some appeal with conservative investors, as it gets our Highest rank for Safety (1) and offers a dividend yield that is more than 100 basis points above the Value Line median.
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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
