The Coca-Cola Company (KO – Free Coca-Cola Stock Report) delivered solid results for its June quarter. Revenues continued to shrink in the March quarter (down 8% year over year), reflecting the ongoing effects of refranchising across the beverage giant's bottling system. Meanwhile, earnings edged ahead 3%, to $0.61 a share, beating our estimate by a penny.
Beyond these two headline numbers, the company appeared to make solid progress in most other key metrics. For instance, organic revenues rose 5% from the prior-year period. The growth was equally balanced between price and mix changes (up 2%) and volume growth (up 2%). And the performance of the sparkling beverage portfolio was encouraging, as these offerings posted 5% retail value growth. In particular, efforts to revitalize the sugar-free space seem to be gaining traction, with Coca-Cola Zero Sugar and Diet Coke helping to drive 7% retail value growth for the company's no-sugar sparkling products in the North America.
Moving down the income statement, operating margins continue to improve, expanding more than 300 basis points on a comparable basis. This mostly reflects the absence of low-margin bottling businesses, though productivity gains also made a positive contribution.
Looking ahead, the company's June-quarter results have prompted only relatively minor changes to management's full-year guidance. Coke is now targeting growth of at least 4% for organic revenues and at least 9% for comparable currency neutral operating income. Both figures represent slight increases from the earlier outlook. Meanwhile, earnings are still expected to climb 8% to 10%, with the strongest year-over-year comparison likely coming in the December quarter. For our part, we are leaving our 2018 share-net estimate unchanged at $2.10 a share. This would mark the first bottom-line advance since 2013 and represent a 10% increase from 2017's tally of $1.91.
Coke's June-quarter results got generally positive reviews from the market, as the stock traded modestly higher 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 attributes that ought to appeal to more-conservative portfolios. 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.
