The Coca-Cola Company's (KO – Free Coca-Cola Stock Report) 2019 outlook left investors wanting more. On the positive side, the generally favorable trends in place throughout 2018 were again evident in the beverage giant's December-quarter results. Improvements in price and mix, for instance, helped to power 5% growth in organic revenues for both the fourth quarter and the full year. The company also showed progress revitalizing its portfolio of low- and no-calorie soft drinks, including the flagship Diet Coke brand, which halted a multiyear decline in retail value. And aided by productivity initiatives, comparable currency neutral operating income climbed 8% and 11%, respectively, over the three- and 12-month timeframes. On the bottom line, this translated into fourth-quarter earnings of $0.43 a share, a penny below our estimate, but an improvement of 10% from the 2017 comparable period.
Looking to 2019, the company indicated that it probably won't be able to build on 2018's progress, at least on the bottom line. Notably, revenues will likely rise at a high single-digit rate, the first positive year-over-year comparison since 2012. In addition to continued mid-single digit gains in organic revenues, the top line should benefit from the winding down of Coke's multiyear bottler refranchising initiative and the recent acquisition of Costa Limited, which management sees as a platform for expansion into fast-growing coffee markets. Meanwhile, comparable currency neutral core operating income ought to advance 10%-11%, including contributions from Costa. These gains, though, figure to be largely offset by currency headwinds, increased interest expense, and a slightly higher tax rate. In all, share net is likely to finish within a couple of pennies, give or take, of last year's final tally of $2.08.
The market had a strong reaction to Coke's lackluster 2019 prospects, bidding its shares down more than 5% in price. This would represent this typically docile equity's biggest one-day swing in many years. Even with this setback, this stock, still has a lot to offer conservative investors, including a dividend yield that is comfortable above the Value Line median. That said, those seeking good total return potential to 2022-2024 will likely want to look elsewhere, for now.
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
