The Coca-Cola Company (KO – Free Coca-Cola Stock Report) reported generally solid results for its September quarter. Earnings for this member of the Dow Jones Industrial Average declined 3% from the prior-year period, to $0.56 a share, the first negative comparison since 2017. The downturn, though, was consistent with our expectations, as profits were held back by continued currency headwinds and timing issues related to various items, including concentrate shipments, expenses, and marketing investments.
Meanwhile, the beverage giant delivered encouraging top-line trends. In particular, organic revenue growth clocked in at 5%, with a 6% contribution from pricing/mix more than offsetting a 2% decline in concentrate sales. And the company's sparkling beverage portfolio continues to display positive momentum. In particular, the flagship Coca-Cola brand is making progress at increasing its retail value. And the U.S. market has been leading the way, thanks partly to double-digit volume growth for Coca-Cola Zero Sugar and contributions from smaller-sized, immediate consumption packages. And additional efforts to leverage the brand are still unfolding. The company has now launched Coca-Cola Plus Coffee in more than 20 international markets. Too, management is preparing to bring Coca-Cola Energy, which was introduced in Europe last spring, to the United States in early 2020.
Overall, the company's September-quarter performance yielded relatively few surprises, prompting management to make only slight adjustments to its full-year outlook. For instance, organic revenues are now expected to advance "at least" 5%, versus earlier expectations of 5%. Also, growth in comparable currency neutral operating income was tweaked slightly higher, from 11%-12% to 12%-13%. Foreign-currency headwinds, however, are expected to be a bit more pronounced, dragging down operating income 8%-9%, rather than 7%-8% as previously envisioned. And the company made no change to it earnings guidance, which continues to look for share net to finish within a penny or two of 2018's final tally of $2.08.
Coca-Cola stock has been enjoying a solid run of late, rising nearly 15% in price over the past six months. And the shares appear to have gotten a modest boost from the company's latest results, climbing slightly in early trading. Overall, this issue looks to be worthy of consideration from conservative investors seeking selections with good year-ahead prospects for relative price performance. The equity also continues to offer an above-average dividend yield, though management did indicate that it would like to improve its coverage ratios. As a result, increases in the payout figure to lag a bit behind earnings growth in the near term. For now, we expect an easing in exchange rates headwinds (to roughly 2%-3%) will allow share net to climb 7% in 2020, to $2.25, while the dividend seems likely to rise 4%, to $1.66 a share.
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
