Has Coca-Cola Finally Turned a Corner?

Flat to positive growth in the majority of regions is great news for the beverage maker

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Oct 26, 2017
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Coca-Cola (KO, Financial), the world’s No. 1 beverage maker, beat analyst estimates on the top line as well as the bottom line during the third quarter as the company increased prices to offset flat volume growth in order to get its sales numbers back on track. Coca-Cola reported adjusted earnings per share of 50 cents and revenue of $9.08 billion, which was better than the 49 cents per share and $8.72 billion expected by Wall Street.

Coca-Cola has now beaten Wall Street estimates in the top line as well as the bottom line for two quarters in a row. The company reiterated its full-year outlook and expects organic sales growth of 3% and comparable currency-neutral income before income taxes to be in the 7% to 8% range.

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Total unit case volume, the most important metric for any beverage maker, was either flat or positive across all regions except for Latin America, as economic conditions in Venezuela and Brazil continued to remain a huge drag on volume growth.

Coca-Cola managed to keep its volume flat in the most crucial North America segment. The fact that unit case volume has been flat for the first nine months of the current fiscal is actually good news for Coca-Cola because it shows that the company is able to offset the decline in carbonated beverages with newer products.

CEO James Quincey told analysts during the earnings call that “we're continuing to build out our returnable packaging infrastructure and adjust our price/pack architecture, which has resulted in sequential improvement in volume trends as we have progressed through the year. Since launching our affordability plan, we've seen good results from entry packs, which grew double digits in the quarter.”

Within the product lines, Coca-Cola Zero Sugar unit case volume grew in high single digits and, according to the company, the newly acquired premium sparkling mineral water brand Topo Chico grew strongly in Texas. The Minute Maid Pulpy brand grew in triple digits in India during the quarter.

Organic revenue has been inching forward mainly because of changes in pricing and product mix. Unit case volume is yet to show sustainable growth across all regions. Considering the way the soda market is declining, Coca-Cola will need time to readjust its product portfolio and see the effects of those changes reflected in its bottom line. The flat to positive growth in all regions except for Latin America is a good sign that Coca-Cola has already taken the giant step in realigning its products for the future.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.