Shares of Coca-Cola Co. (KO, Financial) rallied on Tuesday after the company posted stronger-than-expected third-quarter results. Adjusted earnings increased 16% year over year to 58 cents per share, beating the consensus forecast by 3 cents. Revenue fell 9% to $8.2 billion, but still managed to top the Street's expectations of $8.16 billion.
Global sales of sparkling soft drinks grew 2%, led by low-calorie and no-calorie drinks. While Coke witnessed strong demand for its diet soda Coca-Cola Zero Sugar, posting double-digit growth, sales of juice, dairy and plant-based drinks dropped 3% due to declining sales in the Middle East and Africa. In addition, water and sports drinks witnessed a 5% increase in sales as a result of strong growth in China and Mexico.
"We continue to be encouraged by our performance year-to-date as we accelerate our evolution as an even more consumer-centric, total beverage company," CEO James Quincey said.Ă‚
In addition, Coca-Cola recently reshuffled its senior management team and appointed a new chief financial officer and chief technical officer.
"The recent leadership appointments are intended to help accelerate the transformation of our company,” Quincey said.Â
Coming to what the company’s roadmap looks like, Coke’s recent acquisition of Whitbread PLC's (LSE:WTB, Financial) Costa Ltd., which is expected to close in the first half of 2019, shows the company is intent on making it big in coffee. The acquisition puts Coke in direct competition with Starbucks (SBUX, Financial), so it will be interesting to see how the company changes the structure at Costa and how the competitive landscape pans out.
According to the terms of the deal, Coca-Cola will pay around 16.4 times Costa's last full-year operating earnings, equating to an approximate enterprise value of $5 billion. While it is subject to approval by the company's shareholders, its expected to go through.
Coca-Cola has an extremely diversified product portfolio with drinks like Coca-Cola, Coke Zero, Minute Maid, Georgia, Fuze Tea and more. It’s quest to become the market leader and maintain its outstanding market share led it to diversify into other segments such as coffee.
The company also acquired a minority stake in BodyArmor, a sports drink backed by basketball player Kobe Bryant, to compete with the likes of Gatorade energy drinks. Moreover, the CEO also denied rumors of Coke entering the Cannabis-infused drinks market.
In regard to valuation, Coke seems to be relatively well placed given its forward price-earnings ratio of 21.23 as compared with the industry median of 21.05. Moreover, its operating margin of 29.89% is well above the industry median of 8.59%.
All told, Coca-Cola’s brand positioning and positive numbers speak volumes for what lies ahead. As a result, the company reaffirmed its full-year guidance of around 8-10% growth in earnings per share and 4% organic revenue growth (excluding foreign currency impact).
Disclosure: I do not own any of the stocks mentioned.
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