Expect Another Drop In Revenue In Q4 As Coca-Cola Ends Another Transition Year

The Coca-Cola Company (NYSE:KO) is scheduled to announce its Q4 and full-year results on February 9, and just as the last few quarters have been for the company, we expect another quarter where the revenue and EPS slide. While Coca-Cola has grown its revenue by 2% organically through the first three quarters, negative effects of currency translations, predominantly in Latin America, and the impact of structural changes have deterred the company’s top line growth. 

The reason for this is that Coca-Cola is in transition, moving away from a capital-intensive organization with its intended refranchising plans for North America, China, and structural changes in Europe and Africa. By the end of this year, the company aims to refranchise two-thirds of its bottling territories in North America, and aims to refranchise a substantial portion of the remaining territories no later than the end of the decade. All this in a bid to move away from the capital intensive and low-margin business of distribution and improve its operating performance. Coca-Cola has been able to maintain solid margin through the first three quarters of the year boosted by increased pricing, favorable geographic mix, lower commodity costs, and productivity initiatives. The company’s operating margin rose to 22.4% through September, up 140 basis points year-over-year.

Through the first three quarters, Coca-Cola signed six definitive agreements and closed four transactions, thereby remaining on track to complete its refranchising efforts in North America by the end of 2017, and announced that it had completed the Coca-Cola European Partners and Coca-Cola Beverages Africa transactions, and the transfer of certain territories in the United States to Arca Continental, and Coke’s UNITED bottlers. In addition, two of the largest Coca-Cola bottlers in Japan, Coca-Cola West and Coca-Cola East Japan, reached an agreement to merge their operations and create one strong bottling unit, which will comprise 85% of Coca-Cola’s volume in the country. Furthermore, the company reached a long-term agreement with Arca Continental for joint value creation in Mexico.

The refranchising efforts are expected to have progressed during the fourth quarter, and a great deal of attention will be on Coca-Cola’s operating margin, which it has tried to improve with its recent efforts. However, revenue and EPS are expected to continue to decline as the company wraps up another consecutive transition year.

Have more questions on Coca-Cola? See the links below.

• Why You Should Look Beyond Coca-Cola’s Declining Revenue
• Coca-Cola’s Organic Revenue Grows 3% In Q3; Results Marred By Structural Changes
• Coca-Cola Faces The Sugar-Tax Problem In South Africa
• Coca-Cola Set To Enter The Coffee Market In Brazil
• Coca-Cola’s Structural Changes Dent Q2 Results
• Here’s How Favorable Price Mix Is Helping Coca-Cola And PepsiCo Increase Soft Drink Revenue
• Coca-Cola Earnings Review: Carbonates Drag Down Results Yet Again
• Why Do Sodas Form 73% Of The Net Volume For Coca-Cola But Just Over 60% Its Value?
• Contribution Of U.S. Soda Sales In Coca-Cola’s Overall Revenue Could Decline To Less Than 15% By 2020
• Why Coca-Cola’s Dependence On Powerade And Other Brands Is Growing
• What Is Coca-Cola’s Revenue And Gross Profit Breakdown?
• What’s Coca-Cola’s Fundamental Value Based On Expected 2016 Results?
• How Has Coca-Cola’s Revenue And Gross Profit Composition Changed Over 2012-2016E?
• By What Percentage Have Coca-Cola’s Revenues And Gross Profit Grown Over The Last Five Years?
• Where Will Coca-Cola’s Revenue And Gross Profit Growth Come From Over The Next Three Years?

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