What To Expect From Coca-Cola’s Q2 2019 Earnings Report?

by Trefis Team
-3.77%
Downside
54.10
Market
52.06
Trefis
KO
Coca Cola
Rate   |   votes   |   Share

Coca-Cola Company (NYSE: KO) is set to announce its Q2 2019 financial results on July 23, 2019, followed by a conference call with analysts. The company started the year 2019 on a positive note with a y-o-y revenue growth of 5.2% in Q1 2019 and Trefis expects this trend to continue through the year. Coca-Cola revenues are expected to be around $9.5 billion in Q2 2019, marking a y-o-y growth of over 6.6%. Higher revenue is likely to be driven by unit case volume growth, favorable price mix, concentrate sales growth, healthy growth in the company’s sparkling soft drinks, juice and plant-based beverages, sports drinks, and tea and coffee products. Earnings are expected to come in $0.62 per share in Q2 2019, marginally better than $0.61/share in the year-ago period, driven by recent refranchising of low-margin bottling business and cost savings from ongoing productivity initiatives, partially offset by foreign currency headwinds.

We have summarized the key expectations from the announcement in our interactive dashboard – Coca-Cola Earnings: Performance and 2019 Forecast. In addition, here is more Consumer Staples data.

A Quick Look At Coca-Cola’s Key Revenue Sources

KO reported total revenue of $31.86 billion in FY 2018. Key revenue sources were as follows:

  • EMEA (Europe, Middle East and Africa): $7.7 billion revenue in 2018 (24% of total revenue). This includes sale of carbonated and non-carbonated beverages, tea and coffee, and energy drinks in the EMEA region.
  • Latin America: $4 billion revenue in 2018 (13% of total revenue). This includes sale of carbonated and non-carbonated beverages, tea and coffee, and energy drinks in Latin America.
  • North America: $11.2 billion revenue in 2018 (35% of total revenue). This includes sale of carbonated and non-carbonated beverages, tea and coffee, and energy drinks in North America.
  • Asia-Pacific: $5.1 billion revenue in 2018 (16% of total revenue). This includes sale of carbonated and non-carbonated beverages, tea and coffee, and energy drinks in Asia Pacific region.
  • Bottling Investments and Corporate: $3.9 billion in revenue in 2018 (12% of total revenue). This consist primarily of its Company-owned or controlled bottling operations, sales and distribution operations of finished products.
  • Global Ventures: This is a new addition to the company’s operating segments following the acquisition of Costa in January 2019, with plans to leverage its coffee platform.

A] Revenue Trends

EMEA

  • Revenue in the EMEA region increased in Q1 2019 and the trend is expected to continue in Q2 as well.
  • Higher revenue is primarily to be driven by volume growth, led by sparkling soft drinks and Fuze Tea, coupled with strong pricing in a majority of the key markets.

Latin America

  • Segment revenue growth is expected to remain sluggish in Q2 2019, led by a decline in volume in Argentina and Mexico.
  • Additionally, the adverse impact of currency headwinds could also have an impact on top line growth.

North America

  • After declining in Q1 2019, volume sales are expected to rebound in the second quarter, led by the impact of new package initiatives executed in the market.
  • Additionally, strong pricing and mix within the sparkling soft drink portfolio is likely to drive revenue growth in Q2.

Asia Pacific (APAC)

  • APAC revenue declined (y-o-y) in Q1 2019 due to unfavorable price mix.
  • Higher growth in emerging markets vis-a-vis developed markets is expected to keep pricing under pressure in Q2 as well.
  • However, significant volume growth is expected to offset the price effect and most likely lead to flat revenue in Q2 2019.

Global Ventures

  • Segment revenue is expected to be slightly higher in Q2 compared to Q1 2019, due to the full quarter effect of the division following the acquisition of Costa in January 2019.

Bottling Investments and Corporate

  • With most of the refranchising already done, segment revenue is expected to rise on a sequential basis in Q2 2019.
  • However, compared to the previous year period, bottling revenue is likely to witness a drop during the quarter.

B] Total Expense and Profitability Trend

Total expenses have witnessed a lot of volatility over recent quarters due to rising cost of sales, impairment cost and SG&A cost, offset by lower expenses at the bottling business.

  • Cost of Goods Sold (COGS): Cost of sales has largely increased over recent quarters, with Q1 2019 also marking an increase on a y-o-y basis. COGS is expected to remain elevated in Q2 2019 due to higher raw material and labor costs, impact of structural changes as well as the unfavorable impact of foreign currency.
  • SG&A Expense: Though SG&A cost has increased in the last three quarters, it is expected to remain flat in Q2 2019, driven by higher distribution and packaging cost, offset by a decrease in advertising expense and productivity gains.
  • Other Operating Charges: Other operating cost has been decreasing over recent quarters and is expected to drop further in Q2 2019, due to the company’s productivity and reinvestment program and lower expenses at the bottling operations due to large scale refranchising.

Net income margin is expected to be higher in Q2 2019 compared to the year-ago period, driven by lower advertising spend, productivity gains, decrease in other operating expenses, partially offset by currency headwinds and higher distribution cost.

Full Year Outlook

  • For the full year, revenue is expected to increase by 9.3% from $31.9 billion in 2018 to $34.8 billion in 2019, and further by 4.7% to $36.5 billion in 2020.
  • Higher revenue is likely to be driven by growth across almost all major segments, offset by slightly lower revenue from the bottling business.
  • Revenue growth would also be driven by inorganic growth strategies of Coca-Cola, with the company announcing several key acquisitions in 2018, including Costa Limited (completed in Q1 2019) and Chi Ltd, which is a fast-growing leader in expanding beverage categories, including juices, value-added dairy, and iced tea in Nigeria.
  • Net income margin is expected to increase from 20.2% in 2018 to 21% and 22% in 2019 and 2020, respectively. Margin growth would be driven by the ongoing refranchising of low-margin bottling operations and Coca-Cola’s new productivity plan which has been extended to 2019 to achieve incremental savings of about $800 million.

According to Coca-Cola’s valuation by Trefis, we have a price estimate of $52 per share for KO’s stock.

 

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

All Trefis Data

Like our charts? Explore example interactive dashboards and create your own.

Rate   |   votes   |   Share

Comments

Name (Required)
Email (Required, but never displayed)
Be the first to comment!