Coca-Cola’s Upcoming 4Q17 Results: What We Can Expect

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Part 3
Coca-Cola’s Upcoming 4Q17 Results: What We Can Expect PART 3 OF 5

What Analysts Expect from Coca-Cola’s 4Q17 Earnings

Earnings trend

Coca-Cola (KO) has surpassed analysts’ earnings expectations in nine of the past 11 quarters. KO’s adjusted EPS (earnings per share) grew 2% on a year-over-year basis to $0.50 in 3Q17 after declining for nine straight quarters. It exceeded the consensus analyst EPS estimate of $0.49.

What Analysts Expect from Coca-Cola’s 4Q17 Earnings

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How earnings improved in 3Q17

Coca-Cola’s adjusted EPS grew on a year-over-year basis in the third quarter despite lower revenue. The improvement was a result of the company’s productivity initiatives. Its operating margin grew 200 basis points to 23.4% in 3Q17. Its gross margin expanded 62.6% in 3Q17 from 61.2% in 3Q16. Its efforts to refranchise its low-margin bottling operations and transform into a capital-light business are helping to improve its margins.

With the company struggling to grow its revenue amid difficult market conditions, increasing efficiency in operations is vital for profitability. KO aims to deliver annualized savings of about $3 billion by 2019 through its productivity initiatives. Productivity efforts include restructuring of its global supply chain, zero-based budgeting, and streamlining its operating model.

Coca-Cola’s competitor PepsiCo (PEP) is aiming to deliver $1 billion in annual savings under its five-year productivity program from 2015 to 2019.

Earnings expectations

Analysts expect Coca-Cola’s adjusted EPS to rise 2.7% to $0.38 in 4Q17. As mentioned in Part 2 of this series, analysts expect Coca-Cola’s revenue to decline 21.4% to $7.4 billion in 4Q17. Despite the expected fall in the top line, analysts expect the company’s earnings to improve due to margin expansion. They also expect adjusted EPS to remain unchanged at $1.91 in 2017. Coca-Cola expects its 2017 adjusted EPS to grow in the range of -2.0%–0% compared to $1.91 in 2016.

We’ll take a look at Coca-Cola’s valuation in the next part of this series.


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