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Coca-Cola’s Q2 Results Sparkle on Improved Soda Volumes

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Stock up on Q2 results

Coca-Cola’s (KO) stock was up 1.2% at 8:42 AM EST in pre-market hours today, as the soda giant’s second-quarter results beat analysts’ expectations. The company’s revenue came in at $8.9 billion in the second quarter, surpassing analysts’ expectation of $8.5 billion. Coca-Cola’s reported revenue declined 8% on a YoY (year-over-year) basis mainly due to the impact of the refranchising of the company’s bottling business.

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Excluding the impact of structural items, the company’s organic revenue grew 5% driven by higher volumes and favorable price and mix. Coca-Cola’s efforts to promote low or no sugar versions of its soda beverages seem to be working as reflected in the strong performance of Coca-Cola Zero Sugar and Diet Coke in the second quarter.

Coca-Cola’s adjusted EPS (earnings per share) of $0.61 in the second quarter came in ahead of analysts’ estimate of $0.60. The company’s adjusted EPS grew 3.4% on a YoY basis driven by its productivity initiatives.

Margins expand

Coca-Cola’s gross margin increased to 63.6% in the second quarter of 2018 from 62.3% in the second quarter of 2017. The company’s operating margin expanded to 30.5% in the second quarter from 21.0% in the second quarter of 2017. Such significant improvement in the company’s operating margin was mainly due to the impact of the refranchising of the lower-margin bottling business and the ongoing productivity efforts.

Higher sparkling beverage volumes

Coca-Cola’s overall unit case volume grew 2% in the second quarter. The company’s sparkling beverage volumes grew 2% driven by the strong performance of trademark Coca-Cola. Volumes of the company’s water, enhanced water, and sports drinks category grew 4%, while the company experienced a 2.0% fall in the volumes in its juice, dairy, and plant-based beverages category. Tea and coffee volumes were down 1% in the second quarter.

Coca-Cola expects organic revenue growth of at least 4% in 2018. The company continues to expect 8% to 10% growth in its adjusted EPS in 2018 compared to $1.91 in 2017.

Earlier this month, rival PepsiCo (PEP) reported a 2.4% rise in its fiscal second-quarter revenue and about a 7% rise in its adjusted EPS.

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