Earnings trend

Coca-Cola (KO) exceeded analysts’ earnings expectations in the first three quarters of 2018 and was in line with analysts’ estimate in the fourth quarter. Coca-Cola will announce its first-quarter results on April 23. Analysts expect Coca-Cola’s adjusted EPS to decline 2.1% to $0.46 in the first quarter of 2019.

Despite the expected 3.4% growth in the first quarter revenue, Coca-Cola’s adjusted EPS are expected to fall due to higher input and transportation costs as well as adverse currency movements. Despite currency headwinds, PepsiCo’s (PEP) adjusted EPS grew 1.0% in the first quarter to $0.97 and surpassed Wall Street’s estimate of $0.92.

Will Coca-Cola’s Earnings Surpass Wall Street’s Expectations?

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Coca-Cola’s earnings guidance issued in February indicates adjusted EPS growth in the -1% to 1% range in 2019 compared to $2.08 in 2018. Coca-Cola expects its 2019 earnings to be under pressure due to uncertain economic conditions in several key markets, higher transportation costs, and currency headwinds. Analysts currently expect Coca-Cola’s adjusted EPS to rise about 1.0% to $2.10 in 2019.

Will margins expand?

Coca-Cola’s gross margin expanded to 63.1% in 2018 from 62.6% in 2017, reflecting the impact of the refranchising of the low-margin bottling business, partially offset by currency fluctuations and the impact of a new revenue recognition accounting standard.

Coca-Cola’s operating margin expanded to 27.3% in 2018 from 21.5% in 2017 due to productivity initiatives and the refranchising of the lower-margin bottling business. However, the adoption of a new revenue recognition accounting standard and currency fluctuations adversely impacted the company’s operating margin.

Higher freight costs and commodity inflation might put pressure on Coca-Cola’s margins in 2019. However, continued productivity initiatives are expected to drive margin improvement. Coca-Cola plans to deliver $600 million in productivity savings in 2019 through supply chain efficiencies, further automation, and optimization of freight and distribution costs.  

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