Dj Coca-Cola Corporate Stock Rises Friday, Still Underperforms Market

It has been about a month since the last earnings report for Coca-Cola (KO). Shares have lost about 5.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Coca-Cola due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Coca-Cola Beats Q3 Earnings & Sales Estimates, Revises 2024 View

Coca-Cola has reported third-quarter 2024 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. The company’s EPS rose year over year while sales declined. The results benefited from continued business momentum, aided by improved pricing across markets.

Coca-Cola has reported comparable EPS of 77 cents in the third quarter, up 5% from the year-ago period. Comparable EPS also beat the Zacks Consensus Estimate of 74 cents. Unfavorable currency translations hurt the comparable EPS by 9 percentage points. Comparable currency-neutral earnings per share rose 13% year over year.

Revenues of $11.85 billion declined 1% year over year but surpassed the Zacks Consensus Estimate of $11.61 billion. Organic revenues rose 9% from the prior-year quarter. Coca-Cola’s top line was hurt by declines across most of its operating segments. An improved price/mix in the quarter was offset by lower concentrate sales and adverse currency rates. In the reported quarter, Coca-Cola gained a global value share in the total number of non-alcoholic ready-to-drink beverages, led by Romania, France and South Africa.

In dollar terms, comparable operating income rose 3.8% year over year to $3.7 billion. Comparable currency-neutral operating income advanced 14% on strong organic revenue growth across all segments, offset by currency headwinds. The comparable operating margin expanded 104 bps to 30.7%. The comparable currency-neutral operating margin expanded 274 bps to 32.4%.

Detailed Picture of KO’s Q3 Volume, Pricing & Segments

In the reported quarter, concentrate sales moved down 2% year over year, whereas the price/mix improved 10%. The price/mix benefited from higher pricing in the markets facing intense inflation, which contributed 4 points to the improvement. Also, pricing actions across the marketplace and a favorable mix contributed to the rest of the increase. In the quarter, concentrate sales were one point behind unit case volume, mainly driven by the timing of concentrate shipments. Coca-Cola’s total unit case volume fell 1% year over year in the third quarter, driven by declines in China, Mexico and Türkiye.

Coming to the cluster-category performance, the unit case volume was flat year over year for sparkling soft drinks and trademark Coca-Cola. These categories benefited from growth in Latin America, North America and the Asia Pacific, offset by a decline in Europe, Middle East and Africa (EMEA). Coca-Cola Zero Sugar advanced 10%, aided by growth in all geographic operating segments. Meanwhile, the sparkling flavors category fell 1% year over year, owing to declines in EMEA and Latin America, offset by growth in North America and the Asia Pacific.

Volumes for juice, value-added dairy and plant-based beverages dipped 3% in the third quarter, led by declines in Minute Maid Pulpy in the Asia Pacific and Mazoe in Africa. This was partly negated by growth in fairlife in the United States.

Unit volumes for the water, sports, coffee and tea category dropped 4% year over year in the third quarter. Coca-Cola witnessed a 6% volume slip in the water category, led by declines across all operating segments. Sports drinks fell 3%, as gains in EMEA were more than offset by declines across other geographic segments. The coffee business dipped 6% due to a soft Costa coffee performance in the U.K. The tea volume rose 7%, backed by growth in the Asia Pacific, Latin America and EMEA.

Segmental Details: Revenues rose 11% year over year for Latin America, 10% for North America and 1% for Global Ventures. However, revenues declined 1% for EMEA and 20% for Bottling Investments. Meanwhile, revenues remained flat year over year for the Asia Pacific segment. Organic revenues improved 25% year over year in Latin America, 16% in EMEA, 10% each in North America and Bottling Investments, and 5% in the Asia Pacific. However, organic revenues were flat in Global Ventures.

KO’s Guidance for 2024

Management has updated its view for 2024. It anticipates organic revenue growth of 10% for 2024 compared with the 9-10% rise mentioned earlier. Comparable net revenues are expected to include a 5% currency headwind based on current rates and hedge positions. The guidance also includes a 4-5% negative impact of acquisitions, divestitures and structural changes. The company anticipates an underlying effective tax rate of 18.8% for 2024.

Comparable currency-neutral EPS for 2024 is expected to increase 14-15% year over year compared with the previously mentioned 13-15% rise. The company anticipates comparable EPS to grow 5-6% year over year for 2024. Comparable EPS growth is expected to include currency headwinds of 9%, and impacts of 1-2% from acquisitions, divestitures and structural changes. The company expects most currency headwinds to result from currency devaluation due to intense inflation. Management envisions an adjusted free cash flow of $9.2 billion for 2024, including $11.4 billion in cash flow from operations. Capital expenditure is likely to be $2.2 billion.

For fourth-quarter 2024, comparable revenues are expected to include a 4% currency headwind, and a 4-5% negative impact of acquisitions, divestitures and structural changes. Comparable EPS is estimated to include a 10% currency headwind, and a 3-5% negative impact of acquisitions, divestitures and structural changes. Additionally, the company provided its initial view for 2025. It expects comparable net revenues to include a low-single-digit currency headwind based on the current rates and hedged positions. Meanwhile, comparable EPS is anticipated to include a mid-single-digit currency headwind for 2025.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Coca-Cola has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Coca-Cola has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Zacks Investment Research

Deutsche Bank's positive outlook on Coca-Cola Europacific Partners has shined a light on what many have overlooked as a great dividend opportunity. Despite tough market conditions, CCEP managed to pull in €5.36 billion in revenue for Q3 2024, showing a solid 2.4% growth.

What’s really interesting is that CCEP recently got approval from the Financial Conduct Authority to transfer its listing category, which could lead to its inclusion in the FTSE UK Index by March 2025. This, combined with strong analyst support, caused Deutsche Bank to set its price target at $90, which points to promising growth ahead.

This all comes at a time when the beverage industry is starting to stabilize after years of economic ups and downs. Numbers from Circana show the food and drink business is picking up steam in 2024, with volumes up 0.8% and prices rising 1.4%, adding up to 2.2% overall growth.

This matches what experts thought would happen, and it's a welcome change after three years of falling sales. CCEP's success stands out even more when you look at the bigger picture, where the global drink industry is expected to hit $235.70 billion in 2024.

The company's strategy to expand into different regions is paying off; when European sales declined, their Asia Pacific business filled the gap, showcasing their ability to tackle diverse market challenges. Let's dig into why this company's plans, market position and financial position make it a dividend stock worth buying right now.

The Numbers Behind CCEP’s Success

Coca-Cola Europacific Partners is one of the biggest bottling partners for Coca-Cola , covering a wide range of markets across Europe and the Asia-Pacific region. Their business is all about bottling and distributing Coca-Cola products, and they use their size and global reach to keep growing steadily.

Over the past year, CCEP’s stock has performed well, up 24.6% year-over-year and 13.9% year-to-date.

CCEP’s third-quarter earnings showed revenue up by 2.4% to €5.4 billion, even though European sales were a bit lower due to weaker demand and bad summer weather. Thankfully, their presence in other regions helped balance things out, as strong sales in the Philippines made up for Europe’s challenges. Energy drinks like Monster saw a 4.5% boost in sales, while Powerade sports drinks grew by 0.7%, proving that CCEP knows how to tap into changing consumer tastes.

CCEP’s valuation stands out compared to its competitors. It trades at a forward price/earnings (P/E) ratio of 18.29, which is slightly higher than the consumer staples sector average of 17.00. However, this reflects the strong brand premium and pricing power CCEP enjoys as part of its relationship with Coke, showing that investors are willing to pay a bit more for CCEP’s growth potential and stability in a tough market.

How CCEP is Poised to Expand Margins and Market Share

CCEP is setting itself up for steady growth. The recent acquisition of Coca-Cola Beverages Philippines, in partnership with Aboitiz Equity Ventures, not only expands CCEP's reach, but also brings in a well-run business that’s immediately boosting earnings. This move strengthens CCEP’s presence in the Asia-Pacific region (now called APS) and opens up new opportunities for efficiency, especially in helping Indonesia’s growth plans.

This fits perfectly with CCEP’s goal of growing through diversification and scale. The CEO recently highlighted how well the company has been doing in 2024, with increases in volume, revenue, and market share. Even with a tough summer in Europe, due to weaker demand and bad weather, CCEP still managed to grow its top line. Their focus on smart pricing, promotions, and offering a wide range of products has helped boost revenue per case. Combined with ongoing cost-saving efforts, this is setting CCEP up for strong cash flow and a solid position heading into 2025.

For investors looking for income, CCEP offers an appealing dividend. With a forward yield of 3.41% and a payout ratio of 57.41%, the company is committed to rewarding shareholders while leaving room for future growth. They’ve just announced a second half interim dividend of €1.23 per share, to be paid in December 2024, bringing the full-year dividend to €1.97 — up 7.1% from last year. Paying dividends twice a year gives investors regular income, and the increase shows CCEP’s financial strength and confidence moving forward.

The Bullish Case for CCEP, According to Analysts

Coca-Cola Europacific Partners is getting a lot of love from analysts, who are all feeling pretty good about its future. The company recently shared its forecast for revenue to grow by about 3.5% this year, thanks to a good mix of higher sales and better pricing. They also foresee operating profit rising around 7%, with finance costs staying steady and a tax rate of about 25%. This solid outlook shows that CCEP is in a strong financial position, aiming to generate at least €1.7 billion in free cash flow.

Analysts are really backing CCEP, with an overall “strong buy” rating from the 11 experts in coverage. The average price target for the stock is $84.61, which means it could rise 11.3% from its current price.

Deutsche Bank recently upgraded CCEP to "Buy" and raised its price target from $78 to $90, citing the company’s ability to improve margins even with inflation and flat sales in some areas. Analyst Mitch Collett noted that this shows how efficient and strategic CCEP is.

Other analysts are on board, too. Barclays bumped its price target for CCEP from $84 to $86 while keeping an "Overweight" rating, praising the strong demand and competitive edge in the Australia, Pacific & Southeast Asia (APAC) region. CFRA even raised its target from $77 to $82, recognizing steady growth, but maintained its outlier “Hold” rating on CCEP, noting a lack of immediate catalysts.

Overall, it’s clear that analysts see great potential in CCEP moving forward.

Conclusion

CCEP isn't just another beverage stock; it's a strategic powerhouse quietly delivering impressive returns. With a robust geographic footprint, smart acquisitions, and a dividend that's growing faster than most staple stocks, this Coca-Cola bottling partner offers investors a compelling blend of income and growth potential. Backed by near-unanimous analyst support, CCEP represents a unique opportunity for those looking to add a resilient, cash-generating stock to their portfolio.

On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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