The Coca-Cola Company (KO) is set to report fourth-quarter and full-year 2014 results on Feb 10, before the market opens. Last quarter, the company delivered a positive earnings surprise of 1.92%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Coca-Cola failed to sustain the momentum in the third quarter that it had picked up in the first half of the year mainly due to volume deceleration in Europe and China. We do not expect the situation to improve much in the fourth quarter.
Coca-Cola’s carbonated soft drinks (CSDs) have been seeing declining sales trends over the past few quarters due to category headwinds. Growing health and wellness consciousness — consumers are particularly vigilant about the use of artificial sweeteners, high sugar content and related obesity concerns — and growing regulatory pressure have been affecting CSD sales of all major soft drink makers — Coca-Cola, Pepsi and Dr Pepper Snapple Group, Inc. (DPS). CSD volumes are not expected to improve much in the to-be-reported quarter which is usually a seasonally soft quarter for soft drink companies.
Though volumes have been softer, margins have improved somewhat in the past few quarters largely due to Coca-Cola’s cost saving initiatives.
In fact, Coca-Cola has expanded its productivity initiatives and plans to streamline its operations to drive revenue and profit growth.
Nevertheless, management remains apprehensive of broader economic challenges in the next few quarters, expecting earnings growth to miss the long-term target in both 2014 and 2015.
Currency headwinds, difficult operating environment in the U.S. and slower growth in some international markets have led to management’s bearish stance.
Earnings Whispers
Our proven model does not conclusively show that Coca-Cola is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 42 cents.
Zacks Rank: Coca-Cola has a Zacks Rank #3 (Hold), which when combined with a 0.0% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Some stocks in the broader food and beverage sector that have both a positive Earnings ESP and a favorable Zacks Rank are:
SUPERVALU, Inc. (SVU), with an Earnings ESP of +4.76% and a Zacks Rank #1 (Strong Buy).
Monster Beverage Corporation (MNST), with an Earnings ESP of +5.09%, and a Zacks Rank #3.
Dr Pepper Snapple Group, with an Earnings ESP of +2.30% and a Zacks Rank #2 (Buy).
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