Coca-Cola Expected to Report Strong Earnings despite Inflation and Stock Slump
Coca-Cola is anticipated to announce another impressive quarter of earnings, as consumers continue to demonstrate their loyalty to the brand despite higher prices. Analysts on Wall Street predict that for the final three months of 2023, Coca-Cola will post $10.7 billion in net revenue, reflecting a 4.7% increase from the previous year. Earnings are expected to come in at 49 cents per share, an increase of 8.9% from the same quarter in 2022.
Despite facing high inflation over the last two years, Coca-Cola has managed to pass on most of its rising costs to consumers without experiencing a substantial loss in business. In the third quarter, the beverage giant increased the price of its products by 9% compared to the previous year, yet sales volume rose by 2% instead of declining. Notably, Latin America recorded particularly robust growth, with organic revenue increasing by 20% year over year. The growth in Latin America was driven by a 15-percentage-point contribution from higher prices and a 5-percentage-point contribution from an increase in unit case volume.
After its third-quarter results surpassed expectations, Coca-Cola raised its full-year revenue forecast for 2023 to 10% to 11%, up from the previous range of 8% to 9%. Furthermore, the company expects to achieve earnings-per-share growth of 7% to 8%, compared to the previous guidance of 5% to 6%. However, management has cautioned that consumers may begin to feel the effects of economic pressure.
Analysts anticipate that Coca-Cola’s sales in North America will grow by 5.4% in the fourth quarter compared to last year, while Latin American revenue is expected to rise by 11%. The multinational company, which derives two-thirds of its revenue from overseas, may face a 6% headwind to its 2023 earnings due to a stronger dollar and weaker foreign currency.
Despite Coca-Cola’s strong growth, investors have shown limited enthusiasm for the stock. Share prices experienced a 15% decline from July to early October of last year, although they have since partially recovered. Investors are concerned that the Federal Reserve’s rate hike cycle could eventually strain consumer spending on discretionary items. However, the majority of analysts polled by FactSet remain optimistic about Coca-Cola, with over 80% rating the stock as a Buy. The average price target for the stock is $65.70, indicating an 11% upside from the current level.
Nevertheless, food companies face real risks as inflation moderates and the strong growth engine of the past two years diminishes. If sales volume also starts to decline, it could result in a significant contraction or even the absence of top-line growth. PepsiCo, for example, reported an unexpected drop in sales for the fourth quarter, leading to a 3% decline in its stock price.
Investors will closely monitor whether Coca-Cola can sustain its momentum and demonstrate that consumers are still willing to purchase its products, despite the higher prices.
Analyst comment
Positive news: Coca-Cola is expected to report strong earnings despite inflation and a stock slump. Sales volume has increased even after a 9% price increase, with Latin America showing robust growth. The company raised its revenue forecast, and analysts remain optimistic about the stock.
Market outlook: Coca-Cola’s sales in North America and Latin America are predicted to grow in the fourth quarter. However, a stronger dollar and weaker foreign currency may pose a headwind to earnings. While investors have shown limited enthusiasm, most analysts rate the stock as a Buy, indicating potential upside. Attention will be on sustaining momentum and consumer willingness to purchase despite higher prices.
