Monday, April 25, 2011

Coca-Cola Co. (NYSE: KO): Q1 Earnings Preview 2011

Coca-Cola Company (NYSE: KO) is scheduled to release its first-quarter earnings before the opening bell on Tuesday, April 26, 2011. Analysts, on average, expect the company to report earnings of 87 cents per share on revenue of $10.54 billion. In the year ago quarter, the company reported earnings of 80 cents per share on revenue of $7.52 billion.

The company manufactures, distributes and markets non-alcoholic beverage concentrates and syrups. It also manufactures, or authorizes bottling partners to manufacture, fountain syrups, which it sells to fountain retailers such as restaurants and convenience stores, which use the fountain syrups to produce finished beverages for immediate consumption, or to fountain wholesalers or bottlers, which in turn sell and distribute the fountain syrups to fountain retailers. In addition, it manufactures certain finished beverages, such as juices and juice drinks and water products, which it sells to retailers directly or through wholesalers or other distributors, including bottling partners.

In the preceding fourth quarter, the Atlanta, Georgia-based company's net income was $5.77 billion, or $2.46 per share, compared to $1.54 billion, or $0.66 per share, in the year-earlier quarter. On an adjusted basis, the company earned $0.72 per share in the fourth quarter. Revenue jumped 40% to $10.49 billion from $7.51 billion in the previous year. Analysts, on average, expected the company to report earnings of $0.72 per share on revenue of $9.75 billion. 

The company expects currencies to have an even to slightly positive impact on operating income for the full year and in the first quarter of 2011. On productivity front, the company is on track to deliver $500 million in annual savings from its initiatives by the end 2011. Further, the company expects to capture between $140 million and $150 million of cost synergies related to our CCE transaction this year.

Industrywide sales of carbonated soft drinks had been falling in the United States even before the recession slammed the brakes on consumer spending. Some consumers, taking heed of growing awareness of nutritional health, opted for drinks such as bottled water, juice and tea.

However, Coca-Cola is expanding agressively in international market, especially emerging markets, to improve revenue growth. The soft drinks maker is planning to more than double its number of bottling plants in China over the coming decade as part of the group's aim to triple the size of its sales to the country's rapidly emerging middle class. Coke derives more than three-quarters of its revenue from international markets, and is therefore able to offset falling sales in the United States with strong growth in emerging markets like India, China and Brazil. Coca-Cola executives say they expect 60 per cent of the new growth to come from China, India and other emerging markets, with only 15 per cent from developed markets.

Last year, Coca-Cola Co unveiled goals that call for the revenue generated by the company and its bottlers to double to roughly $200 billion by 2020, with profit margins increasing. Coke also said it hopes to more than double the number of soft drink servings it sells to over 3 billion per day by the end of 2020.

The company's stock currently trades at a forward P/E (fye Dec 31, 2012) of 15.79 and PEG ratio (5 yr expected) of 1.83. In terms of stock performance, Coca-Cola shares have gained nearly 25 percent over the past year.

Full Disclosure: None.
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