Coca-Cola (NYSE:KO) shares ready to pop after solid Q3 showing

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Updated: 21 October 2019
  • Carbonated soft-drink maker delivers $0.56 Non-GAAP EPS and $9.5bn revenue in third quarter
  • Healthier products and smaller packaging drive top-line growth
  • Shares close higher on Friday, up 16% since 1st January

Coca-Cola Company (NYSE:KO) pushed back against broader stock market declines on Friday as its Q3 revenue beat, driven by demand for healthier sugar-free soda, sent shares 2.27% higher by the session’s close and extended its year-to-date advance to 16%.

Earlier in the day, Coca-Cola posted its latest report for the three-month period ending 27th September 2019 and the $0.56 Non-GAAP EPS figure matched the Wall Street consensus despite falling slightly from Q3 2018.

Group revenues were more robust, climbing 8% to $9.5bn to sail past analyst’s expectations by $80 million as Coke Zero and smaller packaging resonated with customers and did most of the heavly lifting in terms of growth for the period.

Guggenheim Securities analyst, Laurent Grandet, said KO’s organic growth of 5% was impressive as they had only been expecting 4% at most and he noted that “top line was driving the strong results”.

Grandet added: “Investors are very happy with the top line, but it still remains to be seen how the earning power will continue to improve, especially next year.”

Coca-Cola is currently focused on delivering premium products in more environmentally friendly, smaller packaging which is helping to increase “immediate consumption”.

Coke Zero Sugar, in particular, continues to win over customers after volume growth continued at a double-digit pace for yet another quarter while mini cans of pop weighing just 7.5 ounces also saw growth of 15%.

Organic sales were solid in a number of markets including North America and Asia Pacific where growth was 3%, and the EMEA region (+4%).

Coca-Cola had to contend with a 6 bp F/X headwind from a stronger US dollar and other factors during the latest period and this is expected to rise during the final months of the year.

The pressure will not knock KO off course though as it expects organic revenue growth of 5% or more in Q4 which is a small hike from prior guidance.

Coca-Cola is also planning to launch its first energy drink in the US in January 2020 and will soon use aluminium-based packaging for its branded bottled water, Dasani.

In a conference call, CEO James Quincey said: “Our performance gives us confidence that our strategies are taking hold with our consumers, customers and system. We are positioning the company to create a better shared future for all of our stakeholders by delivering on our vision and growing sustainably.”

Coca-Cola shares were changing hands for $54.78 at 6.30pm EDT on Friday 18th October and TheStreet’s Bret Kenwell said the earnings report could be a catalyst for stock to hit new highs in the coming days.

Analysts may shift their positions after the Q3 showing but KO currently has 10 Buy ratings and 10 Hold ratings. The average price target is on the upside of Friday’s close at $57.68.