Coca-Cola Pre-Q1 Earnings: Do Positive Business Trends Suggest a Buy?

The Coca-Cola Company KO is slated to report first-quarter 2024 earnings on April 29, before the opening bell. The company is expected to register year-over-year top and bottom-line declines when it reports first-quarter numbers.

The Zacks Consensus Estimate for first-quarter earnings is pegged at 71 cents per share, indicating a 1.4% decline from the prior-year quarter’s reported figure. The consensus mark for earnings has moved down by a penny in the past 30 days. For quarterly revenues, the consensus mark is pegged at $11.1 billion, implying a 1.6% decline from the year-ago quarter's reported figure. (See the Zacks Earnings Calendar to stay ahead of market-making news.)

The Atlanta, GA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing eight quarters. Coca-Cola delivered a trailing four-quarter earnings surprise of 5.3%, on average. On the last reported quarter’s earnings call, the company registered an earnings surprise of 7.8%. Given its positive record, the question is, can KO maintain its momentum?

Earnings Whispers for Coca-Cola

Our proven model does not conclusively predict an earnings beat for KO this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. But that is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

Coca-Cola has a Zacks Rank #3 and an Earnings ESP of -0.86%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Trends in Focus Ahead of KO's Q1 Earnings Release

Coca-Cola demonstrates resilience, fueled by strong business momentum, including a diverse brand portfolio, strategic investments and consistent revenue growth across its segments. This upward trajectory has been supported by effective pricing strategies and increased volumes.

In the first quarter of 2025, Coca-Cola’s price/mix is projected to have gained from both price hikes and a favorable product mix. Pricing strength is expected to have stemmed from proactive adjustments in inflation-impacted markets, alongside routine pricing initiatives. Additionally, a positive mix shift in several developed markets is expected to have bolstered the company’s performance.

We anticipate favorable price/mix trends to have fueled the company’s first-quarter performance. Our model forecasts a 5.2% year-over-year increase in organic revenues for the first quarter, driven by a 4.1% rise in the price/mix and a 1.1% increase in concentrate sales.

Coca-Cola’s first-quarter results are expected to reflect gains from innovations and increased digital investments. E-commerce has surged, with growth rates doubling in many countries. KO has accelerated investments in digital capabilities, enhancing consumer connections and piloting digital initiatives to capture online demand, likely boosting first-quarter revenues.

CocaCola Company (The) Price and EPS Surprise

 

CocaCola Company (The) price-eps-surprise | CocaCola Company (The) Quote

Despite a favorable price/mix in most markets, macroeconomic challenges are expected to have impacted KO’s first-quarter performance. Factors such as low consumer confidence in China, geopolitical and economic instability in Eurasia and the Middle East, and high inflation in Argentina are expected to have weighed on Coca-Cola's top-line performance.

On the last reported quarter’s earnings call, management noted that inflation was normalizing in developed markets, but developing and emerging markets continue to experience high inflation, leading to elevated pricing and currency headwinds. These inflationary pressures and currency fluctuations are expected to have affected some segments in the first quarter.

Based on the current rates and impacts of hedged positions, the company anticipates currency headwinds to have influenced first-quarter 2025 revenues by 3-4%. Additionally, acquisitions, divestitures and structural changes are expected to have negatively impacted revenues by 2-3% in the to-be-reported quarter. Comparable EPS growth is likely to have included headwinds of 5-6% from currency, and 2-3% from acquisitions, divestitures and structural changes.

Our model estimates a 3.6% impact on first-quarter revenues from currency headwinds, and a 2.4% impact of acquisitions, divestitures and structural adjustments.

Coca-Cola’s Price Performance & Valuation

KO shares have exhibited an uptrend, rising as much as 18.8% in the past year. The stock has surpassed the broader industry and the Consumer Staples sector’s 1.9% and 3.4% growth, respectively. The KO stock also outperformed the S&P 500 index, which increased 5.2% in the same period.

KO Stock’s One-Year Performance

The Coca-Cola stock has outperformed its competitor PepsiCo Inc. PEP, which has declined 19.5% in the past year. The stock has also outpaced Keurig Dr Pepper Inc. KDP and Monster Beverage Corporation’s MNST growth of 11.2% and 4%, respectively, in the same period.

From the valuation standpoint, KO trades at a forward 12-month P/E multiple of 24.19X, exceeding the industry average of 19.36X and the S&P 500’s average of 19.6X. Coca-Cola’s valuation appears quite pricey.

KO undoubtedly commands a high valuation, reflecting its strong market positioning, brand power and long-term growth potential compared with other non-alcoholic beverage companies. However, we believe that its valuation is too stretched at this time.

Investment Thesis

Coca-Cola remains a powerhouse in the beverage industry, commanding more than 40% of the global non-alcoholic beverage market. The company’s enduring success is driven by a formidable market presence, world-class marketing capabilities, and a relentless focus on innovation. With a portfolio boasting more than 4,700 products and above 500 brands, spanning sodas, juices, waters and energy drinks, Coca-Cola continues to reinforce its leadership.

KO’s dominant market share, broad product range, and strategic emphasis on innovation and digital transformation position it well for sustained long-term growth. However, short-term headwinds such as inflationary pressures, global macroeconomic uncertainties and unfavorable currency fluctuations remain challenges to navigate.

Conclusion

Regardless of how Coca-Cola’s stock reacts to its first-quarter 2025 earnings, it remains a compelling long-term investment, underpinned by strong profitability and an expanding global footprint. Prospective investors should carefully evaluate the current valuation before entering a position. For existing shareholders, holding on to the KO stock is advisable, as the upcoming earnings release is expected to reaffirm the company’s resilience and long-term growth potential.

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This article originally published on Zacks Investment Research (zacks.com).

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