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Category: Stock Market and Coca-Cola
Date: 12 October 2019 Stock Price: $53.30 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of The Coca-Cola Company the world's best known beverage maker, that owns brands such as Coca-Cola, Fanta, Minute Maid, Powerade and Costa Coffee.
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About Coca-Cola
The Coca-Cola Company (NYSE: KO) is a total beverage company, offering over 500 brands in more than 200 countries and territories. In addition to the company’s Coca-Cola brands, our portfolio includes some of the world’s most valuable beverage brands, such as AdeS soy-based beverages, Ayataka green tea, Dasani waters, Del Valle juices and nectars, Fanta, Georgia coffee, Gold Peak teas and coffees, Honest Tea, innocent smoothies and juices, Minute Maid juices, Powerade sports drinks, Simply juices, smartwater, Sprite, vitaminwater and ZICO coconut water. We’re constantly transforming our portfolio, from reducing sugar in our drinks to bringing innovative new products to market. We’re also working to reduce our environmental impact by replenishing water and promoting recycling. With our bottling partners, we employ more than 700,000 people, helping bring economic opportunity to local communities worldwide.
Overview of Coca-Cola's latest earnings report
Data below refers to the 3rd quarter data unless specified otherwise:
- Revenues: $9.997 billion (up from $9.426 billion for the same period of the previous year)
- Revenues increased by 6% over the last 12 months
- Cost of goods sold: $3.921 billion (up from $2.316 billion for the same period of the previous year)
- Cost of goods sold increased by 11% over the last 12 months
- Net earnings: $2.607 billion (up from $2.316 billion for the same period of the previous year)
- Diluted earnings per share: $0.61 (up from $0.54 for the same period of the previous year)
- PE ratio: 24.7
- Diluted weighted-average shares outstanding: 4.305 billion (up from 4.290 billion for the same period of the previous year)
- Cash and cash equivalents: $6.731 billion
- Cash and cash equivalents per share: $1.56
- Cash and cash equivalents makes up 2.92% of Coca-Cola's market capital
- Cash and cash equivalents makes up 7.47% of Coca-Cola's total assets
- Accounts receivable: $4.888 billion
- Accounts receivable makes up 5.43% of Coca-Cola's total assets
- Inventories: $3.453 billion
- Inventories makes up 3.83% of Coca-Cola's total assets
- Goodwill: $16.84 billion
- Essentially the goodwill shows the value of Coca-Cola's brand names.
- Goodwill pe share: $3.91
- We therefore estimate that 7.3% of Coca-Cola's stock price is made up by the value of their brand's
- Stockholders equity in Coca-Cola: $20.295 billion
- Stockholders equity per share: $4.71
- So Coca-Cola is trading a 11.31 times its stockholders equity which is outside the expected range of between 2 and 4 which most firms ten to trade at.
- Cash generated from operations (for the 6 months): $4.501 billion
- Cash generated from operations per share (for the 6 months): $1.05
Coca Cola's management commentary on the results
ATLANTA, July 23, 2019 – The Coca-Cola Company today reported strong operating results in the second quarter of 2019, driven by consumer-centric innovation, solid core brand performance and improved execution in the marketplace. Reported net revenues and organic revenues (non-GAAP) both grew 6% through balanced volume and price/mix, with all operating segments contributing to organic revenue (non-GAAP) growth. The company continued to gain global value share. The company’s performance year-to-date led to an update in full year guidance.
"Our strategy to transform as a total beverage company has allowed us to continue to win in a growing and vibrant industry," said James Quincey, chairman and CEO of The Coca-Cola Company. "Our progress is positioning the company to create more value for all of our stakeholders, including our shareowners."
Company Updates
- Coca-Cola Amatil and Coca-Cola Australia announced that 70% of all PET bottles in the market will be made from 100% rPET by the end of 2019.
- Coca-Cola European Partners and Coca-Cola Great Britain announced a switch from green to clear bottles for Sprite in their markets as a way to improve recycling. Other markets are making this change as well.
- Coca-Cola Beverages Philippines, the bottling arm of Coca-Cola in the Philippines, announced that it will lead the investment in a $19 million state-of-the-art, food-grade recycling facility that will collect, sort, clean and wash post-consumer recyclable plastic bottles and turn them into new bottles using advanced technology. It is Coca-Cola’s first major investment in a recycling facility in Southeast Asia.
- Coca-Cola Vietnam led the launch of an industry-backed packaging recovery organization alongside other companies. The organization will initially focus on increasing recovery and recycling rates for three materials: PET, aluminum and Tetra Pak®.
2019 Outlook
The 2019 outlook information provided below includes forward-looking non-GAAP financial measures, which management uses in measuring performance. The company is not able to reconcile full year 2019 projected organic revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral net revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral operating income (non-GAAP) to full year 2019 projected reported operating income, or full year 2019 projected comparable EPS (non-GAAP) to full year 2019 projected reported EPS without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates; the exact timing and amount of acquisitions, divestitures and/or structural changes; and the exact timing and amount of comparability items throughout 2019. The unavailable information could have a significant impact on full year 2019 GAAP financial results.
Full Year 2019 Revenues:
• 5% growth in organic revenues (non-GAAP) – Updated
•12% growth in comparable currency neutral net revenues (non-GAAP), including a 7% tailwind from acquisitions, divestitures and structural items – Updated
• Comparable net revenues (non-GAAP): 4% currency headwind based on the current rates and including the impact of hedged positions –
Updated Full Year 2019 Operating Income:
• 11% to 12% growth in comparable currency neutral operating income (non-GAAP), including a low single-digit tailwind from acquisitions, divestitures and structural items – Updated
• Comparable operating income (non-GAAP): 7% to 8% currency headwind based on the current rates and including the impact of hedged positions –
Updated Full Year 2019 EPS:
• -1% to 1% growth versus $2.08 in 2018 in comparable EPS (non-GAAP) – No Change
Full Year 2019 Other Items:
• Underlying effective tax rate (non-GAAP): Estimated to be 19.5% – No Change
• Cash from operations: At least $8.5 billion – Updated
• Capital expenditures: Approximately $2.4 billion – Updated
• Net share repurchases (non-GAAP): Share repurchases to offset dilution from employee stock-based compensation plans – No Change
"Our strategy to transform as a total beverage company has allowed us to continue to win in a growing and vibrant industry," said James Quincey, chairman and CEO of The Coca-Cola Company. "Our progress is positioning the company to create more value for all of our stakeholders, including our shareowners."
Company Updates
- Driving sparkling: Strong performance for the quarter was driven by sparkling soft drinks, led by 4% volume and transaction growth in trademark Coca-Cola. Coca-Cola Zero Sugar continues to perform well, with a seventh consecutive quarter of double-digit volume growth globally. Quarterly performance was further driven by innovation, such as Coca-Cola Plus Coffee, and a modernized marketing strategy for today's consumers. The company reached a first-of-its-kind partnership with Netflix to temporarily bring back 1985’s New Coke for the July 4 debut of season 3 of the hit series "Stranger Things."
- Growing coffee: During the quarter, the company launched the first-ever Costa Coffee ready-to-drink (RTD) chilled product in Great Britain, marking the first major introduction since Coca-Cola acquired Costa earlier this year. The company plans to roll out the product in additional markets in the second half of the year. The brand delivers an authentic coffee taste experience with 30% less sugar than most RTD coffees in Costa’s core market of Great Britain. The Costa Coffee brand is also expanding through a new agreement with Coca-Cola HBC AG. The agreement will address a broad range of consumer and customer needs across multiple channels and occasions, including roast and ground coffee, RTD offerings and vending. The bottler plans to introduce Costa Coffee in at least 10 markets in 2020.
- Expanding energy: The first energy drink under the Coca-Cola brand launched in select European countries during the quarter. Coca-Cola Energy features caffeine from naturally derived sources, guarana extracts, B vitamins and no taurine, all with the great Coca-Cola taste and feeling that people know and love. The product has shown early signs of success. Coca-Cola Energy is now available in 14 countries, including recent launches in Japan, Australia and South Africa. The company expects to offer Coca-Cola Energy in 20 markets by the end of 2019, including Mexico and Brazil.
- Lifting, shifting and scaling: Since the company's initial investment in the innocent business in 2009, the innocent team has taken the business from the #1 smoothie brand in the U.K. to the #1 chilled juice brand across Europe. The brand is now expanding into Asia for the first time through a targeted rollout, starting in Tokyo. Innocent is loved by consumers who want more functional and nutritional benefits in their daily diet, in addition to those who enjoy natural, delicious and healthy juices and smoothies.
- Making progress in packaging: The company continues to make progress on its World Without Waste goals for recycling, recyclable packaging and the use of recycled materials, including these recent milestones:
- Coca-Cola Amatil and Coca-Cola Australia announced that 70% of all PET bottles in the market will be made from 100% rPET by the end of 2019.
- Coca-Cola European Partners and Coca-Cola Great Britain announced a switch from green to clear bottles for Sprite in their markets as a way to improve recycling. Other markets are making this change as well.
- Coca-Cola Beverages Philippines, the bottling arm of Coca-Cola in the Philippines, announced that it will lead the investment in a $19 million state-of-the-art, food-grade recycling facility that will collect, sort, clean and wash post-consumer recyclable plastic bottles and turn them into new bottles using advanced technology. It is Coca-Cola’s first major investment in a recycling facility in Southeast Asia.
- Coca-Cola Vietnam led the launch of an industry-backed packaging recovery organization alongside other companies. The organization will initially focus on increasing recovery and recycling rates for three materials: PET, aluminum and Tetra Pak®.
2019 Outlook
The 2019 outlook information provided below includes forward-looking non-GAAP financial measures, which management uses in measuring performance. The company is not able to reconcile full year 2019 projected organic revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral net revenues (non-GAAP) to full year 2019 projected reported net revenues, full year 2019 projected comparable currency neutral operating income (non-GAAP) to full year 2019 projected reported operating income, or full year 2019 projected comparable EPS (non-GAAP) to full year 2019 projected reported EPS without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact of changes in foreign currency exchange rates; the exact timing and amount of acquisitions, divestitures and/or structural changes; and the exact timing and amount of comparability items throughout 2019. The unavailable information could have a significant impact on full year 2019 GAAP financial results.
Full Year 2019 Revenues:
• 5% growth in organic revenues (non-GAAP) – Updated
•12% growth in comparable currency neutral net revenues (non-GAAP), including a 7% tailwind from acquisitions, divestitures and structural items – Updated
• Comparable net revenues (non-GAAP): 4% currency headwind based on the current rates and including the impact of hedged positions –
Updated Full Year 2019 Operating Income:
• 11% to 12% growth in comparable currency neutral operating income (non-GAAP), including a low single-digit tailwind from acquisitions, divestitures and structural items – Updated
• Comparable operating income (non-GAAP): 7% to 8% currency headwind based on the current rates and including the impact of hedged positions –
Updated Full Year 2019 EPS:
• -1% to 1% growth versus $2.08 in 2018 in comparable EPS (non-GAAP) – No Change
Full Year 2019 Other Items:
• Underlying effective tax rate (non-GAAP): Estimated to be 19.5% – No Change
• Cash from operations: At least $8.5 billion – Updated
• Capital expenditures: Approximately $2.4 billion – Updated
• Net share repurchases (non-GAAP): Share repurchases to offset dilution from employee stock-based compensation plans – No Change
Coca-Cola (NYSE: KO) stock price history
The image below, obtained from Google, shows the stock price history of Coca-Cola over the last 5 years. And it's been a fairly average time for Coca-Cola stockholders. 5 years ago the stock was trading at around $42.90 a stock and its currently trading at $53.30 a stock. That's very modest return of 24.24% provided to Coca-Cola stockholders over the last 5 years. The opportunity cost of holding Coca-Cola which only returned 24.24% over the last 5 compared to a stock like Netflix that returned over 300% for the same time period becomes very significant.
The stock of Coca-Cola is trading at a lot closer to its 52 week high of $55.92 than it is to its 52 week low of $44.25, which to us is a clear indication that the short term sentiment and momentum towards Coca-Cola's stock is very positive.
The stock of Coca-Cola is trading at a lot closer to its 52 week high of $55.92 than it is to its 52 week low of $44.25, which to us is a clear indication that the short term sentiment and momentum towards Coca-Cola's stock is very positive.
Recent coverage of Coca-Cola
The extract below covers the latest news regarding Coca-Cola sampling new bottles using marine plastics that has been recycled as obtained from TheStreet.com
Today, The Coca-Cola Company unveiled its first-ever sample bottles made using recovered and recycled marine plastics, demonstrating that, one day, even ocean debris could be used in recycled packaging for food or drinks. This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191003005139/en/
This sample Coca-Cola bottle is the first-ever plastic bottle made using marine plastic that has been successfully recycled for food and drink packaging. (Photo: Business Wire). Through a partnership between Ioniqa Technologies, Indorama Ventures, Mares Circulares (Circular Seas) and The Coca-Cola Company, about 300 sample bottles were made using 25% recycled marine plastic 1 retrieved from the Mediterranean Sea and beaches. The bottles were designed and developed to show the transformational potential of revolutionary enhanced recycling technologies, which can recycle previously used plastics of any quality back to high-quality plastic that can be used for food or beverage packaging. The sample bottle is the first-ever plastic bottle made using marine plastic that has been successfully recycled for food and drink packaging. Enhanced recycling technologies use innovative processes that break down the components of plastic and strip out impurities in lower-grade recyclables so they can be rebuilt as good as new. This means that lower grade plastics often destined for incineration or landfill can now be given a new life. It also means more materials are available to make recycled content, reducing the amount of virgin PET needed from fossil fuels, and resulting in a lower carbon footprint. The marine plastic bottle has been developed as proof of concept for what the technology may achieve in time. In the immediate term, enhanced recycling will be introduced at commercial scale using waste from existing recyclers, including previously unrecyclable plastics and lower-quality recyclables
Today, The Coca-Cola Company unveiled its first-ever sample bottles made using recovered and recycled marine plastics, demonstrating that, one day, even ocean debris could be used in recycled packaging for food or drinks. This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20191003005139/en/
This sample Coca-Cola bottle is the first-ever plastic bottle made using marine plastic that has been successfully recycled for food and drink packaging. (Photo: Business Wire). Through a partnership between Ioniqa Technologies, Indorama Ventures, Mares Circulares (Circular Seas) and The Coca-Cola Company, about 300 sample bottles were made using 25% recycled marine plastic 1 retrieved from the Mediterranean Sea and beaches. The bottles were designed and developed to show the transformational potential of revolutionary enhanced recycling technologies, which can recycle previously used plastics of any quality back to high-quality plastic that can be used for food or beverage packaging. The sample bottle is the first-ever plastic bottle made using marine plastic that has been successfully recycled for food and drink packaging. Enhanced recycling technologies use innovative processes that break down the components of plastic and strip out impurities in lower-grade recyclables so they can be rebuilt as good as new. This means that lower grade plastics often destined for incineration or landfill can now be given a new life. It also means more materials are available to make recycled content, reducing the amount of virgin PET needed from fossil fuels, and resulting in a lower carbon footprint. The marine plastic bottle has been developed as proof of concept for what the technology may achieve in time. In the immediate term, enhanced recycling will be introduced at commercial scale using waste from existing recyclers, including previously unrecyclable plastics and lower-quality recyclables
Coca-Cola (NYSE: KO) latest stock valuation
So what is Coca-Cola's stock worth based on the release of their latest earnings report and their fiscal guidance provided? Based on Coca-Cola's latest earnings report and their outlook our valuation models provide a target (full value) price of Coca-Cola's stock at $43.60 a stock. Therefore we believe the stock of Coca-Cola's is overvalued.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $43.60, so a good entry point into Coca-Cola's stock would be at $39.30 or below. We expect that the stock of Coca-Cola's will pull back in coming weeks and months to levels closer to our target (full value) price unless their 3rd quarter earnings report scheduled for 18 October 2019 surprises significantly to the upside.
We usually recommend that long term fundamental or value investors look to enter the stock at 10% below our target (full value) price which in this case is $43.60, so a good entry point into Coca-Cola's stock would be at $39.30 or below. We expect that the stock of Coca-Cola's will pull back in coming weeks and months to levels closer to our target (full value) price unless their 3rd quarter earnings report scheduled for 18 October 2019 surprises significantly to the upside.