What To Expect From Coca-Cola’s Q2?

Coca-Cola (NYSE: KO) will report its Q2 2024 results on Tuesday, July 23. We expect the company’s revenues to come in at $11.8 billion, marginally above the consensus estimate of $11.75 billion. This would mark year-over-year growth of about 0.4%. Earnings will likely come in at about $0.82 on a per-share and adjusted basis, slightly above the consensus estimate of $0.81. See our interactive dashboard analysis on Coca-Cola Earnings Preview for more details on how the company’s revenues and earnings will likely trend for the quarter. So, what are some of the trends that are likely to drive Coca-Cola’s results, and how has the company’s stock performed?

KO stock has witnessed gains of 20% from levels of $55 in early January 2021 to around $65 now, vs. an increase of about 45% for the S&P 500 over this roughly three-year period. However, the increase in KO stock has been far from consistent. Returns for the stock were 8% in 2021, 7% in 2022, and -7% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that KO underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could KO face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? Going by our Coca-Cola valuation of $65 per share, KO stock looks fairly priced. Our forecast is based on a 23x P/E multiple for KO and expected earnings of $2.85 per share for the full year 2024. This 23x P/E ratio aligns with the average over the last three years.

Looking at the previous quarter, Coca-Cola’s revenue of $11.3 billion in Q1’24 marked a 3% y-o-y growth on a reported basis. Sales were up 11% organically, led by a 13% rise in price/mix and a 2% decline in concentrate sales. The operating margin rose 60 bps to 32.4% in Q1’24, vs. 31.8% in the year-ago period. The adjusted profit for the quarter was $0.72 per share, up 7% y-o-y. The overall sales growth was led by a strong demand in Latin America, with volume rising 4% and price/mix up 22% in the region.

Coming to the latest quarter, Coca-Cola will likely continue to benefit from higher price/mix, amid inflationary pricing in developing regions. This will help drive growth for both at-home and away-from-home channels. Volumes are also expected to pick up on strong sales of some of its product lines, including juice, value-added dairy and plant-based beverages.

Overall, we expect Coca-Cola to navigate well in Q2, and post results marginally ahead of the consensus estimates. However, we believe that KO stock is appropriately priced at its current levels of $65 from a valuation perspective.

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year

While Coca-Cola stock looks appropriately priced, check out how Coca-Cola Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 7/21/2024
[2] Cumulative total returns since the end of 2016