Will Coke miss second-quarter earnings?

Expect currency fluctuations and bottler deals to have a negative impact on revenue.

By Zacks.com Jul 15, 2013 3:13PM

Christian Zachariasen, JupiterimagesBy Zacks Equity Research

 

The Coca-Cola Company (KO) is set to report its second-quarter 2013 results on July 16 before the market opens. Last quarter, it posted a 2.2% positive surprise. Let's see how things are shaping up for this announcement.


Factors to consider this quarter

This quarter is not expected to be any better than the last. While volumes and price/mix should benefit revenues, currency effects and recent structural changes (the bottler merger in Brazil and the sale of 51% stake in the Philippines bottler) are once again expected to hurt revenues.


Gross margin gains are expected to be moderate compared with the first quarter growth of 80 basis points due to geographic-mix headwinds. However, we expect commodity cost inflation to subside in the second quarter. Currency is expected to hurt the second-quarter operating income by 3%.


Earnings whisper

Our proven model does not conclusively show that Coca-Cola is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Zacks) and a Zacks Rank of No. 1, No. 2 or No. 3 for this to happen. That is not the case here, as you will see below.


Zacks ESP: The earnings ESP is 0.0%.

Coca-Cola carries a Zacks Rank No. 4 ("sell"). We caution against stocks with Zacks No. 4 and No. 5 Ranks ("sell"-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum. Over the last seven days, the Zacks Consensus Estimate for 2013 has gone down by 0.5% and for 2014 by 1.7%.


Other stocks to consider

Here are some other consumer staples companies you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:


Kraft Foods (KRFT), with earnings ESP of +5.97% and a Zacks Rank No. 2 ("buy").

J. M. Smucker Company (SJM), with earnings ESP of +2.52% and a Zacks Rank No. 2 ("buy").

Church & Dwight Co. (CHD), with earnings ESP of +3.39% and a Zacks Rank No. 2 ("buy").

 
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