Why Coca-Cola Earnings Aren’t Enough

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Coca-Cola Co. (NYSE: KO) reported first-quarter 2017 results before markets opened Tuesday. The soft-drink maker posted adjusted diluted earnings per share (EPS) of $0.43 on revenues of $9.12 billion. In the same period a year ago, the company reported EPS of $0.45 on revenues of $10.28 billion. First-quarter results also compare to consensus estimates for EPS of $0.44 and $8.89 billion in revenues.

Net income fell 21% for the quarter, from $1.49 billion to $1.18 billion and pretax income slipped 20% from $1.89 billion to $1.51 billion.

Net revenues fell 11% for the quarter. The company attributed the decline to acquisitions, divestitures and structural changes (10%) and currency exchange effects (1%).

Cash from operations totaled $788 million, up 30% from the year-ago quarter. Coke attributed the increase to the “cycling of the pension plan contribution in the prior year.” Two fewer days in the quarter and the continuing refranchising of North American bottling partially offset the gain.

The company repurchased $1.3 billion in stock during the quarter and net share repurchases (non-GAAP) totaled $836 million.

In its outlook, the company said that 2017 adjusted EPS would decline by 1% to 3% from the 2016 level of $1.91. Coke expects non-GAAP organic revenue growth of 3%, as well as 7% to 8% revenue growth on a currency-neutral basis.

Organic (non-GAAP) revenues are expected to rise 3% year over year, and currency-neutral pretax income is forecast to increase by 7% to 8%. Both of these metrics are unchanged from Coke’s prior guidance.

For the second quarter of 2017, Coke expects a 17% to 18% headwind from acquisitions, divestitures and structural items and a 1% to 2% currency headwind based on the current rates and including the impact of hedged positions.

CEO Muhtar Kent said:

The first quarter performance was in line with our plan, and we remain on track to deliver our underlying revenue and profit targets for the full year. As anticipated, revenues in the quarter were adversely impacted by two fewer days and the shift of the Easter holiday.

James Quincey, current president and chief operating officer, will take over as CEO next week.

Analysts have estimated second-quarter EPS of $0.57 and revenues of $9.81 billion. For the full year, analysts currently estimate EPS of $1.88 and revenues of $35.02 billion.

Coca-Cola’s shares traded down about 0.8% in Tuesday’s premarket, at $42.95 in a 52-week range of $39.88 to $46.01. The consensus 12-month price target was $44.32 before this report.