Coke (KO) Earnings Preview Q4 2013: Profits Edge Up On Better Sales

The Coca-Cola Company (NYSE:KO), the world’s largest soft drink seller, will likely report that its profits edged up slightly last quarter as its profit margins widened, according to Reuters-polled analysts' consensus projections.

The Atlanta-based company will report fourth quarter and full-year earnings before the market opens on Tuesday. Analysts polled by Thomson Reuters expect profits of $2.07 billion, or 46 cents per share, up slightly from $2.05 billion a year ago. Revenue is forecast to fall slightly to $11.31 billion from $11.47 billion a year earlier.

Profits may rise despite lackluster revenue and sales, reflecting wider profit margins, which analysts expect to broaden to 18.3 percent from 17.9 percent a year earlier.

“We do expect operating leverage overall -- with an estimated +33 bps [basis points] widening of operating income margins,” Barclays PLC (LON:BARC) analysts wrote in a research note.

Actual organic revenues likely rose 5 percent compared to Coke’s most recent quarter, with global sales volumes up 3 percent, which is in line with the company’s projections. That said, unfavorable foreign exchange factors could lead to a reported 2.7 percent decline in revenue, Barclays said.

China, India and the Middle East will likely drive strong sales volumes in the quarter, while “muted 1 percent growth” occurred in North America, Europe and Latin America, the bank said.

Brazil and Mexico, two important markets for Coke, have seen favorable trends weaken this past quarter, Barclays noted. Sales in those countries also fell slightly compared to Coke’s previous quarter.

An ongoing decline in U.S. soft drink sales will continue to hurt Coke, according to analysts. Goldman Sachs Group Inc. (NYSE:GS) forecasts “lackluster results” across the industry as unease in emerging markets and weakening currencies in the fourth quarter disrupted the beverage industry broadly.

During the quarter, the head of Coke's Americas unit left abruptly, and the unit underwent organizational restructuring, splitting up parts of its North American business.

Frigid winter weather in the U.S., combined slower income growth in the quarter, might have slowed soft drink sales, Goldman Sachs analysts noted. Coke may have experienced weaker sales in Mexico after it enacted a soda tax on Jan. 1, 2014, which harms rival companies like PepsiCo, Inc. (NYSE:PEP), too.

Heading into the next fiscal year, “unexpected management changes, near-term secular beverage category challenges and adverse currency movement have kept investor sentiment firmly in the negative column,” Barclays analysts wrote. But fresh news is expected during the earnings presentation, which coincides with the start of a major consumer analyst conference in Florida, where Coke CEO Muhtar Kent will speak later in the week.

The company struck a $1.25 billion deal with coffee maker Green Mountain Coffee Roasters, Inc. (NASDAQ:GMCR) late in the quarter and obtained FDA approval for a stevia-based drink, already popular in Argentina, which it could soon release in the United States.