Coca-Cola’s Q3 Report Could Put Some Fizz Into Its Dormant Shares

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  • Reports Tuesday, October 30, before the market opens
  • Revenue Expectation: $8.17 B
  • EPS: $0.55

If the broader market trend has any relevance for the world’s largest soft drink maker, then Coca-Cola (NYSE:KO) probably won’t have any inspiring news for investors when it reports Q3 2018 earnings on Tuesday. One clear tendency seen so far this earnings season has been that cost pressures have started to hit the bottom lines of some large global corporations.

At rival PepsiCo (NASDAQ:PEP), for example, profit margins shrank during the third quarter as the company faced higher costs for transportation and aluminum. During its call, PepsiCo said it would raise prices on snacks and drinks.

Things may not be that different on the cost front for Coca-Cola. However, there are still a number of catalysts that could create excitement when the Atlanta-based beverage giant reports.

Coffee, Cannabis, Global Retail Presence

The biggest is its recent $5.1-billion acquisition of the UK-based Costa coffee chain. We believe this deal strongly positions Coke for long-term growth in perhaps the most robust non-alcoholic beverage segment. With its 3,800 stores, Costa affords Coke a global retail presence as well as a hedge against slowing soda sales. The company will likely provide some insight during its earnings call regarding how it plans to create synergies and restructure its business now that it has one of the dominant restaurant players under its umbrella.

Another potential trigger for spurring Coke’s dormant share price, which has done nothing for its investors in the past one year, is its possible entry into the fast growing cannabis space. Last month, Coke said it is “closely watching” the growth of CBD, a non-psychoactive component in marijuana, as an ingredient in what it called functional wellness beverages. The company may provide some insight about its future plans in this arena during Tuesday’s earnings call.

On September 17, after Bloomberg reported that Coke was in talks with Canadian marijuana producer, Aurora Cannabis (NYSE:ACB) to explore the possibility of creating cannabis-infused drinks, shares of the pot company jumped 17% . Both companies have neither confirmed nor denied the news.

Coca-Cola’s Q3 Report Could Put Some Fizz Into Its Dormant Shares

KO Weekly 2015-2018

Coffee, as well as a possible entry into the cannabis market could afford Coke two alternatives with which to revive sales that have been declining since 2012, as health-conscious consumers began moving away from sugary drinks. Over the past few years, Coke has been working to reduce the amount of sugar in its flagship beverages, while adding a variety of low- and no-sugar alternatives, including soy-based drinks, teas, waters and juices.

Bottom Line

Despite its current challenges, Coke remains a solid dividend stock for long-term investors. The company has increased its dividend payout for 56 years in a row.

That’s more than enough confirmation of the strength of the 21 brands it owns which generate $1 billion or more in annual sales, (out of a staggering 500 brands globally). With an annual dividend yield of 3.35%, we believe now is a good time to bet on Coke’s turnaround, especially after its Costa deal, which will provide open up additional growth drivers for the company.

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