[Click e-Stock] "Coca-Cola Without the World Cup Boost: What to Watch in Q3 Results"

Daishin Securities maintained its “Buy” rating on Coca-Cola on October 20, saying investors should check whether the company’s underlying growth rate held steady in the third quarter of this year.

Coca-Cola will report its third-quarter results on October 27. In the previous quarter, a one-off catalyst from the World Cup coincided with a weaker dollar, helping the company post revenue of $13.4 billion and adjusted earnings per share (EPS) of $0.97. Global sales volume rose 5%, while Coca-Cola Zero Sugar grew 16%, demonstrating the strength of its brands overall. The challenge is that those catalysts are absent this quarter. “There’s one thing the market most wants to confirm,” said Cho Jaewoon, a researcher at Daishin Securities. “It’s where the underlying growth rate will settle without the World Cup.”

Just before the earnings announcement, the market consensus forecast was EPS of $0.97 and revenue of $13.37 billion. Compared with the year-earlier results of EPS of $0.82 and revenue of $12.41 billion, expectations point to double-digit earnings growth. “Our estimate is a step lower, at revenue of $12.8 billion to $13.3 billion and EPS of $0.90 to $0.96. That’s because we expect sales volume growth to slow from 5% to 2-3%, and believe lingering effects from production disruptions at dairy brand Fairlife in mid-July could push some North American sales into a later period,” Cho said. “However, Coca-Cola has exceeded market expectations, if only slightly, for more than 12 consecutive quarters, and if a currency tailwind of about 3 percentage points flows directly through to earnings, the gap could narrow.”

The recovery of profitability in the Asia-Pacific region and moves to reshape the business portfolio are seen as key factors that could determine the direction of the share price following the earnings announcement. Last quarter, sales volume in the Asia-Pacific market rose 8%, but price and product mix fell 9%, with sales focused on lower-priced offerings. The key question for the third quarter is whether the company shows a virtuous cycle in which sales volume and price mix improve at the same time. News of business restructuring has also acted as a positive catalyst. Recent reports have lifted investor sentiment, including the announcement that all KFC locations in the United States will switch to Coca-Cola beverages, with the transition scheduled for completion in 2027, and reports that the company is considering selling Costa Coffee. Management’s explanation of the planned sale of its Africa bottling business, Coca-Cola Beverages Africa (CCBA), in the second half of the year, as well as the resulting earnings gap, will also be closely watched.

Coca-Cola’s forward price-to-earnings ratio (PER), based on expected earnings over the next 12 months, is 24.8 times, about an 8% premium to its five-year average of 22.9 times. To sustain that premium, its annual guidance must remain intact: organic revenue growth of about 5% and annual EPS of $3.27 to $3.30.

“If EPS exceeds $0.97 and organic revenue growth stays in the 4% range, investors could interpret that as the company having overcome the World Cup comparison burden, opening the door to further modest gains despite the premium,” Cho said. “If results are in line with expectations, confidence in the guidance will simply be reaffirmed, and the share price is likely to move within its expected range. If results fall short, the Fairlife disruption, raw-material costs, and market-share issues in India could all come into focus at once, potentially putting the valuation premium itself under pressure.” He added, “The slowdown in sales volume is already an anticipated factor, and since the currency tailwind and business restructuring are upside factors coinciding in the same quarter, I believe the balance of risks still tilts upward.”

This content was produced with the assistance of AI translation services.