* Reports Tuesday, July 23, before the market is opened
* Revenue expectation: $ 9.56 B
* EPS: $ 0.62
Coca-Cola (NYSE 🙂 is catching up when it releases its second quarter on Monday morning. It must provide a solid reason for investors to buy their shares, which this year have lagged behind both arch-rival PepsiCo, Inc. (NASDAQ 🙂 and the benchmark
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Coke shares fell by 0.3% on Thursday to $ 52.01. The share has won around 10% this year, with a 20% increase for PepsiCo and about the same jump in the S&P 500.
It would make a huge difference in this race to win investors if Coke could prove that global sales remained strong even with signs of an economic slowdown. Unlike Pepsi, which is less dependent on foreign markets, Coca-Cola earns more than half of its revenue from global operations: 53% of revenue came from outside North America last year, compared to 38% for Pepsi.
At the beginning of this year, Coca-Cola Coke warned investors that this year's earnings will be largely stable because the company is suffering from the impact of a strong US dollar and the strong headwind that is affecting some of the major economies, including Europe and China, will tackle. Unfortunately, it appears that the situation has not yet improved.
China & # 39; s economy slowed to its lowest pace in the April-June period since the quarterly data began in 1992, amid the continuing trade shutdown with the US, while exports from India and Indonesia – the two most populous Asian countries – more collapse than economists' prediction in June.
In the first quarter, China and Asia Pacific had made a major contribution to reviving Coke's revenue growth, with bottled water and the Coke trademark performing well. The volume of the global unit case, an important measure for Coke, increased by 2%, fueled by a 7% peak in Asia Pacific.
Coke diversification accelerates
Despite these bleak macro prospects, we continue to hold Coke shares for long-term investors and see it as a good buy-on-dip candidate when the coming quarterly earnings disappoint. Coke, with 21 brands that generate $ 1 billion or more in annual sales, diversifies further than sugary drinks. These efforts will soon start to pay off, especially after the purchase by the company last year of the in U.K. established Costa coffee chain for $ 5.1 billion.
The chain has 3800 stores worldwide and offers Coke a retail function in China and other parts of Asia, the Middle East, Africa and Europe. The acquisition also offers a hedge against the delayed soda sale at home and gives Cola a strong position in the fastest growing soft drinks category. Last month, the company introduced a ready-made canned Costa coffee, which represents the first major product introduction since it took over the chain.
After Coca-Cola Plus Coffee was tested in Asia last year, it was planned to launch it in 25 markets by the end of this year, Chief Executive James Quincey told analysts in April. In addition to the coffee push, the company is also looking for new variants of its flagship brand.
Coca-Cola Zero Sugar, a reformulated diet version, grew double digit in the first quarter. And in the United States, the launch of Orange Vanilla Coke, the first new flavor in a decade, has stimulated 6% growth in retail sales for the Coca-Cola brand
With these growth prospects, Coke remains a solid dividend stock for long-term investors, with a return of 3.07% and a quarterly payment of $ 0.4. The company has now increased its dividend for 56 years in a row
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Bottom Line
We believe that Coke is a suitable defensive game for conservative investors, especially when the risks to growth stocks have increased and investors are playing safely. Because of its brand power and turnaround momentum, we believe that its shares will sooner or later overtake rivals, to the benefit of investors who have some patience.
