Beverage giant The Coca-Cola Company (KO) is set to report fourth quarter fiscal 2015 earnings results Tuesday before the opening bell. And the numbers have been heavy on investors' minds, especially with KO stock now trading near its 52-week high.
Like other multinational companies with large global operations, the strong U.S. dollar has pressured Coke's overseas sales and still remains an overhang. But to offset the decline, the management is cutting costs and looking for ways to squeeze more profits from each bottle and can sold. With a "less bad" outlook for fiscal 2016 Tuesday, these shares – down 1.21% year to date – may finally break away from their three-year trading pattern and head noticeably higher.
Expectations for the Quarter
For the quarter that ended in December, the average analysts’ earnings-per-share (EPS) calls for 37 cents a share on revenue of $9.89 billion, compared to the year-ago quarter when the company earned 44 cents a share on $10.9 billion in revenue. For the full year, earnings are projected to decline 2.4% year over year to $1.99 a share, while revenue of $44.37 billion would mark a drop of 3.6% from the period a year ago.
In the past two months, Coke's earnings estimate for the just-ended quarter has declined by a penny, from 38 cents a share. While the full-year projection has remained unchanged, during the span, estimates for the fiscal year 2016 have declined 4 cents, from $2.07 a share to $2.03. This means, assuming the Atlanta-based company does earn $1.99 a share for all of 2015, earnings are projected to rise just 2% in 2016. Will this be enough to send the stock higher?
That's why a strong 2016 guidance is important for the stock. As it stands, Coke's 2016 earnings growth estimate is three percentage points lower than the S&P 500 (SPX) index. And if the company doesn't increase its outlook, it must outline how it plans to grow profit margins during the year to boost earnings. Any other scenario that doesn't include a massive stock buyback will send KO shares falling below $40.
The Bottom Line
All of that said, Coca-Cola – one of Warren Buffett's favorite holdings – isn't going anywhere. But that's been the case with KO stock for almost two decades. With the stock closing Friday at $42.44, KO shares were in the same spot in 1998. And while the dividend, yielding 3.10%, has been solid, chasing that yield has generated just 4.5% average annual gains in the past three years, compared to an 8% average rise in the S&P 500 during that span. So for investors, having a Coke has guaranteed no smiles.
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