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Earnings Preview for The Coca-Cola Company (KO) 2Q 2011

July 15, 2011

Overview 

Coca Cola (KO) is slated to report 2Q 2011 earnings before the opening bell on Tuesday, July 19. A conference call will follow the release at 9:30 a.m. EST. Note that Coca Cola is a Dow component with heavy market influence that is expected to benefit from strong growth outside the U.S. and in emerging markets.

Outliers & Strategy 

  • Adjusted Earnings Per Share (EPS) should be used to compare against consensus estimates. Values for Non-GAAP Earnings Per Share (EPS) and Earnings Per Share (EPS) Excluding Items are also comparable with consensus estimates.
  • Unit Case Volume is another key metric to watch for Coca Cola.
  • Coca Cola is expected to earn $1.16 per share (range is $1.09 to $1.21), well above the $1.06 in the year-ago period (Source: Yahoo! Finance). Revenues are seen improving to $12.39 bln, thanks in large part to strong international growth.
  • Even with the shares near a 52-week high, Coca Cola is now trading at 13.1x trailing earnings, a discount to its 5-year average of 19.4x, with a dividend payout of around 2.7%, ranking among the top 20% in the S&P 500.
  • Last quarter, Coca Cola reported earnings and revenues that came in slightly below consensus estimates, sending shares lower.
Recent News
  • 07/07: Coca Cola Chairman and CEO Muhtar Kent told CNBC the global economy remains mixed, while factors such as higher gasoline prices are weighing on consumers. However, Mr. Kent indicated the company is hiring more people around the globe, while the overall economic picture has improved from 18 months ago.
  • 06/29: Citigroup reiterated a Buy rating and a $72 price target on Coca Cola. Benzinga.com
  • 05/27: JP Morgan lowered its 2Q 2011 EPS estimate on Coca Cola from $1.17 to $1.14 on decreased operating leverage. Benzinga.com
  • 04/28: Coca-Cola declared a regular quarterly dividend of $0.47 per common share.
Technical Review
Coca Cola shares are just off the recent all-time highs near $69, but appear to be losing momentum heading into the 2Q 2011 earnings release on Tuesday. There is solid near-term support in the $67.50 area, followed by $67.00 – just above the 50-Day SMA, and $65.00. Resistance is right at the recent highs. The options markets are currently pricing in a nearly 4% move in either direction. A 4% move higher would put the shares at a new all-time high just above $70 on a well-received release and near downside support around $65 on a weak report. (Chart Courtesy of StockCharts.com)
Summary
Cola-Cola shares are near all-time highs, thanks to strength in global markets, particularly Asia and Latin America, share repurchase activity, a solid dividend payout, and valuation. However, the shares recent failed to push through resistance near the all-time highs in the $68 area – an indication that the momentum may be waning, while the potential impact of rising energy costs on consumers is another cause for concern. Furthermore, the disappointing results from the 1Q 2011 period also has some reporters skittish headed into the earnings release. Nonetheless, the current backdrop suggests Coca Cola will come through with solid results, leaving it vulnerable to any missteps.
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