Investors and traders eagerly await the third-quarter 2023 earnings report from The Coca-Cola Company (KO), slated to be released on October 24 before the opening bell. Analysts expect the company to deliver top-line growth, with third-quarter revenues projected to reach $11.5 billion, representing a 3.6% increase compared to the prior-year quarter.

In terms of earnings, the consensus estimate stands at 69 cents per share, indicating unchanged results year-over-year. It’s worth noting that the consensus mark has remained steady over the past 30 days.

Coca-Cola has a history of outperforming expectations, as evident in the previous quarter where it beat the Zacks Consensus Estimate by 8.3%. On average, the company has achieved an earnings surprise of 5.2% in the trailing four quarters.

Key Points to Note

Coca-Cola’s recent performance has been driven by strategic transformation efforts and ongoing recovery worldwide. The third quarter is expected to show revenue growth across various operating segments, supported by improved price/mix and an uptick in concentrate sales. Increased popularity in both at-home and away-from-home consumption channels is also expected to contribute to the company’s performance.

The company’s volumes in the third quarter are anticipated to benefit from market recovery, particularly in trademark Coca-Cola, sparkling flavors, nutrition, juice, dairy, plant-based beverages, and hydration, sports, coffee, and tea categories.

Based on our model, we predict year-over-year organic revenue growth of 6.4% for the third quarter, driven by price/mix growth of 5% and a 1.4% increase in concentrate sales volume. Consequently, reported revenue growth is expected to reach 3.4%.

Coca-Cola’s third-quarter results are likely to reflect gains from innovative initiatives and increased digital investments. The company has witnessed substantial growth in e-commerce, with the channel’s growth rate doubling in numerous countries. By strengthening consumer connections and implementing digital strategies to capture online demand, Coca-Cola aims to boost sales in the third quarter.

However, the company faces challenges in the form of higher supply-chain costs, including increasing commodity input costs and transportation expenses. These cost pressures are anticipated to impact Coca-Cola’s third-quarter performance.

Our model predicts a 50 basis points expansion YoY in the cost of products sold as a percentage of sales, reaching 41.3% in the third quarter. This increase in cost is expected to partly offset the rise in gross margin, which is estimated to expand 20 basis points to 41.5% in the quarter. In terms of dollar basis, gross profit is projected to witness a 4.1% YoY increase in the third quarter.

Coca-Cola has been investing in its markets and brands to support sales growth, resulting in increased marketing expenses in recent quarters. This, along with short-term incentives and stock-based compensation, is likely to contribute to a rise in selling, general, and administrative expenses.

Based on our projections, adjusted selling, general, and administrative expenses as a percentage of sales is expected to increase 20 basis points to 29.9% in the third quarter.

During the last quarterly earnings call, Coca-Cola anticipated adverse currency rates would negatively impact the top and bottom lines in the third quarter. Specifically, the company expects a currency headwind of 2% on comparable revenues and 2% on comparable earnings per share. Additionally, revenues are expected to reflect a 1% negative impact due to acquisitions, divestitures, and structural changes.

Zacks Model

Despite the positive combination of a strong buy rating (Zacks Rank #1, #2, or #3) and a positive Earnings ESP increasing the likelihood of an earnings beat, our proven model does not conclusively predict an earnings beat for Coca-Cola this time. The company currently has a Zacks Rank #4 (Sell) and an Earnings ESP of -1.09%.

Stocks With Favorable Combination

If you’re looking for companies that have the right elements for an earnings beat, consider the following options:

• Hershey (HSY) has an Earnings ESP of +1.29% and a Zacks Rank #3. The company is expected to see top and bottom-line growth in its third-quarter 2023 results.
• Colgate-Palmolive (CL) has an Earnings ESP of +0.37% and a Zacks Rank #3. The company is also expected to witness top and bottom-line growth in the third quarter.
• The Boston Beer Company (SAM) has an Earnings ESP of +0.17% and a Zacks Rank #3. The company is set to experience bottom-line growth in its third-quarter 2023 results.

For more insights into upcoming earnings announcements, check out the Zacks Earnings Calendar.

Keep in mind that the views and opinions expressed in this article are solely those of the author and may not necessarily reflect the views of Nasdaq, Inc.