The Coca-Cola Company (KO 46.05, -3.74, -7.51%) is leading the Dow Jones Industrial Average (DIA -0.3%) and Consumer Staples sector (XLP -1%) lower after reporting in-line fourth quarter results but guiding fiscal 2019 EPS well below consensus.
Adjusted EPS grew 10% to $0.43, in-line with estimates. Revenue fell 6% due to currency headwinds and refranchising bottling operations. Organic revenue grew 5% (vs. 6% in the third quarter), driven by price/mix and one extra day in the quarter. Unit case volume was flat, down from 2% growth in the third quarter. Volume growth slowed slightly in each market and was flat in EMEA, down 1% in North America and down 2% in Latin America. Adjusted operating margins expanded 13 and 385 basis points for the quarter and full year, driven by cost cuts and divesting lower margin bottling operations.
CEO James Quincey said there was softness at the end of the fourth quarter, but things have improved a bit in the first quarter.
What really seems to be irking investors this morning is soft earnings guidance for 2019. Coca-Cola guided for flat EPS in 2019 (down 1% to up 1%) to ~$2.06-2.10 vs. the $2.22 S&P Capital IQ Consensus. Foreign exchange represents a notable headwind. The company guided for 10-11% growth in currency-neutral operating income, including a low single-digit tailwind from acquisitions, divestitures, and structural items but the currency headwind is 6-7%. Organic revenue is forecasted to be up 4% in 2019. That compares favorably to peers but represents a slowdown from 5% growth in 2018.
Coca-Cola noted that the economy is a little softer, more volatile, and uncertain than last year but it continues to take market share.
A cautious outlook for 2019 has become par for the course this earnings season. Earnings growth expectations for the S&P 500 have come down ~200 basis points to just under 5% for 2019 over the last month.
Investors hope that Coca-Cola has set an appropriately low bar that leads to upside earnings surprises in the coming quarters.
The stock is testing its 200-day moving average today, which has provided support since the stock reclaimed that mark in July of last year.
The $200 bln beverage giant trades at 22x EPS, which is a premium to PepsiCo (PEP 112.53, -1.59, -1.39%) and the average for consumer packaged goods stock at ~19x EPS but slight discount to Keurig Dr. Pepper (KDP 28.38, -0.04, -0.14%). KO's 3% dividend yield