The Coca-Cola Co (NYSE:KO) Says It Is Encouraged By Initial Success
The Coca-Cola Co (NYSE:KO) said during the conference call that it was encouraged by some initial signs of success, though it is early in the year. The worldwide economy also remained constrained by challenges in several markets, such as China, Russia, and Brazil. The comments came after its earnings topped the Street analysts’ estimations.
However, The Coca-Cola Co (NYSE:KO) said that it was confident of maintaining its underlying currency neutral growth forecast for the full year, as indicated earlier. The company has also updated the impacts from structural items, as well as currency.
Foreign Exchange Impact
The company’s CFO, Kathy Waller, disclosed that it was inconsistent with the earlier assumption that the currency impact would have a mid-single digit, neutral EPS growth. However, he said that the company sees a change in the currency exchange rates impact during the rest of the year.
The Coca-Cola Co (NYSE:KO) CFO said that after giving effects to hedging positions, it expects currency headwind of six points on net revenue and about ten points of headwind on operating income. This apart, it expects headwind of about seven points on its income before tax for the current year 2015. He said that the impact due to currency on its income before tax remained more or less the same as its earlier forecast.
Waller also said that the difference in the currency headwind, besides operating income, as well as net income before tax, was principally because of the gains associated with its euro debt. The company also expects structural items to roughly impact its net revenue unfavorably and 1 – 2 point headwinds on its income before tax.
Free Cash Flow
The Coca-Cola Co (NYSE:KO) said in the conference call that it was able to generate $1.1 billion of free cash flow, representing 72% growth. The company cited its management for working capital efficiently, the six additional days of impact and the capital expenditure timing. However, it was partly impacted by currency unfavorably.
The company returned $1.8 billion to its shareholders by way of dividend and share buyback in the first quarter, indicating its commitment to return cash to its shareholders. For the current year, it boosted the dividend rate by 8%, to $1.32 a share. The company expects to buy back $2 – $3 billion worth of shares in the current year.
Revenue & Profit Graph
The Coca-Cola Co (NYSE:KO) reported consolidated net income of $1.56 billion, down 4%, from $1.63 billion. Similarly, earnings fell 3%, to 35 cents a share, from 36 cents a share in the year-ago quarter. On an adjusted basis, net income would have increased 8%, to $2.1 billion and EPS by 9%, to 48 cents a share, in the first quarter. The chart provides the EPS and revenue behavior in the last few years.
The company’s top line witnessed 1.3% growth, to $10.71 billion, from $10.58 billion in the previous year quarter. The company said that its organic revenue advanced 8% in the same quarter. The Coca-Cola Co (NYSE:KO) ended the first quarter with cash and cash equivalents of $8.21 billion.
Answering questions about the outlook with the analyst during the conference call, The Coca-Cola Co (NYSE:KO)’s CEO, Muhtar Kent, said that the outlook seems to be trending positive, though modestly in North America. However, this raised hopes of possible ways for growth. He expects the weak fuel prices to fuel consumer spending in the coming quarters.
Latin America looks to be relatively stable, while Brazil continues to deteriorate quicker than predicted. As far as Europe is concerned, the CEO said that deflation remained a big concern in the current year and the overall consumer spending remains sluggish. The Coca-Cola Co (NYSE:KO) does not think the market will recover quickly in Europe. Similarly, China will continue to remain a concern as it witnessed deceleration in the first quarter while sluggishness was seen in Japan.
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