The Coca-Cola Company (KO – Free Coca-Cola Stock Report) finished 2017 with a solid set of results. The beverage giant, one of the components of the Dow Jones Industrial Average, has reported December-quarter comparable earnings of $0.39 a share, a 5% increase from the prior-year period and a penny ahead of our estimate. (Our presentation excludes $1.05 in net nonrecurring charges, mostly related to the Tax Cuts and Jobs Acts.) Full-year profits finished at $1.91, flat with 2016, but still 8% below the $2.08 reached in 2013.
As expected, refranchising efforts, continue to weigh heavily on the top line, which declined 20% year over year. (The refranchising of low-margined bottling businesses in the U.S. wrapped up in late 2017, though the company still has work to do in some other markets, such as Africa.) However, after factoring out this headwind and other items, organic revenues rose 6%, as the company's continuing focus on improving pricing and mix (up 4%) helped to overcome another quarter of sluggish volumes (flat for both the quarter and the year). Meanwhile, refranchising efforts, combined with productivity initiatives, provided a big lift for the operating margin, which expanded more than 500 basis points on a comparable basis.
Looking ahead, the company indicated that earnings growth should resume this year, with share net climbing 8%-10%, to $2.06 to $2.10. The absence of refranchised bottling operations and other structural changes will again provide a significant revenue headwind (17%), but the related drag on comparable operating profit should be rather moderate (2%). Meanwhile, Coke has its sights set on increasing organic revenues 4%, while also boosting comparable currency neutral operating income 8%-9%.
The company's December-quarter results and 2018 outlook received generally positive reviews, as the shares are up slightly on the news. This equity, though, has underperformed the broader market in recent years, and investors may well want to see more definitive signs of progress before committing to the beverage giant. Notably, management indicated that 2018 earnings growth is likely to be heavily weighted toward the back half of the year. Still, this issue features some appealing attributes, particularly for more-conservative accounts. It carries our Highest rank (1) for Safety and has a dividend yield that is roughly 150 basis points above the Value Line median. And the company recently hiked its quarterly payout to $0.39 a share, a 5% increase from the prior year.
About the Company: The Coca-Cola Company is the world's leading marketer of ready-to-serve, nonalcoholic beverages. On any given day, 1.7 billion individual servings of the company's brands are consumed by people around the globe. The Atlanta-based company currently has more than 500 wholly owned and licensed brands, including 15 that generate $1 billion or more in annual sales.