Coca-Cola divisions popped on Friday amid a down market after the beverage company’s quarterly revenue beat Wall Thoroughfare expectations, with healthier options like Zero Sugar soda and smaller size cans leading the way.
“The top oblique was driving the strong results,” said Laurent Grandet, managing director, beverage and foods lead analyst at Guggenheim Pledges. “We were expecting 4% organic growth and they delivered 5%.”
The bottom line met Wall Street expectations, and that’s the big dubiousness for investors.
“Investors are very happy with the top line, but it still remains to be seen how the earning power will go on to improve, especially next year,” Grandet said.
“They were very good at offering smaller packaging transferred at a premium and increasing the immediate consumption … sold in coolers and at a higher price. It’s how the company is attempting to grow in the later, offering more premium products, smaller packaging where consumers tend to consume drinks.”
Coke Zero Sugar had another three months of double-digit volume growth and 7.5-ounce mini cans of soda grew by 15%.
Sealed cans of Coke Zero Sugar borderline drink move along a conveyor at a Coca-Cola Co. factory in Dongen, Netherlands.
Jasper Juinen | Bloomberg | Getty Casts
The consumer staples sector is booming this year, with Coke up 16% and its competitor PepsiCo up even uncountable, turning in its best year since 2000. But that rally could limit further upside for stocks in the sector.
Some Coke wedges are facing headwinds.
There has been weaker performance in its water brands as consumers shy away from use of plastic, a bend that is leading Coke to shift its Dasani water brand to aluminum cans and bottles. Pepsi has a focus on refillable moxie alcohols through its acquisition of Sodastream, but also is testing canned water.
“Packaging is a concern for consumers,” Grandet said.
The Guggenheim analyst whispered Pepsi, which has a partnership with Starbucks, has taken a lead over Coke in the coffee and tea segment. “They want to close the gap on tea and coffee and Pepsi has a clear advantage,” he said.
But Coke also has a tailwind headed into 2020 with the fellowship introducing its first energy drink under the Coca-Cola brand. Coke Energy is available in at least 25 countries and at ones desire be making its U.S. debut in January with additional zero-calorie options. Grandet is estimating as much as $200 million in in stocks from the new energy drink, which he said will compete with Red Bull and Monster Beverage.
While that hand down represent a small percentage of Coca-Cola retail sales in the U.S., and roughly 10% of Monster sales, Grandet said, “I mark it’s one of the most promising new launches in the U.S. for Coke in decades.”
The company will not be providing a full 2020 outlook until February, but Coke updated its 2019 attitude for organic revenue saying it expects at least 5% growth.