Summary
- KO is a true dividend champiomn.
- Right now, shares are in rally mode following the most recent earnings report.
- On the surface, the Q3 report was well ahead of our expectations.
- Wait for a pull back.
- Looking for a helping hand in the market? Members of BAD BEAT Investing get exclusive ideas and guidance to navigate any climate. Get started today »
Coca-Cola (KO) is a great American brand. There is no denying this simple fact. But it is also a true dividend champion. While shares have rebounded off the COVID-19 selloff lows in March, we believe shares are still a buy in the $40's. Thus shares need to pull back a bit, but are definitely long-term bullish. This dividend growth name belongs in your long-term portfolio holdings. There is no question about it. Right now, shares are in rally mode following the most recent earnings report. In a choppy market, it is good to see this dividend champion deliver such growth, and in turn, the stock is providing capital growth. In this column, we discuss recent performance of the company. We also offer our outlook for the remainder of 2020. Let us discuss.
Revenue growth
On the surface, the Q3 report was well ahead of our expectations. We were looking for revenues of around $8.61 billion to $8.75 billion for the quarter. We expected a sales decline given the leaner nature of the business and the COVID implications, but we, of course, were anticipating 5-6% organic revenue declines for the year as well thanks to the pandemic. The company saw revenue of $8.65 billion and were at the mid point of our expectations. The results beat consensus by $280 million. Our projections were slightly more bullish than the Street but were looking for a decline of nearly 10%, and this stemmed from the crisis.
Sales are impressive, all things considered, in the crisis. Comparable organic sales were down 6%. What drove this? Much of this was driven by pricing, though volume is still solid. Total unit case volume was down 4%. While volume growth was down across the board, pricing gained in North America. Still, things were down sizably, but this was expected mostly due to lower commercial sales
Expense management
This has made the company more profitable from an operating standpoint. Selling and administrative expenses continue to be well managed, and targeted advertising campaigns have had a direct impact. Operating margin, which included items impacting comparability, was 26.6% versus 26.3% in the prior year, while comparable operating margin (non-GAAP) was 30.4% versus 28.1% in the prior year. Operating margin expansion was primarily driven by effective cost management, partially offset by top-line pressure and currency headwinds. Given the better than expected revenues and the well-managed expenses, we saw a beat on earnings.
Earnings power
Q3 earnings per share came in at $0.55. This beat our estimate of $0.50 per share by $0.05. These earnings were better than we expected as a direct result of better than expected organic revenues and better margins. This was a decline of 2% from last year, however.
