By Evie Liu
Challenges are mounting for Coca- Cola, so Wall Street analysts have penciled in slower profit growth as they await its quarterly earnings, due before the market opens on Tuesday.
The consensus call among analysts tracked by FactSet is that the soft–drink company will report earnings of 70 cents a share from $11 billion in sales for the first three months of 2024. That would amount to growth of 3% from a year earlier for profit and a gain of 0.4% for sales, compared with respective increases of 9% and 7% in the previous quarter.
As inflation has lifted Coca-Cola’s expenses over the past two years, the company has managed to pass most of those costs on to consumers without losing much business. In 2023, sales volume increased 2% from 2022, even as the company increased prices by 10%.
As inflation cools down, however, higher pricing will become less of a driver for top-line growth. And if consumers start to drink fewer soft drinks, revenue could grow more slowly, or even decline, in the coming quarters. A new breed of obesity drugs, such as Zepbound and Wegovy, could hurt consumption.
The stronger dollar could spell additional trouble for Coca-Cola, which generates two-thirds of its revenue from overseas markets.
In the fourth quarter of 2023, Latin America sales increased 24% from a year ago in local-currency terms, but in dollars, it was up only 16%. Revenue growth in the Europe, Middle East & Africa and Asia Pacific markets took respective hits of 14 and 5 percentage points due to currency effects.
That is expected to continue. For 2024, management expects a 2% to 3% currency headwind for revenue and a 4% to 5% effect on earnings.
In its latest financial forecasts, Coca-Cola said it expects organic revenue growth of 6% to 7% in 2024, with a gain or 4% to 5% in comparable per-share earnings. That compares with organic revenue growth of 12% in 2023; comparable EPS increased 8%.
Still, nearly three quarters of analysts polled by FactSet have Buy ratings on the stock. The average price target is $66.40, indicating a potential gain of 7% from Monday’s closing level.
Write to Evie Liu at evie.liu@barrons.com