Coca-Cola's Earnings Results Sent Its Shares Lower, Is This a Buying Opportunity?

Coca-Cola just announced its second-quarter results, so let's see how the company performed.

Jul 23, 2014 at 4:00PM

The Coca-Cola Company (NYSE:KO), the largest beverage manufacturer and distributor in the world and the company behind more than 500 brands, just announced its earnings results for the second quarter and its stock responded by making a move lower. Let's break down the results and the expectations for the second half of the year to determine if this decline is our opportunity to initiate long-term positions or if this is a warning sign to stay away from the stock today.


Source: Wikimedia Commons

Mixing it up in the second quarter
Coca-Cola released its second-quarter report before the market opened on July 22 and the results were mixed compared to the consensus estimates; here's a breakdown:

MetricReportedExpectedYear Ago
Earnings Per Share $0.64 $0.63 $0.63
Revenue $12.57 billion $12.85 billion $12.75 billion

Source: Estimize

Earnings per share increased 1.6% and revenue decreased 1.4% year-over-year, driven by a global unit case volume increase of 3% that was led by 3% growth in Coca-Cola's international segment. Sparkling beverage volume increased 2% globally and it reported 1% increases for Coca-Cola branded products both globally and in North America, but North American volumes remained unchanged from the year-ago period.


Source: Coca-Cola

Coca-Cola's gross profit remained unchanged year-over-year at $7.76 billion and its operating profit fell slightly, decreasing 2.3% to $3.17 billion; in relation, the company's gross margin expanded 80 basis points to 61.7% and its operating margin contracted 20 basis points to 25.2%. The expansion of the gross margin resulted from cost of goods sold declining 3.4% and the contraction of the operating margin resulted from a 1.5% increase in total operating expenses.

Most impressively, Coca-Cola reported $3.40 billion in cash provided by operations and $581 million in capital expenditures, which resulted in $2.82 billion in free cash flow. The company used this free cash flow and the $9.13 billion in cash and cash equivalents it had to begin the quarter to repurchase approximately $587 million worth of its common stock and maintain its quarterly dividend of $0.305 per share, which it will pay out on October 1. In total, Coca-Cola repurchased approximately $1.3 billion worth of its common stock in the first half, which puts it on pace to reach its goal of $2.5 billion-$3 billion for the full year.

In summary, it was a decent quarter for Coca-Cola, but the market reacted by sending its shares about 3% lower to begin the next trading session. At first glance, this looks like a long-term buying opportunity, but before we draw this conclusion, let's see the growth expectations for the company in the second half...

Screen Shot

Source: Coca-Cola

What should you expect going forward?
In the report, Coca-Cola did not provide earnings per share or revenue forecasts for the second half, so we will use the current consensus estimates to see what kind of growth we can expect; here's an overview:

Third Quarter:

MetricQ3 ExpectedQ3 Year Ago
Earnings Per Share $0.54 $0.53
Revenue $12.39 billion $12.03 billion

Source: Estimize

Fourth Quarter:

MetricQ4 ExpectedQ4 Year Ago
Earnings Per Share $0.47 $0.46
Revenue $11.39 billion $11.04 billion

Source: Estimize

As you can see, analysts expect Coca-Cola to grow its earnings per share and revenue by 1.9% and 3%, respectively, in the third quarter and 2.2% and 3.2%, respectively, in the fourth quarter. This would be a positive shift for the company's revenue, which declined in both the first and second quarters, and would result in slight earnings-per-share growth overall. Investors will want to keep in mind that Coca-Cola reported over $11.6 billion in cash and cash equivalents at the end of the second quarter and it generates billions of dollars in free cash flow each quarter, so it will likely utilize this cash to accelerate repurchases while maintaining its healthy dividend.


Source: Coca-Cola's Facebook

The Foolish bottom line -- Should we buy the decline?
Coca-Cola is home to some of the most popular beverage brands in the world and this was shown in the company's global volume growth in the second quarter; however, its revenue results fell short of expectations and this caused its shares to fall about 3% lower.

I believe this is an opportunity for long-term investors to initiate positions or add to existing ones, as Coke's stock trades at just 18.3 times forward earnings estimates and has a bountiful 3% dividend, which the company has raised for 52 consecutive years. Take a closer look and see if there's a spot in your portfolio for the king of carbonated beverages, Coca-Cola.

Want more top dividend stock picks? Look no further...
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

Joseph Solitro has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola. The Motley Fool has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers