Coca-Cola Earnings: What to Watch

International thirst quencher Coca-Cola (KO 0.10%) is set to report third-quarter earnings on Oct. 27. The company is looking to sustain the momentum it is gaining as economies are reopening worldwide. 

In this segment from "Beat & Raise," recorded on Oct. 4, Fool.com contributors Brian Withers and Demitri Kalogeropoulos discuss what investors should watch when the company releases third quarter results. 

Brian Withers: [laughs] That's great. Let's move on to Coca-Cola, looks like we're right on schedule here.

Demitri Kalogeropoulos: We're staying with the caffeinated beverages. [laughs]

Brian Withers: Yeah, excellent.

Demitri Kalogeropoulos: Coca-Cola, they'll be reporting earnings in late Oct. 27. This is a big company. Their sales are really directly tied to, the way they call it as consumer mobility, which is an interesting term, but it makes a lot of sense more than almost any other consumer company I can think of. Coke sells a lot of products to, of course, retailers and stuff you can get their products at supermarkets and warehouse stores, but they are big on restaurants. We just mentioned McDonald's (MCD 0.10%), and they do a lot of sales in those kind of  places, restaurants, sporting events, concerts when you're out in about convenience stores. That's why their sales collapsed during the pandemic, because consumer mobility collapse, too.

But this past quarter we saw a big rebound, and they rebounded in a big way. That volume was up 18 percent in Q2, with the decline in case rates, and as economies reopen and sporting events started happening again and concerts and these things. That was really good news for them that quarter. I'll be watching. Obviously we had the resurgent virus case numbers come up very shortly after that report. It's going to be interesting to watch how that really impacted Coke sales.

Like I said, you'd be expect that trend has mirror how much people are out and about moving around in the third quarter. Then profit margins always great to follow here because Coke is much more focused than its biggest rival PepsiCo (PEP 0.79%), which has snack foods, it's huge snack food business, and they're a little bit more tilted toward retailers and not so much on-the-go purchases. Coke has a much bigger profit margin, about 10 percentage points higher than I want to say, they're in 28 or so percent operating margin versus Pepsi's somewhere around the 18. That'll be something to watch to see if that maintains itself even as the pricing environment gets worse. Then finally, that updated outlook, the big question there, Coke boosted their 2021 outlook last quarter. Heading into this report, they're targeting organic revenue growth of 12% to 14%. That came with a big asterisk at the time, assuming no major uptake in case rates and things like that and social distancing. It will be something to watch if Coke has to make an adjustment to that based on what they've seen over the last few months in places like Europe and the U.S. Or if people are still out there and they're still expecting to spend heavily and get out and buy a lot of beverages?

Brian Withers: There's a couple of things that run through my head, and we will get some one at a time. The first is just the steadiness of the stock chart over there on the right, it sounded like if you've had a two-year stock chart, it would've been a little bit more volatile, but It's been a real steady eddy for the past year.

Demitri Kalogeropoulos: Which is surprising too given how much the wild swings we've seen in their sales over the past year, that 20% volume spike. But basically, I think what happened is Coke over the last few quarters or so has eased, everyone's concern that people were nervous, that the pandemic has made some fundamental change in the competitive strength of Coca-Cola versus other drinks. But that's not happened. Coke has got back to its winning market share slowly. There hasn't been some big shift. There was during the pandemic because like I said, people were buying a lot more of their drinks in supermarkets and those places are more heavily represented by PepsiCo products, and others, so Coke doesn't quite dominate those sales channels, but it does appear over the last two quarters or so that Coke's snapping right back into its normal dominant market position. It makes sense that the stock would just get back to its old ways.

Brian Withers: The other thing I think it'll be interesting to watch Coke is, it's extremely international. It has stuff all over the world. You talk about reopening and we're reopening at different rates. You would imagine certainly India region to be behind Europe and certainly behind the U.S. But it'll be in Latin America and Brazil and some of these other ones. It'll be interesting to see as Coke reports globally and it breaks its regions down. You just put a 113% number at the top but I imagine that differs greatly by region.

Demitri Kalogeropoulos: Absolutely. I think we'll have a good picture of where different economies were over the last three months based on this.

Brian Withers: Should be a good one.