The Coca-Cola Company (KO - Free Report) reported better-than-expected fourth-quarter 2017 results, ending the year on an impressive note. Despite reporting flat soda volumes, the cola giant gained from its growing beverage portfolio and re-structuring efforts. Cost-cutting initiatives led by the refranchising of its low-margin bottling operations helped it to come up with better numbers.

Coca-Cola’s shares have rallied 2.9% in the pre-trading session following the earnings release.

Earnings Beat

Fourth-quarter 2017 comparable earnings of the company were 39 cents per share, surpassing the Zacks Consensus Estimate of 38 cents.

Earnings also improved from the year-ago profit level of 37 cents, helped by ongoing productivity efforts.

Sales Beat

Revenues of $7.51 billion in the quarter surpassed the Zacks Consensus Estimate of $7.36 billion. However, net revenues declined 20% year over year due to the negative impact of structural items, marking the 11th consecutive quarterly decline. Acquisitions/divestitures and structural items had a 26% negative impact on revenues, partly offset by a 4% positive contribution of price/mix and concentrate sales growth of 1%. The structural changes primarily include the impact of bottler refranchising efforts.

Coca-Cola Company (The) Price, Consensus and EPS Surprise

Coca-Cola Company (The) Price, Consensus and EPS Surprise | Coca-Cola Company (The) Quote

Volume and Pricing

Coca-Cola’s total unit case volume remained unchanged (similar to the preceding quarter). Emerging and developing markets saw some improvements in unit case volume. However, volumes showed no growth during the quarter in developed markets. Meanwhile, North America volume grew 1%.

Category Cluster Performance: Sparkling beverage unit case volume remained unchanged. Juice, dairy, and plant-based beverages witnessed 2% decline (versus 1% growth in the preceding quarter). Water, enhanced water, and sports drinks were up 2% (versus down 1% in Q3), and Tea and Coffee was up 2% (compared with 1% growth in Q3).

Quarterly Segment Details

Revenues grew 6% at North America, 6% at Europe, the Middle East & Africa, and 14% at Latin America segment. However, revenues declined 1% in the Asia Pacific segment.

Organic revenues grew across the board, increasing 3% in North America, 8% in Europe, Middle East & Africa, 13% in Latin America, 1% in Asia Pacific and 12% in Bottling Investments.

Margins

Adjusted consolidated gross margin expanded 480 basis points (bps) year over year to 64.2%. The company’s comparable operating margin grew 540 bps to 26.5% in the quarter, given the divestitures of lower-margin bottling businesses and ongoing productivity efforts.

Other Developments

The company remains on track to pursue Revenue Growth Management ("RGM") initiatives across its key markets that include the South Latin and Central & Eastern Europe business units.

Coca-Cola has been focusing more on creating a consumer-centric brand portfolio. The beverage giant expanded its Venturing & Emerging Brands model to Central & Eastern Europe partnering with Coca-Cola HBC AG in September 2017.

Meanwhile, throughout the year, the company also made major decisions related to profitable growth by deprioritizing low-margin water in major markets including China, Japan, and Mexico.

Coca-Cola now has fully refranchised after the closing of two important territories during the quarter in the United States.

2017 Highlights

Full-year comparable earnings came in at $1.91, same as the year-ago adjusted profit level.

Net revenues were $35.41 billion, down 15% from $41.86 billion in 2016. Organically, revenues grew 3% for the full year.

2018 Guidance

Organic revenues are expected to rise 4%. Acquisitions/divestitures (mainly the bottler re-franchising efforts) are expected to hurt revenues by 17%, while Fx is likely to have a positive effect of 1% on revenues. Again, revenues will be positively impacted by 1% to 2% from Accounting Standards Update 2014-09.

Comparable currency income before income taxes (structurally adjusted) is expected to increase 8-9%. Foreign exchange is expected to hurt comparable income before taxes by 0-1%. Structural changes are likely to have a 2% negative impact on it.

The company expects adjusted EPS to grow 8-10% from the prior year’s comparable EPS of $1.91.

The company expects to buy back shares worth $1 billion in 2018. The adjusted effective tax rate is likely to be 21%. Cash from operations is likely to be at least $8.5 billion.

Zacks Rank

Coca-Cola has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Peer Releases

PepsiCo, Inc. (PEP - Free Report) reported fourth-quarter 2017 (ending Dec 30) results, with earnings and revenues beating the Zacks Consensus Estimate. Notably, this was the seventh consecutive quarter of positive earnings surprise.

Dr Pepper Snapple Group Inc.’s (DPS - Free Report) fourth-quarter 2017 earnings remained in line with the Zacks Consensus Estimate, while revenues lagged the same.

Upcoming Peer Release

Monster Beverage (MNST - Free Report) is expected to report fourth-quarter results on Mar 7, 2018. Earnings for 2018 are expected to increase 24.7%.