Coca-Cola Stock’s Losing Streak Just Getting Started (KO)

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Coca-Cola (KO) stock fizzled Tuesday after issuing a profit warning, showing once again that marketing alone can’t overcome the public’s increasing distaste for carbonated beverages and artificial sweeteners.

coca-cola stock ko sales emerging marketsCoca-cola stock was actually doing OK before the selloff, holding on to a gain of almost 5% for the year-to-date even as it remained a long-term laggard.

But the axe KO took to its sales and earnings forecast — and its ominous warning that 2015 would be no different from this year — looks to be the beginning of a new downturn for shares.

Indeed, it was a big enough blow that the market ignored KO expanding its cost-cutting program to $3 billion from the $1 billion it targeted at the beginning of the year.

KO stock may be getting cheaper on the news, but it will be a long time before it’s a buy. The challenges are too great — and perhaps even insurmountable. Currency fluctuations are hurting sales and higher input costs are hurting margins, but the real killer is the steady decline of demand for fizzy drinks, both regular and diet.

True, international markets haven’t lost their taste for diabetes-inducing beverages, but overseas growth isn’t enough to offset weakness in North America — especially when those economies are struggling with slumping prices for commodities among other macroeconomic woes.

Coca-Cola International volume grew 1% in the quarter, which was less than expected. North America volume declined 1%. Teas, energy drinks and water saw volume gains, but those results were offset by slumping sales of juices and carbonated offerings.

Coca-Cola Stock: Look Out Below

By the time it was all done, KO said profit fell to $2.11 billion, or 48 cents per share, down from $2.45 billion, or 54 cents per share, a year earlier. On an adjusted basis — which is what analysts care about — were flat at 53 cents. That matched Wall Street estimates, according to a survey by Thomson Reuters.

Revenue declined to$11.98 billion. Adjusting for currency fluctuations, revenue would have grown 1%.

To top it all off, KO cut its sales and profit targets. The company sliced its long-term revenue target to mid single-digit growth and said it doesn’t expect to meet its earnings view for high-single-digit growth this year. Furthermore, KO expects another year of pain in 2015.

KO is trying to market its way out of the slumping soda-sales problem, but it’s clearly not working. KO did receive a boost from new pricing strategies, marketing smaller portions of soda at higher as being healthier, but that couldn’t arrest declining volume. Neither did its campaign where it printed first names on cans.

Where KO goes from here is a huge question, and that’s why KO stock is a loser. In theory, KO stock should bounce back sharply once it works through these issues in a couple of years. But that’s assuming that demand for fizzy drinks comes back — highly unlikely — or it transforms itself into something very different — a long-term project.

Worst of all, KO stock is ludicrously expensive, going for nearly 20 times forward earnings despite having a long-term growth forecast of just 5%.

The market hates uncertainty, and pricey Coke stock is swimming in it. Sell.

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As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/coca-cola-stock-ko-coke/.

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