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Coca-Cola Stock Was Likely to Fall After Its Q4 Report No Matter What

KO stock had reached the top of a trading range before it reported its earnings

In retrospect, Cornerstone Macro analyst Carter Worth should not have called Coca-Cola (NYSE:KO) stock a post-earnings breakout candidate before it reported its results last Thursday. Coca-Cola stock, after rallying from its December lows, is more than a little bit in the red following its Q4 results.

It’s still possible that KO stock could shrug off the knee-jerk response to its disappointing 2019 outlook and embark on a breakout surge.

That’s possible, but not likely. Before its Q4 results were reported, Coca-Cola stock was nearing major technical resistance, and if nothing else, Coke’s Q4 numbers largely confirm that the beverage giant is fighting an uphill battle against societal trends. Specifically, KO has found it difficult to offset the public’s shift away from sugary sodas with other kinds of drinks.

And yet, that’s not the only stumbling block for Coca-Cola stock right now.

Recapping Coca-Cola’s Earnings

For the quarter ending in December, Coca-Cola generated $7.06 billion of revenue and operating earnings of 43 cents per share of Coca-Cola stock, both of which were in-line with analysts’ consensus expectations.

The company’s top line fell 6% year-over-year, but that was entirely due to its re-franchising of some of its bottling operations, a move that ultimately improved its profitability. After adjusting for the exit of some of its bottling business, currency fluctuations, and its acquisitions, its revenue rose 5% YoY, while its operating margins improved by over five percentage points.

The decision to focus more on branding and sales rather than bottling appears to have been a fiscally savvy one, though only modestly so. While revenue excluding acquisitions improved 5%, overall sales as measured by volume were flat year-over-year in the fourth quarter. Volumes fell slightly in Latin America and North America.

KO noted that rising shipping costs forced it to raise its prices, adding that the price hikes may have lowered demand for its products.

Perspective on KO’s Results

Coke’s lackluster Q4 results were affected by challenges that the entire soft-drink industry is facing. That is, consumers are steering clear of sugar-laden sodas.

Coca-Cola has risen to the challenge, developing new diet versions of carbonated drinks like its Coca-Cola Zero Sugar line and designing new Diet Coke cans that have proven more appealing than its standard Diet Coke can.

The effort has gotten some traction, with the company’s sparkling beverage sales growing 2% last year. That’s not enough, however, to satisfy the owners of Coca-Cola stock, partly because the company’s juice and dairy lines slumped 1% YoY, while the sales of water and sports drinks grew 3% and its revenue from its coffee and tea beverages grew a modest 1% in 2018. Concerned the company may not be capable of fostering meaningful growth in the foreseeable future, investors revolted by sending Coca-Cola stock down more than 7% on Thursday.

But Coca-Cola stock may have been destined to tumble no matter what.

Coca-Cola stock was up an impressive 8% from its late-December low headed into Thursday morning’s report, and it had climbed more than 12% over the previous year.

The strength suggested to Cornerstone Macro technical analyst Carter Worth that traders were ready to buy Coca-Cola stock on the news, driving KO stock even higher in the process.

Worth’s call on Monday was clearly bullish. His exact words were, “Simple chart, simple breakout bet, earnings coming, and I like Coke long.” A breakout move following Thursday’s earnings report, however, would have snapped KO stock out of a trading range and above a resistance line that’s been established since 2013. Coca-Cola stock hasn’t historically made big moves that last for a long time.

Source: ThinkorSwim

Given the chart’s historical pattern and the depth of Thursday’s selloff, a pullback to the lower edge of the trading range now seems likely. After such a move, Coca-Cola stock would be just above $42 within the next few weeks.

What’s Ahead for Coca-Cola Stock

Any sustained retreat by KO stock will be caused by the beverage company’s 2019 outlook.

Coke is looking for revenue growth, excluding acquisitions, of approximately 4% this year, along with comparable operating income growth of 6%-7%. All told, Coke’s EPS should be little changed from last year’s $2.08, give or take 1%, thanks to currency headwinds. Analysts’ average EPS estimate before last week’s results was $2.23.

Although the company’s outlook fell well short of estimates and was the main cause of Thursday’s decline, it’s conceivable that KO is deliberately providing conservative guidance.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site,, or follow him on Twitter, at @jbrumley.

Article printed from InvestorPlace Media,

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