Coke Seen Unveiling Cost Cuts With Results--Earnings Preview

   By Mike Esterl 
 

Coca-Cola Co. is scheduled to announce its third-quarter earnings before the market opens Tuesday. Here's what you need to know:

EARNINGS FORECAST: Net income of 53 cents is the consensus of analysts surveyed by Thomson Reuters, flat with year-earlier results. The company hasn't provided guidance for the third quarter, but its long-term guidance calls for "high-single-digit" per-share earnings growth annually.

REVENUE FORECAST: Revenue of $12.12 billion is forecast, compared with $12.03 billion a year earlier.

WHAT TO WATCH:

--COST-CUTTING PUSH: Coke is expected to announce Tuesday a new cost-cutting program totaling anywhere from $500 million to $1 billion annually over the next three to five years. Such programs are an increasing focus at the company, which has seen growth slow as health-conscious consumers scale back on soda. Coke already in February promised $1 billion in incremental productivity gains by 2016, in addition to a four-year program targeting $550 million to $650 million in annual savings it announced in 2012.

--VOLUME VS REVENUE: Analysts estimate volumes grew about 2% from a year earlier, in line with recent quarters but below the company's 3%-to-4% annual long-term target. U.S. consumption has been weak for years, but business also was tough in Europe and Japan in the third quarter, while traditional fast-growing markets like Brazil and Mexico also have hit speed bumps. Coke has signaled it plans to increasingly measure success by revenue, not volume, but to get there it needs to be able to raise prices on its products without driving away more consumers.

--FOREIGN EXCHANGE HEADWINDS: Coke's results will likely be dragged down again by the strengthening dollar. That is because the company reports in dollars but generates most of its profit outside the U.S. Analysts estimate weakening foreign currencies represented a roughly 2% headwind to operating income in the third quarter. Coke hedges against currency fluctuations, though, making it tough to predict how much foreign-exchange movements affected the bottom line.

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