Coca-Cola shares popped on Friday amid a downturn after the beverage company's quarterly earnings hit Wall Street expectations, with healthier alternatives such as Zero Sugar soda and smaller size boxes leading.
"The top line saw strong results," said Laurent Grandet, CEO, beverage and food analyst at Guggenheim Securities. "We expected 4% organic growth, and they delivered 5%."
The main point met Wall Street expectations, and that is the big question for investors.
"Investors are very happy with the top line, but it remains to be seen how the earnings force will continue to improve, especially next year," Grandet said.
"They were very good at offering smaller packaging that was sold at a premium and increasing immediate consumption … sold in coolers and at a higher price. That's how the company tries to grow in the future, offering more premium products , smaller packaging where consumers tend to consume beverages. "
Coke Zero Sugar had another quarter of double-digit volume growth, and 7.5 ounces of soft drink sodas grew by 1
Sealed boxes of Coke Zero Sugar soda move along a conveyor on a Coca-Cola Co. factory in Dongen, Netherlands.
Jasper Juinen | Bloomberg | Getty Images
The consumer staple sector is booming this year, with Coke up 16% and its competitor PepsiCo upwards even more, becoming its best year since 2000. But that upturn may limit further upside for equities in the sector.
Some cooks segments face headwinds.
Water marks have been performing poorly as consumers shy away from using plastic, a trend that is causing Coke to move the Dasani watermark to aluminum cans and bottles. Pepsi focuses on refillable bottles through the acquisition of Sodastream, but also tests canned foods.
"Packaging is a concern for consumers," Grandet said.
The Guggenheim analyst said that Pepsi, which has a partnership with Starbucks, has taken over Coke's leadership in the coffee and tea segment. "They have to close the gap on tea and coffee, and Pepsi has a clear advantage," he said.
But Coke also has a headwind towards 2020, and the company introduced its first energy drink under the Coca-Cola brand. Coke Energy is available in at least 25 countries and will make its US debut in January with several zero-calorie options. The Grand estimates as much as $ 200 million in sales from the new energy drink, which he said will compete with Red Bull and Monster Beverage.
While it would make up a small percentage of Coca-Cola retail sales in the United States, and about 10% of Monster sales, Grandet said, "I think it's one of the most promising re-launches in the United States for Coke in decades."
The company will not provide a full 2020 outlook until February, but Coke updated the 2019 organic revenue outlook saying it expects at least 5% growth.