Coca-Cola's (NYSE:KO) Soft Earnings Are Actually Better Than They Appear

Investors were disappointed with the weak earnings posted by The Coca-Cola Company (NYSE:KO ). Despite the soft profit numbers, our analysis has optimistic about the overall quality of the income statement.

View our latest analysis for Coca-Cola

How Do Unusual Items Influence Profit?

Importantly, our data indicates that Coca-Cola's profit was reduced by US$2.0b, due to unusual items, over the last year. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Coca-Cola to produce a higher profit next year, all else being equal.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

Our Take On Coca-Cola's Profit Performance

Unusual items (expenses) detracted from Coca-Cola's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Coca-Cola's statutory profit actually understates its earnings potential! And the EPS is up 18% annually, over the last three years. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Coca-Cola (including 1 which is potentially serious).

This note has only looked at a single factor that sheds light on the nature of Coca-Cola's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.