Coca-Cola shares popped on Friday amid a down market after the beverage company's quarterly revenue beat Wall Street expectations, with healthier options like Zero Sugar soda and smaller size cans leading the way.
"The top line was driving the strong results," said Laurent Grandet, managing director, beverage and foods lead analyst at Guggenheim Securities. "We were expecting 4% organic growth and they delivered 5%."
The bottom line met Wall Street expectations, and that's the big question for investors.
"Investors are very happy with the top line, but it still remains to be seen how the earning power will continue to improve, especially next year," Grandet said.
"They were very good at offering smaller packaging sold at a premium and increasing the immediate consumption ... sold in coolers and at a higher price. It's how the company is attempting to grow in the future, offering more premium products, smaller packaging where consumers tend to consume drinks."
Coke Zero Sugar had another quarter of double-digit volume growth and 7.5-ounce mini cans of soda grew by 15%.
The consumer staples sector is booming this year, with Coke up 16% and its competitor PepsiCo up even more, turning in its best year since 2000. But that rally could limit further upside for stocks in the sector.
Some Coke segments are facing headwinds.
There has been weaker performance in its water brands as consumers shy away from use of plastic, a trend that is leading Coke to shift its Dasani water brand to aluminum cans and bottles. Pepsi has a focus on refillable bottles through its acquisition of Sodastream, but also is testing canned water.
"Packaging is a concern for consumers," Grandet said.
The Guggenheim analyst said Pepsi, which has a partnership with Starbucks, has taken a lead over Coke in the coffee and tea segment. "They need to close the gap on tea and coffee and Pepsi has a clear advantage," he said.
But Coke also has a tailwind headed into 2020 with the company introducing its first energy drink under the Coca-Cola brand. Coke Energy is available in at least 25 countries and will be making its U.S. debut in January with additional zero-calorie options. Grandet is estimating as much as $200 million in sales from the new energy drink, which he said will compete with Red Bull and Monster Beverage.
While that would represent a small percentage of Coca-Cola retail sales in the U.S., and roughly 10% of Monster sales, Grandet said, "I think it's one of the most promising new launches in the U.S. for Coke in decades."
The company will not be providing a full 2020 outlook until February, but Coke updated its 2019 outlook for organic revenue saying it expects at least 5% growth.