Coca Cola (KO) Post Strong Q1, But Cites Forthcoming ‘Storm Clouds’

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Ollie Martin
Updated: 25 Apr 2022

Key points:

  • Coca-Cola reported an EPS of $0.64 per share and revenue of $10.58B, topping Street consensus
  • Sales have increased as the company focuses on single-serving, affordable offerings rather than bulk packaging
  • The company expects a 1-2% revenue hit from its Russian exit

Beverage giant Coca-Cola (NYSE: KO) posted better-than-expected Q1 earnings before Monday’s opening bell, with consistent sales of its classic soda, Powerade and Costa coffee steering the company successfully through another quarterly release. However, despite weathering inflationary difficulties and other macro headwinds, CEO James Quincey points to ‘storm clouds’ in the near future; suggesting the muddy situation for manufacturers is likely to remain an underlined feature. 

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Albeit, clearly management's confidence outweighs the forthcoming ‘storm’ as the company not only beat first-quarter expectations but also maintained its full-year outlook. Coke reported EPS of $0.64 per share against expectations of $0.58. Revenue also topped estimates with net sales rising 10%; coming in at $10.5B, ahead of the $9.83 consensus. Pricing and mix grew 7% across Q1, aided severely by its small-batch strategy. Whilst shopping trends have pressured companies to focus on bulk packaging, as inflation weighs on consumer spending, single-serving ‘affordable’ offerings are particularly appealing. 

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The company's unit case volume rose 8%, posting double-digit growth within nutrition, juice, dairy and plant-based beverages as well as its hydration, sports, coffee and tea segment; all whilst supported by a 7% growth in classic Coca-Cola and Coke Zero sales. 

The Russian embargo has undoubtedly affected normal revenue expectations. The company’s decision will dent unit case volume by 1%, with revenue and operating income affected a further 1-2%. Looking forward, the exit is expected to retract earnings growth by around $0.04 per share.  

In the face of severe inflation and macro headwinds, it's refreshing to see the company reiterate its FY guidance; expecting revenue growth between 7-8% and EPS growth of 5-6%. Coca-Cola has a solid economic moat with a steadfast product pipeline. To see consistent growth even in the company’s long standing soft drink sector is refreshing for investors, bolstered further by growth in Costa coffee and across a variety of well-established markets. KO stock is currently trading at a premarket gain of 1.7%.

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