Coca-Cola (KO) Earnings and Revenue Exceed First Quarter Estimates – April 25, 2022

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The Coca-Cola Company (KO Free Report) announced results above and below expectations for the first quarter of 2022. Despite the uncertain operating environment, the results benefited from the strategic transformation.

Comparable earnings of 64 cents per share beat Zacks’ consensus estimate of 58 cents and rose 16% from the level in the period a year ago. However, unfavorable currency translations hurt earnings by 8 points. Currency-neutral comparable earnings per share increased 24%.

Revenue of $10,491 million beat Zacks’ consensus estimate of $9,912 million and was up 16% year over year. Organic revenue increased 18% from the prior year quarter level. Coca-Cola’s sales benefited from a better price/mix ratio and an increase in sales of concentrates.

During the quarter under review, Coca-Cola gained global value share in total non-alcoholic ready-to-drink beverages. Coca-Cola benefited from underlying market share gains in both in-home and out-of-home channels.

Shares of Coca-Cola jumped 2.7% in the premarket session, on better-than-expected first-quarter 2022 results. Zacks Rank #3 (Hold) stock has gained 10.3% over the past three months against the sector’s growth of 3.2%.

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Volume and price

In the reported quarter, concentrate sales were up 11% year-over-year, while the price-to-mix ratio increased 7%. The price/mix ratio benefited from pricing actions in the market coupled with a favorable channel and package mix, due to overlapping disruption caused by last year’s pandemic. The measure also benefited from a positive segment mix. Concentrate sales were 3 points ahead of unit case volume, driven by the positive impacts of the timing of concentrate shipments, partially offset by the negative impacts of one day less.

Coca-Cola’s total unit case volume increased 8% in the first quarter, supported by the strength of all operating segments, market investments and the cycle of impacts from last year’s pandemic. Growth was mainly driven by improving trends in developing and emerging markets, particularly in India and Brazil. Developed market growth was driven by the US, UK and Mexico.

In terms of category group performance, in the current quarter, volume benefited from the growth of the Coca-Cola brand; sparkling flavors; nutrition, juices, dairy and vegetable drinks; and hydration, sport, coffee and tea categories.

Soft drink case unit volume increased 7% year-over-year, driven by strong gains across all geographic operating segments. Coca-Cola brand volumes were up 6% year-over-year on strong gains across all regions. The sparkling flavors category grew by 7% thanks to growth in Europe, the Middle East and Africa and Latin America.

Volume for nutrition, juices, dairy and plant-based beverages increased by 12%. The category mainly benefited from fairlife in the United States, Minute Maid Pulpy in China and Maaza in India.

The hydration, sports, coffee and tea category grew 10% in the first quarter. Coca-Cola recorded 8% growth in hydration on growth in Latin America, Europe, the Middle East and Africa. Sports drinks grew by 22% thanks to a solid performance by BODYARMOR in the United States. Tea volume increased 8%, driven by gains in Brazil, Japan and Mexico. The coffee business grew by 27% thanks to the cyclical impacts of Costa outlets in the UK in the previous year and the expansion of Costa coffee.

Details by segment

Revenue increased 13% for EMEA, 34% for Latin America, 22% for North America, 1% for Asia-Pacific, 28% for Global Ventures and 8 % for Bottling Investments.

Organic revenue increased 22% in EMEA, 39% in Latin America, 14% in North America, 5% in Asia Pacific, 34% in Global Ventures and 12% in Bottling Investments.

Margins

Adjusted comparable operating income increased 24% year-over-year driven by strong organic revenue growth across all segments, including gains from the timing of concentrate shipments in some segments, which partially offset by higher marketing investments. Expressed in dollars, comparable operating income increased 25% year over year, including currency headwinds to the tune of 6 points.

Adjusted comparable operating profit margin increased by 40 basis points to 31.4%, driven by solid revenue growth, somewhat offset by higher marketing investments, the impact of the acquisition of BODYARMOR and the currency headwinds.

Financial details

Management expects adjusted free cash flow for 2022 of $400 million, with operating cash flow of $620 million. Capital expenditures are expected to be $1.5 billion. Going forward, it is expected to generate adjusted free cash flow of $10.5 billion, with operating cash flow of $12 billion.

Orientation

Coca-Cola on March 8, 2022 suspended operations due to the conflict in Ukraine. As a result, he expects a 1% impact on unit case volume as well as a 1-2% impact on revenue and operating profit. Adjusted earnings should be affected by 4 cents.

However, management has maintained its vision for 2022. KO anticipates organic revenue growth of 7-8%. Revenues are expected to be impacted by a 2-3% headwind on currencies and a positive 3% impact on acquisitions.

Management expects mid-single-digit inflation in commodity prices. Currency-neutral adjusted comparable net income is expected to increase 8-10%, with adjusted comparable net income growth year-over-year 5-6%. This includes a headwind on currencies of 3-4%.

For the second quarter of 2022, comparable revenues are expected to be impacted by a 4% headwind on currencies and a positive impact of 3% on acquisitions. Adjusted comparable net income is estimated to include a 4% headwind.

The CocaCola Company The Price, Consensus, and EPS Surprise

The CocaCola Company The Price, Consensus, and EPS Surprise

CocaCola Company The price-consensus-eps-surprise-chart | CocaCola Company The Quote

Business developments

During the quarter, KO launched the next chapter of the Real Magic platform, the Magic Weekends campaign for Trademark Coca-Cola. As part of this, the company works with foodservice aggregators across its nine operating units, with an increased focus on Coca-Cola Zero Sugar. The campaign was launched in the North American market with DoorDash as its delivery partner. This decision will help optimize the digital consumer experience through consumer engagement at the point of sale.

Actions to Consider

We’ve highlighted some top-ranked stocks from the broader consumer staples space, namely Duckhorn’s Wallet (NAPA free report), Coca-Cola FEMSA (KOF free report) and dutch brothers (BROS free report).

Duckhorn currently has a Zacks rank of No. 2 (buy) and an expected long-term earnings growth rate of 11.3%. NAPA has a four-quarter earnings surprise of 122.4%, on average. The company is down 1.7% over the past three months. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks’ consensus estimate for Duckhorn’s sales and earnings per share for the current fiscal year suggests growth of 9.6% and 3.5%, respectively, from numbers reported a year ago. NAPA’s consensus earnings-per-share mark remained unchanged for the past 30 days.

Coca-Cola FEMSA currently has a Zacks rating of 2. KOF has a trailing four-quarter earnings surprise of 15.3%, on average. It has a long-term earnings growth rate of 6.2%. The company has gained 5.5% over the past three months.

Zacks’ consensus estimate for Coca-Cola FEMSA’s current-year sales and earnings suggests declines of 1.7% and 12.7%, respectively, from the prior year’s figure. The consensus rating for KOF’s earnings per share has remained unchanged for the past 30 days.

Dutch Bros currently has a Zacks rank of No. 2. BROS has a last two quarter earnings surprise of 93.75%, on average. Its expected long-term earnings growth rate is 35.9%. The company has gained 4.8% over the past three months.

Zacks consensus estimate for Dutch Bros. sales and earnings per share for the current fiscal year suggest growth of 42.7% and 3.3%, respectively, over corresponding figures for the prior year . BROS’ earnings-per-share consensus mark remained unchanged for the past 30 days.

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