Coca-Cola is a stable and safe haven in a difficult market

Coca-Cola reported first-quarter earnings and sales on Monday that easily beat forecasts: Sales rose 16% to $10.5 billion, beating Wall Street expectations of $9.8 billion. Earnings of $2.8 billion, or 64 cents a share, were up 24% from a year earlier, beating consensus estimates of 58 cents a share.

Price increases were a major driver of the strong numbers. Coca-Cola said its price/mix, a measure of how much it charges customers, rose 7% globally and 11% in North America.

Actions of Coca Cola (KO) rose slightly on Monday morning on strong results, even as the broader market was volatile after Friday’s massive drop. The company also reaffirmed its outlook for the rest of the year, despite inflation concerns that have pushed up the price of aluminum and other raw materials used by Coca-Cola.

“The general inflationary environment is going to be here for a while. No one knows exactly how long,” Coca-Cola CFO John Murphy said in an interview with CNN Business on Monday morning.

Pressure on commodity prices and wages will continue, Murphy said. But he added that the company has the flexibility to raise prices, especially as it introduces more premium products.

However, Coca-Cola acknowledges that some consumers are feeling the effects of higher prices more than others.

That’s why CEO James Quincey said during a conference call with analysts Monday that the company is experimenting with refillable packaging in Latin America and Africa and returnable glass bottles in parts of the southwestern United States.

Quincey said the goal of these initiatives is to reduce waste and give consumers financial incentives to use reusable bottles.

Murphy added that Coca-Cola has to “earn the right” to raise prices by constantly innovating and making sure it stays on top of changing trends.
To that end, Coca-Cola has been busy developing quirky new flavors and shedding some old favorites like Tab, which was one of hundreds of brands Coca-Cola has shuttered in the past two years, as the company tries to stay relevant with younger consumers.

“As I look back over the last two years, one of the biggest results has been that we used that time to clean out the closet. Now we’re building it back up again,” Murphy said. “It’s important to stay disciplined and keep a close eye on brands that are doing well. We need to keep the portfolio trim.”

Investors are satisfied with the strategy. Coca-Cola shares have now gained 11% so far in 2022, making it one of the best performers in the Dow Jones, which is down 7% this year.

Traders have flocked to boring consumer staples companies like Coca-Cola because they offer sales and profit stability at a time of geopolitical turmoil, concerns about Federal Reserve rate hikes and inflation. Coca-Cola also pays a constant dividend that yields almost 3%.

Y Berkshire Hathaway (BRKB)the company run by Warren Buffett, famous for being a big fan of the company as well as Cherry Coke, is Coke’s largest shareholder with a stake of more than 9%.

Coca-Cola continues to do well internationally, even as the latest spike in Covid-19 cases worries investors. The company’s sales increased 34% in Latin America and 13% in Europe, the Middle East and Africa.

As part of its global strategy, Coca-Cola continues to invest heavily in emerging markets, Murphy said.

“We have to stay close to these markets and adapt as needed,” Murphy said. “Investing in volatile times will allow you to prevail.”

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