Investors Are Eyeing Coca-Cola After A Blowout Quarterly Earnings Report

Key Takeaways

• During the Coca-Cola earnings call on Monday, the beverage company reported quarterly numbers that topped expectations
• Net revenues grew 16% to $10.5 billion, while per-share earnings grew 23% to 64 cents
• Coca-Cola plans to expand the distribution of cheaper returnable and refillable bottles in emerging and existing markets
• The company reiterated full-year organic growth outlook of 7-8%, including a 1-2% revenue decline due to suspending business in Russia

During Coca-Cola’s earnings call on Monday, the company reported blowout quarterly numbers that topped expectations across the board. The reasons behind the company’s results are twofold.

First, as Covid-19 restrictions lifted, consumers largely returned to their pre-pandemic purchasing behaviors.

Second, the company’s price/mix metric—which measures product price increases—raised 7% globally. Latin America saw one of the largest price increases at 19%, while North America saw 11% and both European and Asian Pacific segments rose 6%.

But despite these price hikes, unit case volume rose in all regions for a total increase of 8% worldwide. And although investors continue to worry about downward pressures like inflation, interest rate hikes and the Russia-Ukraine conflict, Coca-Cola remains confident in its 2022 outlook.

Coca-Cola earnings call: highlights

The Coca-Cola Company held its conference call Monday with analysts from several firms. Quarterly and annual reports like this give companies the opportunity to explain financial results to analysts and media.

Company Chairman and CEO James Quincey led the call by saying that the company is “pleased with [its] first quarter results” as it navigates “a highly dynamic and uncertain operating environment.”

Among the highlights, Coca-Cola noted that:

• Global unit case volume grew 8%
• Net sales grew 16% to $10.5 billion against the $9.8 billion expected
• Per-share earnings grew 23% to 64 cents versus the 58 cents expected
• Free cash flow was approximately $400 million, a decline of $1 billion versus the year prior

Additionally, the company’s organic revenue, which removes acquisitions and divestitures, climbed 18% in the quarter. Operating income also grew by around 25%. And both the company’s nutrition, juice, dairy, and plant-based segment, as well as its hydration, sports, coffee, and tea segment, saw double-digit volume growth.

All told, the company’s sales leaped enormously for the year. Europe, the Middle East and Africa all saw sales increases of 13%. Latin America saw an enormous sales jump of 34% in the quarter.

Exploring Coca-Cola’s quarterly results

John Murphy, Coca-Cola’s Chief Financial Officer (CFO), said in an interview that the quarter proved “a good start to the year.” However, he cautioned that “the overall environment continues to be fairly challenging.” Among the company’s concerns, higher costs, rising labor expenses, and the potential for new Covid-19 surges weigh heavily.

Some of the company’s profit increase is attributable to its unit case volume, which rose 8% in the quarter. But price increases also contributed to the company’s success, with global price/mix metrics rising 7%.

The company also initiated strategies such as bottling drinks in smaller packaging to cut down on costs while serving value to consumers. As it noted in its conference call, Coca-Cola expanded its lineup of single-serving offerings to counteract the pressure of inflation on wallets and its own profit margin.

This is a change from many companies’ pandemic-era focus on bulk packaging to buffer long-term consumer savings. But, as CEO James Quincey stated in an interview, consumers won’t “swallow inflation endlessly.” As such, the company has to finely balance production and innovation costs against consumers’ tolerance for price hikes.

Preparing for a high-priced future

During its earnings call, Coca-Cola reiterated that it expects some consumers will feel the impact of price hikes more than others. To mitigate these impacts, reduce waste, and provide financial incentives to look toward renewables, CEO James Quincey noted that the company is experimenting with alternative packaging.

For instance, in Latin America and Africa, the company is rolling out cheaper refillable packaging options. In the Southwest United States, Coca-Cola is experimenting with returnable glass bottles. And in markets like Australia, the Americas, and Japan, Coke is expanding its collection and recycling infrastructure.

Looking forward

Despite the company’s blowout quarter, it reiterated previous 2022 outlook projections. Currently, Coca-Cola expects to see full-year organic revenue growth of 7-8%, with comparable earnings per share growth of 5-6%.

These numbers may be due to the company’s decision to pause operations in Russia in early March after the Kremlin invaded Ukraine. On Monday, management noted that the decision may dent unit case volume by 1%. Revenue and operating income may see impacts of up to 2% each. Additionally, comparable earnings may weaken by up to 4 cents per share.

What Coca-Cola’s earnings call means for you

Coca-Cola’s earnings call represents an impressive feat for any company in the current inflationary environment. The company didn’t just meet expectations; it blew right past them. Thanks to its savvy strategies and recognition as a stable consumer staple, Coca-Cola remains a “safe haven” investment for investors seeking to flee volatility wrought by geopolitical turmoil, record-high inflation and future interest rate hikes.

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