The Coca-Cola Company KO has reported better-than-expected top and bottom-line results for second-quarter 2022. The company’s results reflect elasticity in the marketplace despite the ongoing global challenges. Driven by the strong results, the company has raised its growth expectations for organic revenues and comparable earnings per share for 2022.
Comparable earnings of 70 cents per share beat the Zacks Consensus Estimate of 67 cents and rose 4% from the year-ago period’s level. However, unfavorable currency translations hurt earnings by 9 percentage points. Comparable currency-neutral earnings per share rose 13%.
Revenues of $11,325 million surpassed the Zacks Consensus Estimate of $10,730 million and improved 12% year over year. Organic revenues rose 16% from the prior-year quarter’s level. Coca-Cola’s top line benefited from strong revenue growth across its operating segments, aided by an improved price/mix and an increase in concentrate sales.
In the reported quarter, Coca-Cola gained a global value share in total non-alcoholic ready-to-drink beverages. Coca-Cola benefited from underlying share gains in both at-home and away-from-home channels.
Coca-Cola’s shares jumped 1.2% in the pre-market trading session, owing to the better-than-expected second-quarter 2022 results. The Zacks Rank #3 (Hold) stock has gained 5% year to date against the industry’s decline of 2.3%.
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Volume and Pricing
In the reported quarter, concentrate sales advanced 4% year over year, while the price/mix rose 12%. Price/mix benefited from pricing actions in the marketplace across all operating segments, coupled with a favorable channel and package mix, owing to the lapping of last year’s pandemic-led disruptions. Price/mix also gained from a positive segment mix. Concentrate sales were 4 percentage points below the unit case volume, driven by the timing of concentrate shipments.
Coca-Cola’s total unit case volume grew 8% in the second quarter, backed by strength across all operating segments, ongoing investments in the marketplace and continued recovery in the away-from-home channel. Growth was mainly led by improved trends in the developed markets and the developing and emerging markets, which improved in the higher-single digits. Growth in developed markets was driven by Mexico, Western Europe and the United States. The developing and emerging markets benefited from growth in India and Brazil.
Coming to category cluster performance, volume benefited in the reported quarter from growth in trademark Coca-Cola; sparkling flavors; the nutrition, juice, dairy and plant-based beverages; and hydration, sports, coffee and tea categories.
CocaCola Company The Price and EPS Surprise
CocaCola Company The price-eps-surprise | CocaCola Company The Quote
Sparkling soft drinks’ unit case volume improved 8% year over year, driven by robust gains across all geographic operating segments, led by India, Mexico and Brazil. Trademark Coca-Cola volumes were up 7% year over year on solid gains in all regions. The sparkling flavors category improved 11% on growth in the Asia Pacific, and Europe, the Middle East and Africa. The volume for Coca-Cola Zero Sugar rose 12% on double-digit growth across developed, developing and emerging markets.
Volume for nutrition, juice, dairy and plant-based beverages was up 6%. The category primarily gained from fairlife in the United States, Del Valle in Latin America and Maaza in India.
The hydration, sports, coffee and tea category grew 7% in the second quarter. Coca-Cola witnessed 7% growth in hydration on improvements across Latin America, and Europe, Middle East & Africa. Sports drinks rose 7% due to solid performances by BODYARMOR and Powerade. Tea volume increased 4%, driven by gains in Brazil, Japan and Western Europe. The coffee business witnessed 15% growth on the cycling impacts of the closure of Costa retail outlets in the U.K. in the prior year and the expansion of Costa coffee across markets.
Revenues rose 8% for EMEA, 7% for Latin America, 19% for North America, 4% for the Asia Pacific and 20% for Bottling Investments, while the same declined 2% for Global Ventures.
Organic revenues improved 6% in EMEA, 9% in Latin America, 2% in North America, 11% in the Asia Pacific, 14% in Global Ventures and 26% in Bottling Investments.
In dollar terms, the operating income declined 22% year over year to $2,341 million, including a 7-point impact of currency headwind. Comparable operating income rose 8% year over year. Comparable currency-neutral operating income advanced 15% on strong organic revenue growth across all segments, offset by higher operating costs and marketing investments.
The operating margin of 20.7% in the second quarter contracted 910 basis points (bps) from 29.8% in the prior-year quarter. The comparable operating margin contracted 100 bps to 30.7%, driven by higher marketing investments, the impact of the BODYARMOR acquisition and currency headwinds, which more than offset growth in the top line.
Coca-Cola, on Mar 8, 2022, suspended its business due to the conflict in Ukraine. As a result, it expects a 1% impact on unit case volume, along with a 1-2% impact on revenues and operating income. Adjusted earnings are likely to be affected by 3 cents compared with a 4-cent impact stated earlier.
Management also raised its organic revenue forecast for 2022. It anticipates organic revenue growth of 12-13% compared with 7-8% growth mentioned earlier. Comparable revenues are expected to be impacted by a 6% currency headwind compared with a 2-3% headwind stated earlier. The guidance includes a 2% positive impact from acquisition and divestiture versus a 3% tailwind mentioned earlier.
Management expects an impact of a high-single-digit percentage from commodity price inflation compared with a mid-single-digit percentage impact mentioned earlier. The company anticipates an effective tax rate of 19.5%.
Comparable currency-neutral earnings per share are estimated to increase 14-15% compared with 8-10% growth mentioned earlier. The company continues to anticipate comparable earnings per share growth of 5-6%. Its earnings per share view includes a currency headwind of 9% compared with a 3-4% currency headwind mentioned earlier.
For third-quarter 2022, comparable revenues are expected to include a 7-8% currency headwind and a 3% positive impact from acquisitions. Comparable earnings per share are estimated to include a currency headwind of 9-10%.
Management envisions an adjusted free cash flow of $10.5 billion for 2022, including $12 billion in cash flow from operations. Capital expenditure is likely to be $1.5 billion.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely The Duckhorn Portfolio NAPA, Fomento Economico Mexicano FMX and Brown-Forman (BF.B).
Duckhorn currently sports a Zacks Rank #1 (Strong Buy) and has an expected long-term earnings growth rate of 12.2%. NAPA has a trailing four-quarter earnings surprise of 94.4%, on average. The company has declined 22.6% in the year-to-date period.
You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 10.8% and 6.9%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Fomento Economico Mexicano, alias FEMSA, currently has a Zacks Rank of 2 (Buy). FMX has a trailing four-quarter earnings surprise of 3.9%, on average. It has a long-term earnings growth rate of 8.8%. The company has declined 24% year to date.
The Zacks Consensus Estimate for FEMSA’s current financial-year sales suggests growth of 5.3%, whereas earnings estimates indicate a decline of 7.1% from the prior-year reported number. The consensus mark for FMX’s earnings per share has been unchanged in the past 30 days.
Brown-Forman currently has a Zacks Rank #2. BF.B has a trailing four-quarter earnings surprise of 8.1%, on average. The company has declined 2.1% in the year-to-date period.
The Zacks Consensus Estimate for Brown-Forman’s current financial year’s sales and earnings per share suggests growth of 7.2% and 14.4%, respectively, from the year-ago reported numbers. The consensus mark for BF.B’s earnings per share has been unchanged in the past 30 days.
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