Investors have some good reasons to look forward to Coca-Cola's (NYSE:KO) upcoming earnings announcement on July 21. The soda titan said in its last report that sales volumes finally returned to positive territory at the end of the first quarter to set the stage for a big Q2 rebound. Rival PepsiCo (NASDAQ:PEP) also just reported surging demand in its beverage division as U.S. consumers returned to more normal mobility patterns.

We'll find out in a few days if Coke continued to lose market share to Pepsi as it did through the early phases of the pandemic. Shareholders will also get some key updates on the company's earnings prospects for the full fiscal year.

Let's take a closer look.

Market share

All signs point to a historic rebound for Coke's core U.S. beverage business. PepsiCo said this week that its soda division posted a 21% sales spike thanks to higher prices and surging demand compared to a year ago when virus lockdowns were widespread.

A person holding a bottle of soda with a straw in it.

Image source: Getty Images.

Coke's portfolio tilts more toward on-the-go drinks at places like restaurants and sporting events, and so it should see a more pronounced rebound now that consumers are moving around freely. Most investors who follow the stock are looking for sales to rise 29% compared to Coke's 5% uptick through March.

The pandemic scrambled market share trends as consumers shifted toward Pepsi beverages, which perform better at many supermarket chains and warehouse retailers. This week's report should show whether Coke can quickly recover that lost momentum through its dominance in on-the-go channels.

Winning on margins

Coke beat PepsiCo on the profitability front this past year thanks to aggressive cost cuts and a flood of innovative product launches like Topo Chico hard seltzer. Look for some even brighter updates on this score on Wednesday.


KO Operating Margin (TTM) Chart

KO Operating Margin (TTM) data by YCharts.

The sales volume rebound should combine with higher prices to lift Coke's gross and operating profit margins toward new highs. Those factors convinced PepsiCo to upgrade its profitability outlook for 2021, after all.

Coke should also post strong cash flow, which is important since it funds that rising dividend and gives management flexibility to pay down the debt it took on during the initial crisis phase of the pandemic.

Looking ahead

Investors celebrated PepsiCo's recent upgrade to its outlook that now calls for organic sales to rise by 6% this year after increasing by roughly 5% in each of the prior two years. Heading into this report, Coke is targeting about an 8% spike in 2020 compared to last year's 9% decline. That forecast might creep higher, especially if the demand rebound the U.S. market was strong enough to offset new virus restrictions in other parts of the world.

Coke has a good shot at setting new quarterly sales volume records soon while its price increases easily outpace inflation. That's a recipe for bubbly returns for investors considering buying this stock, which has not participated in the stock market rally over the last year.

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