Coca-Cola (KO -0.43%) investors have some sparkly news to look forward to in a few days. The beverage titan on Thursday is expected to announce Q4 results that round out a record year for the on-the-go drinks business. Sales, cash flow, and earnings should all rise significantly compared to pre-pandemic levels.
Wall Street is worried that the demand spike will quickly subside in 2022, resulting in flat returns for the stock. But there are a few ways that Coke's report this week can hint at market-beating gains for shareholders ahead.
Let's take a closer look at the metrics to watch in the Feb. 10 announcement.
Image source: Getty Images.
Market share
Coke is expected to report a 7% sales increase, marking a slowdown from the prior quarter's 16% surge. Yet that result would be impressive despite the slowdown, as it would translate into organic growth of roughly 14% in 2021, beating management's original outlook.
Coke's volume metrics should also easily outpace PepsiCo's (NASDAQ: PEP) beverage business, which has been growing at about an 8% pace lately. That's all thanks to rising market share and rebounding consumer mobility following pandemic restrictions in many markets.
Coke sells more on-the-go beverages than Pepsi does in places like restaurants, concerts, sporting events, and convenience stores. The transition out of the pandemic is lifting these channels and giving the niche a brighter outlook that should extend into 2022.
Rising prices
Coke should handle pricing and supply chain challenges better than peers, too, thanks to its dominant global shipping network and huge portfolio of leading brands. Prices rose 6% in the most recent quarter and likely expanded at least as quickly in Q4. Coke is getting help from higher demand for premium products like energy drinks.
Look for more success here helping keep operating margin above 30% of sales, or about double PepsiCo's rate. That's a new high for the business, too, adding support for management's claim that Coke is emerging from the pandemic with a stronger financial footing than before.
Cash returns
The prospect for weaker sales growth has many investors concerned about 2022 and beyond. Heading into this report, Wall Street is expecting Coke to project 6% higher sales compared to this past year's 15% surge.
Balanced against that slowdown is the likelihood that Coke will set new profitability records. The company is also generating more cash than ever at over $13 billion of operating cash flow in the past year.
KO Cash from Operations (TTM) data by YCharts
These financial wins should amplify investor returns, most directly through stock repurchases and a rising dividend. And on that last note, look for Coke to announce a large payout increase in the weeks following Thursday's report. Coke's last two dividend increases were relatively small, as the pandemic weighed on the business. However, with earnings and cash flow soaring in 2021, the dividend hike it announces for 2022, which will mark its 60th consecutive annual increase, should be bigger.
Investors looking for blistering sales growth will likely pass on Coke's stock. If you're a fan of sustainably expanding earnings and rising cash returns, though, you should consider adding this Dividend King to your portfolio.
