Last Thursday, Coca-Cola (KO 0.15%) put a lid on 2021 with the release of its fourth-quarter results. Back in 2020, at the onset of the pandemic, the iconic beverage seller struggled as folks spent more time at home -- and vast numbers of venues where people commonly drink soda were closed.
Now that consumer mobility is increasing again and people are visiting restaurants, movie theaters, and convenience stores more often, Coca-Cola is experiencing a tailwind. The company has a larger share of the market in away-from-home channels.
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Pricing power and reopening trends help Coca-Cola in Q4
In the fourth quarter ended Dec. 31, Coca-Cola's net revenue grew 10% year over year to about $9.5 billion while earnings per share (EPS) jumped 65% to $0.56 per share. The increase looks even more impressive when you consider that the fourth quarter had six fewer days than the comparable quarter of 2020. For all of 2021, revenue rose 17% to $38.7 billion while earnings grew 26% to $2.25 per share.
The recently ended quarter was the first where sales through away-from-home channels exceeded 2019 levels. The prices charged for Coca-Cola's beverages in away-from-home venues are higher than those that grocery stores charge for beverages that are (presumably) for at-home consumption. Indeed, management highlighted that nearly all of the Q4 revenue growth was the result of higher prices and the channels where the beverages were sold. Consumers are once again going out more often.
Coca-Cola increased prices on its products to account for rising inflation. Higher commodity costs are likely to stay with Coca-Cola throughout 2022, and management expects those increased expenses to be a mid-single-digit percentage headwind to its cost of goods sold. The company is cautiously optimistic that it will be able to pass along its higher costs to the consumer in 2022. Here's what CEO James Quincey said about raising prices in a conference call that followed the earnings release:
"We do have a view that we have to have brands that earn the right to take pricing. And secondly, we very much are not looking to just pass through in price, but to do it intelligently, because while it's easy to respond to inflation by putting up the prices, there is clearly ... going to be a squeeze on real incomes in a number of countries."
Coca-Cola is a global business, and populations in some countries may reduce their purchasing quantities if the company is careless with price increases. With that in mind, management has forecast approximate 2022 revenue growth of 7.5% and earnings-per-share growth of 9%.
What this could mean for Coca-Cola shareholders
Coca-Cola's stock is up about 2% year to date in 2022. That's significantly better than the broader market, which is down more than 7%. Investors are perhaps anticipating that the beverage seller, with its long history and powerful brand, will be able to perform well even in the current economic environment. Costs are rising on everything from labor to transportation to materials. If businesses cannot get consumers to pay higher prices without reducing consumption, profits will shrink.
Shareholders can be encouraged that Coca-Cola management is approaching the pricing equation with caution and precision. Nevertheless, the balancing act will be challenging, and investors should prepare to see further adjustments from management as the year progresses.
