Coca-Cola (KO 0.78%) shareholders are in for a volatile trading week ahead. The beverage giant is due to report its fiscal first-quarter results before the market opens on Monday, April 25.
There's no shortage of big questions heading into that announcement, including whether the company is still recovering market share after shedding it in earlier phases of the pandemic. Coke executives will also add context around soaring costs, and how consumers are responding to price increases.
Let's preview that report, including how it should stack up against rival PepsiCo (PEP 1.18%), which also announces its results next week.
Image source: Getty Images.
Market share
Investors have flocked to both Coke and PepsiCo stocks during the latest market downturn, but Coke's results have been more impressive. Its more focused portfolio meant it took a bigger hit during the lockdown phases of the pandemic, but the rebound is in full swing. Organic sales jumped 16% in 2021 compared to a 13% increase in Pepsi's beverage segment.
Those market share dynamics will be worth watching, yet investors are expecting more good news from Coke on this score. Its business is tilted toward on-the-go drinking at places like restaurants, concerts, and theme parks. The rebound in customer traffic in these niches implies quicker year-over-year growth for the blue chip giant. Most investors who follow the stock are looking for revenue to jump 9% this quarter, to $9.8 billion.
Costs and cash
Coke entered the period projecting confidence that the company can boost profitability in 2022. However, that goal will be harder to achieve now that costs are soaring and the global supply chain is under more stress.
Coke passed along those higher costs through a 10% price increase in the previous quarter. We'll learn this week whether the company was able to keep prices rising at a healthy clip without sacrificing sales volumes. Ideally, the company will achieve a balance between higher prices and rising volumes.
KO Operating Margin (TTM) data by YCharts
Follow operating profit margin, meanwhile, for signs of efficiency in the business. That figure fell to 22% of sales in late 2021 but is still comfortably above PepsiCo's 14% figure. Cash flow is the other key financial metric to watch, since continued success here will help fund increasing cash returns through a rising dividend payment and higher stock buyback spending.
The new outlook
The stock price will be sensitive to any changes in Coke's short-term outlook on Monday. CEO James Quincey and his team estimated back in February that organic sales should rise by between 7% and 8% this year, with earnings expanding at a slightly faster 10% clip.
The growth figure might shift in response to slowing results in some parts of Europe and Asia. The risk around earnings is that profitability might not expand after all, due to quickly rising costs.
Still, few companies are better positioned than Coca-Cola to handle supply chain and inflation challenges. The company is highly likely to report a second straight year of unusually strong sales gains, too, even as shareholders collect bigger dividend payments.
These positive factors help explain why the stock has outperformed the market over the past year, and they should support continued solid returns for investors who hold shares through the potentially volatile short-term period ahead.
