If you think Coca-Cola (KO 0.55%) is already ubiquitous on the world's supermarket shelves, the company was happy to prove you wrong this week with a smashing first-quarter earnings report. The 16% year-over-year sales increase was a further recovery from pandemic declines after a 5% increase last year. It faces tough comps to beat from last year, though, for the rest of 2022.
Let's see if the beverage giant has what it takes to maintain its momentum this year.
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A stronger, leaner company
Coca-Cola's sales took a nosedive during the pandemic, and management restructured to face the new reality. While sales would have likely recovered regardless, it has emerged as a lean, efficient company with a clearer focus on its unmatched global distribution system. That has certainly helped keep it at the top of its game as the largest beverage company in the world.
Sales rose above 2019 levels to $10.5 billion in the first quarter with a 16% year-over-year increase while organic sales (or sales from existing products) increased 18%. Part of Coca-Cola's restructuring in 2020 included slashing 200 brands, or about half the total, from its product line. Those were mostly small, local brands with resources that could be more effectively used elsewhere. Meanwhile, the company's core brands are performing well.
These moves also helped improve margins. Operating margin grew more than two percentage points, from 30.2% last year to 32.5% this year, while earnings per share (EPS) increased 23% to $0.64. EPS outdid the average Wall Street EPS consensus of $0.58 by 15%.
The company is expecting to absorb some impact from ceasing operations in Russia, but it's still expecting organic revenue growth of 7% to 8% year over year for fiscal 2022.
No, Coke is not on every shelf -- yet
Coke certainly has a healthy presence in beverage drinkers' minds, and it has a robust marketing program to keep it that way. It recently launched a "Magic Weekends" campaign, part of its "Real Magic" platform, to drive further engagement with customers. It has also started to dig into digital, offering direct consumer sales, and partnering with DoorDash to offer home delivery.
But despite its ubiquity, at least in most North American markets, the company still sees plenty of room to grow. Coca-Cola says it has a 14% share in developed markets, but only 6% in undeveloped markets, which comprise 80% of the population.
Sustained recovery or not, should you buy in?
Coca-Cola stock probably doesn't offer tremendous potential for gains, yet it's still recommended as a buy by 19 out of 27 Wall Street analysts, including five who give it an "outperform" rating.
There are two reasons to include Coca-Cola stock in your portfolio. One is its security. While the market has been facing volatility and growth stocks have been struggling, investors feel that their money is secure in a company like Coca-Cola. It has posted steady gains over many years, even if they're not as high as riskier stocks -- and that's the point. The company has already demonstrated its strength and a strong rebound, and even if the rest of the year is tougher, investors aren't questioning Coca-Cola's ability to maintain its high revenue over the long term.
The other reason to own Coca-Cola shares is the dividend. The company is a Dividend King, having raised its dividend annually for the past 60 years. Its dividend yields 2.58% at the current price although the company typically likes it to stay around 3%.
Coca-Cola is a no-brainer stock to own that provides security and income in volatile times and anytime.
