Investors had bubbly expectations heading into Coca-Cola's (KO 1.93%) first-quarter earnings report. That's because the beverage giant has been enjoying an epic sales rebound as consumers venture back out following nearly two years of pandemic-related social distancing.
Coke's actual results outpaced those expectations in a few key ways, including by showing notable pricing power in today's inflationary environment. Let's take a look at why those wins imply good news ahead for shareholders.
Sales and market share
Wall Street was looking for Coke to boost revenue by about 9% to $10 billion. Instead, sales soared 16% to $10.5 billion.
Looking deeper into that growth figure reveals more good news about the business. Coke's organic sales jumped 18%, with double-digit gains in each market except for China, which was impacted by new COVID-19 lockdowns.
Sales volumes were up, and so were prices. Coke also got a solid boost from a shift toward more premium products in its portfolio. "We are pleased with our first quarter results," CEO James Quincey said in a press release. "Our company continues to execute effectively in a highly dynamic and uncertain operating environment."
Coke's financial strength shined through, despite that difficult cost environment. Adjusted operating margin inched up to 31.4% of sales from 31% a year ago, as quick revenue growth offset the headwind from rising costs on inputs, transportation, and labor. Coke's adjusted earnings jumped 16%, or at roughly the same pace as revenue.
These gains were supported by the company's massive distribution network, which allowed it to avoid the type of supply-chain bottlenecks that pressured smaller beverage producers. It also helped that Coke's business is heavily tilted toward on-the-go drinking that occurs in places like restaurants, concerts, and sporting events. Consumers are prioritizing these away-from-home activities now, following a period of social distancing in 2020 and 2021.
Coke isn't expecting the good times to end any time soon. In fact, management affirmed its previous growth outlook, calling for organic sales to rise between 7% and 8%, despite new pressures like suspended operations in Russia and COVID-19 lockdowns in China.
The company is still expecting to generate nearly $11 billion of free cash flow in 2022, so much more cash will be heading toward shareholders through dividends and stock buybacks.
Those returns, combined with Coke's rising market share and profit-margin metrics, suggest that the business is still firmly in recovery mode after seeing weak results over the past two years. That rebound should continue to support solid returns for investors holding onto this stable dividend stock.