Coca-Cola (KO -0.44%) just gave investors a few new reasons to feel bubbly about its 2023 fiscal year. The beverage titan closed out 2022 in strong fashion, with sales trends accelerating and profitability holding steady.
Coke also projected a big year ahead for both revenue and earnings. Let's take a closer look at how these trends might deliver solid returns for the company's shareholders in 2023.
Winning with growth
Coke handled rising costs about as well as Wall Street could have hoped. The company boosted prices at a double-digit rate across most of the portfolio, which pressured volumes. Coke noted a 1% volume decline globally. But the higher prices and relatively stable volume trends translated into soaring growth.
Organic sales were up 15% for the Q4 period that ended in late December. "We are proud of our overall results in a dynamic operating environment," CEO James Quincey said in a press release. Coke won market share in the period, too, implying excellent momentum heading into 2023.
Sparkling finances
Coke's finances were stellar, too. Sure, cash flow trends worsened compared to soaring results in 2021. Coke generated $11 billion of operating cash, down from nearly $13 billion. But that slump mainly had to do with management's decision to bulk up on raw materials as prices started spiking. Management is projecting higher free cash flows in 2023.
Coke's operating profit margin held steady at 28% of sales, making it a standout against rivals like PepsiCo (PEP -0.95%) and many other companies inside and outside of its industry.
KO Operating Margin (TTM) data by YCharts
It is the combination of strong sales growth and high margins that makes Coke such a powerhouse in the financial department. Pre-tax income this past year was $11.7 billion on $43 billion of revenue.
Looking ahead
Coke's short-term outlook is bright enough to suggest market-beating returns for its shareholders this year. Following last year's blazing 16% increase, organic sales trends are likely to slow down just slightly, to between 7% and 8%. PepsiCo is projecting a 6% increase, for context.
The company is also planning to improve on its already stellar profit margin as this year's non-GAAP earnings should rise by between 7% and 9%. Add in a growing dividend, and the outlook is bright for total shareholder returns in the double-digit range.
As you might expect, you'll have to pay a premium to own the stock today. Coke is valued at over 6 times annual revenue, or roughly double PepsiCo's price-to-sales ratio.
Yet investors can still generate excellent returns by holding this consumer staple stock. Coke has a good shot at seeing accelerating sales and earnings growth in 2023 if economic growth trends stabilize or rebound.
Shareholders aren't likely to see big declines in a worsening selling environment, either, as evidenced by the fact that Coke could raise prices so substantially in 2022 without sacrificing much in the way of shipping volumes.
Sure, you might find faster sales and profit growth with smaller businesses in less developed industries. But Coke offers a compelling mix of stability, dividend income, and sales gains that is hard to match. Those assets should help the stock beat the market over the long term, potentially including a strong performance in 2023.
