Thanks to a few mid-April earnings updates, investors now have a good understanding of the latest operating trends at Coca-Cola (KO 0.49%) and Procter & Gamble (PG 0.23%). As expected, the two consumer staples giants are showing strong sales trends even as shoppers pull back on spending in some non-essential areas. Coke and P&G are both enjoying solid earnings results too, despite soaring costs.
But which stock is the better buy today? Let's dive right in.
Sales are holding up
Investors were worried heading into these first-quarter reports about slowing growth. But the concerns proved overblown. P&G's organic sales rose 7% through late March, and Coke's comparable figure was 12%. Both companies are expanding even compared to soaring demand from a year ago.
Looking beyond the headline metrics reveals some better sales trends at Coke. Sure, the beverage giant had to rely mostly on higher prices to boost sales. But Coke also returned growth on global sales volumes. P&G, on the other hand, reported a 3% volume drop that was offset by 10% higher prices. Both companies boosted prices at a double-digit rate in early 2023 to offset rising costs.
Profits and cash
P&G and Coke both enjoy profit margins that reflect their dominant positions in large, global industries. P&G routinely converts over 20% of sales into operating profits, compared to rival Kimberly-Clark's 13% rate. Similarly, Coke's 28% operating margin is more than double the rate that PepsiCo enjoys.
Investors will like both companies for their financial efficiencies, which help them generate excellent annual returns through a wide range of selling conditions. Cash flow rates are also stellar, meaning management has plenty of resources it can direct toward growth initiatives while still spending on dividends and stock buybacks.
For Coke, those growth initiatives in 2023 include a focus on attractive beverage niches like still water and energy drinks. P&G is constantly churning out product innovations to bolster its lead in categories like laundry care, skin care, and baby care.
Returns and valuation
Both stocks are valued at about the middle of the range that investors have seen over the past several years. P&G shares are priced below 5 times sales today, while Coca-Cola is priced at about 6.5 times sales. These valuations reflect premiums over more direct competitors like Kimberly-Clark and PepsiCo.
PEP PS Ratio data by YCharts
Investors with a higher risk appetite might prefer Coca-Cola shares here. The company's more focused portfolio gives it a shot at faster growth and expanding margins, with the downside being more exposure to a consumer spending downturn. Coke's premium stock valuation also means shares have further to fall during a wider market contraction.
P&G, meanwhile, might appeal more to conservative investors. Its dominance across a wide range of staple categories has helped it thrive through many previous downturns. It is entering a potentially weak period ahead with lots of cash and strong profit margins, too. Shareholders' returns will be further cushioned by P&G's dividend, which yields over 2.5% right now.
Neither stock is likely to disappoint investors over the long term, and the latest earnings updates show the clear financial benefits of leading key consumer staples industries. P&G and Coca-Cola appear set to extend their positive momentum through 2023 and beyond.
