Coca-Cola (KO +0.34%) has been a relatively stable business to invest in over the past year. Even though economic conditions haven't been strong in many parts of the world and inflation has crippled consumers' purchasing power, the business continued to perform well and grow its sales. That resiliency can be illustrated by a couple of charts.
Prices have gone up, but demand doesn't appear to be going anywhere
In the second quarter, Coca-Cola reported that its net revenue grew by 6% year over year for the period ending June 30. Organically, when excluding the effect of foreign exchange, the growth was even higher at 11%. That's far better than its average over the past decade. And while price/mix was responsible for 10 of those growth percentage points, there was still a one-percentage-point increase in concentrate sales. Concentrate sales refers to the quantity and is expressed in unit case equivalents. Historically, Coca-Cola has struggled to generate positive year-over-year growth:
KO Revenue (Annual YoY Growth) data by YCharts
What's impressive is that even as Coca-Cola has been increasing prices for multiple quarters, demand has remained strong. For the most part, people don't appear willing to trade down to private-label brands. In each of the company's past four quarters, price/mix has played a big role in the company's organic growth and there has also been a year-over-year increase in concentrate sales. While the growth rate is slowing down, the fact that volumes are still up compared to the previous year suggests consumers aren't eager to switch.
Image source: Company filings. Chart by author. YOY = year over year.
Coca-Cola has generated organic revenue growth in every region
You might think that perhaps it's just one region that's fueling the strong results, but what's equally impressive is that Coca-Cola's sales are rising everywhere. While some markets are growing at faster rates than others, they have all been generating positive organic growth in each of the past four quarters.
On a quarter-over-quarter basis, the growth is slowing down, however, in a sign that perhaps the price increases are starting to weigh on consumers. But the growth rates still remains positive across all regions and they are higher than what the company has averaged in the past.
Image source: Company filings. Chart by author. YOY = year over year.
The wide appeal of the company's products is evident in that Coca-Cola's business is able to not just do well, but thrive across the globe. A slowdown, however, may be inevitable, especially in Europe and Latin America, where high inflation levels, particularly in Turkey (more than 50%) and Argentina (over 110%), are heavily impacting sales.
Why isn't the stock taking off?
With growth like this, the obvious question is: Why are share prices of Coca-Cola down 3% so far in 2023? One big hurdle is that the stock is already trading at 27 times its trailing earnings. That kind of premium is often reserved for stocks that grow at consistently high rates. Investors may not be convinced that Coca-Cola can keep up this rate of growth for long, especially given how much of an effect price increases are having on the top line.
In July, the company told investors not to expect more price increases in developed markets (U.S., Europe) this year. That will certainly affect the growth in future quarters. And at some point, there likely would have been more resistance from consumers anyway if the company continued raising prices.
NYSE: KO
Key Data Points
Should you buy Coca-Cola's stock today?
Coca-Cola makes for a dependable dividend stock to buy and hold. Its business is resilient and able to perform well even under challenging economic conditions, as it has strong pricing power. At nearly 3%, its dividend yield comes close to doubling the S&P 500 average of 1.5%.
If it's a good dividend stock you're after, Coca-Cola definitely checks off many boxes and can be an excellent long-term investment. As a growth investment, however, its performance may be a bit underwhelming. While Coca-Cola has done well lately, that's been largely through price increases, and that likely isn't sustainable over the long haul.
Overall, Coca-Cola can be a good dividend investment to hang on to -- as long as you aren't expecting too much in terms of stock performance.
