Coca-Cola (KO 0.91%) stock could make some big moves in late October. The beverage titan is due to report fiscal third-quarter earnings results early on Oct. 24, and that announcement could spark volatility given the big questions that investors have about the business.
The questions include concerns about flat sales volumes and worries that the company's product price increases won't be enough to keep revenue rising for much longer. Coke will also update investors on its short-term outlook for 2023 and its new capital return plans.
Let's take a look at what investors can expect to see in that report, and whether or not the stock is an attractive buy today.
Will Coca-Cola's sales volumes remain flat?
Coke reported a blistering 11% year-over-year organic sales increase for the second quarter, which you might think would spark a rally in the stock. Yet its shares have underperformed the market by a wide margin in 2023, falling 17% through mid-October, while the S&P 500 has gained 13%.
NYSE: KO
Key Data Points
Much of that gap can be explained by a single metric: Sales volumes. Coke reported flat volume last quarter, meaning all its growth came from price increases. While that performance is good news because it demonstrates pricing power, it also raises a big concern for investors. Coke can't keep relying solely on price increases to boost sales. Instead, it targets a healthy balance between rising prices and increased volumes. Investors will want to see progress in that regard in Coke's upcoming earnings report.
Profits and outlook suggest positivity
The news has been more uniformly positive regarding Coke's finances. Profit margin is rising and remains far above that of rivals like PepsiCo. The beverage giant is generating ample cash as well, with free cash flow holding stable in the first half of 2023 at $4 billion.
This success has allowed Coke to invest heavily in growth initiatives like marketing and innovative flavor launches while still delivering lots of cash to investors through dividends and stock buybacks.
Meanwhile, management is more bullish about the future. Coke recently raised its 2023 forecast on both the top and bottom lines.
Why buy Coca-Cola stock?
That rising optimism clashes with Coke's stock valuation, which shrunk this year. Investors can now purchase shares for 5.2 times annual sales, down from a 2023 high of 6.5 in May.
Sure, that drop reflects real concerns about Coke's ability to boost revenue through slowing consumer spending. It might not have room to keep hiking prices in 2024 as well, putting more pressure on the business to return to a pattern of higher sales volumes.
Yet investors should still consider adding this stock to their portfolios. Coke is expanding its sales base even following huge gains over the last few years. It is winning market share in core areas like sparkling sodas, and in non-traditional beverages like energy and sports drinks. Its finances are rock-solid, with its operating margin landing at about double Pepsi's level.
In late October, Coke executives will likely discuss the challenging macroeconomic environment in their earnings report. However, the company has been through many market downturns in the past, including deep recessions. I'd expect to hear optimism about the company's growth and earnings potential, then, even if the short-term outlook is cloudy. With its steady sales expansion and rising dividend payouts, Coke is likely to continue rewarding investors with solid returns over the long term.
