Equity research 22.07.2021

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The Coca-Cola Company (KO)

The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores. The company sells its products under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, Fanta, Fresca, Schweppes, Sprite, Thums Up, Aquarius, Ciel, vitaminwater, Powerade, Topo Chico, AdeS, Del Valle, fairlife, innocent, Minute Maid, Minute Maid Pulpy, FUZE TEA, HONEST TEA etc. It operates through a network of independent bottling partners, distributors, wholesalers, and retailers, as well as through bottling and distribution operators. The company was founded in 1886 and is headquartered in Atlanta, Georgia.

 

      

Coke reported fiscal second-quarter net income of $2.64 billion, or 61 cents per share. That’s up by 61% from $1.78 billion, or 41 cents per share, a year earlier. A strong FCF YTD of $5 billion, double as last year’s results. The cash flow performance has also driven the return of leverage to within the target of 2.

Net sales rose 42% to $10.13 billion, topping expectations of $9.32 billion. Q2 organic revenue was up 37%, comprised of concentrate shipments up 26% and price mix improvement of 11% as they lapped the biggest pandemic impacts of 2020. A year ago, the company reported its biggest plunge in quarterly revenue in at least three decades as lockdowns led to cratering demand.

Unit case volume, which strips out the impact of currency and price changes, was flat at 18% compared with 2019 levels. All of its drink segments reported double-digit volume growth for the quarter. Coke named India as one of the markets that is still under pressure due to the health crisis.

The company’s sparkling soft drinks unit, which includes its namesake soda, saw volume increase by 14% in the quarter. The nutrition, juice, dairy and plant-based beverage business reported volume growth of 25%, in part fueled by strong sales of Minute Maid and Fairlife milk in North America. The hydration, sports, coffee and tea segment also saw volume growth of 25%. The company’s Costa cafes in the United Kingdom reopened, spurring 78% volume growth for coffee alone.

Propelling Coke’s comeback is a significant increase in its marketing and advertising spend. CFO John Murphy said that the company doubled its marketing dollars during the second quarter compared with a year ago.

 

Guidances FY 2021:

Raising outlook for the full year. They expect to deliver an organic revenue growth of 12% to 14% yoy and comparable EPS growth of 13% to 15% in 2021. Their focus on cash generation continues to yield progress, and the updated guidance for FCF is $9 billion and it implies a dividend payout ratio significantly improved Q1 2021 and is edging closer to the long term target of 75%. Outlook continues to experience a tailwind of 1% to 2% to the top line and approximately 2% to 3% to comparable EPS in 2021 based on current spot rates and hedge positions.

SHARE PRICE – Since July 2020, the stock surge by 20%. The share price (22/07/2021) closed at $56.43 per share.

 

 

 

 

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