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Coca-Cola (KO) Stays Ahead of Its Industry: Plans on Track
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The Coca-Cola Company (KO - Free Report) has been an attractive investor pick, thanks to the positive business trends as reflected by its robust surprise history. The company looks well-poised for growth, backed by its innovation efforts and accelerated digital investments. It is on track with its strategy of becoming a total beverage company through the streamlining of its portfolio, focusing on the core brands and investing in its portfolio of brands to meet the evolving needs of consumers.
Coca-Cola has been witnessing strong revenue growth across most of its operating segments, aided by improved price/mix and increased concentrate sales in the past quarters. Gains from these trends got reflected in KO’s fourth-quarter 2023 results, which marked the fourth straight quarter of top and bottom-line beat. Organic revenues rose 12% from the prior-year quarter.
Shares of this Zacks Rank #3 (Hold) company have risen 9.6% in the past six months compared with the industry’s growth of 7.5%. The broader sector witnessed a rise of 5.2% in the same time frame.
The Zacks Consensus Estimate for KO’s current financial-year sales and earnings suggests growth of 0.2% and 4.5%, respectively, from the year-ago reported numbers.
However, KO continues to witness inflationary cost pressures, related to higher commodity and material costs, as well as higher marketing investments. The persistence of these trends may affect the company’s margins and profitability in the near term.
Image Source: Zacks Investment Research
Initiatives in Focus
As part of its innovation strategy, Coca-Cola has been keen on diversifying its portfolio. It is on track to tap into the rapidly growing RTD alcohol beverages category. The company has adopted a test-and-learn approach since launching its first RTD in 2018 with Lemon-Dou in Japan. It has been leveraging its leading brands, like Topo Chico, while expanding its existing portfolio of Schweppes premium adult cocktail mixers and tonics.
Coca-Cola has tied up with Molson Coors to launch Topo Chico Hard Seltzer and later launched the Simply Spiked Lemonade in early 2022. It launched another spirit-based drink, FRESCA Mixed cocktails, in collaboration with Corona brewer Constellation Brands in 2022. In June 2022, Coca-Cola collaborated with Brown-Forman to introduce the iconic Jack & Coke cocktail. The new RTD pre-mixed cocktail will be made using Jack Daniel’s Tennessee Whiskey and Coca-Cola.
Further, the company’s digital initiatives place it well amid the recent splurge in e-commerce demand. It has been accelerating investments to build strong digital capabilities. Coca-Cola is evolving into an organization that efficiently executes marketing, commercial, sales and distribution, both offline and online.
KO is strengthening consumer connections and further piloting numerous digital-enabled initiatives through fulfillment methods, be it B2B to home or B2C platforms in many countries, to capture online demand for at-home consumption. For example, Coca-Cola continues to add outlets and expand its myCoke B2B platform to new markets. The online-to-offline partnerships with multiple food aggregators ensure beverage availability and visibility.
Coca-Cola is progressing well with the rollout of multi-category eB2B platforms with its bottlers globally. For instance, the company’s Wabi digital ecosystem showcases more than 50 categories on the digital platform, which are contributing significantly to its sales growth on the platform outside of Latin America, its home market. The company’s focus on accelerating expansion in digital channels is likely to be sustainable, positioning it for long-term growth.
Hurdles to Cross
Coca-Cola is not immune to the ongoing inflationary cost pressures, related to higher commodity and material costs. Elevated commodity costs have been hurting the company’s cost of goods sold (COGS). A few hyperinflationary markets impacted the fourth-quarter 2023 results. Inflation intensified and exceeded 60% across these markets in the fourth quarter. As a result, COGS increased 3% year over year in fourth-quarter 2023.
For 2024, the company anticipates inflationary cost pressures to impact several aspects of the business, including input costs, transportation, marketing and operating expenses. The company anticipates the hyperinflationary pricing to continue affecting results in 2024 but is likely to moderate throughout the year.
Additionally, the company continues to significantly increase its marketing investments to engage and retain existing consumers, and attract new consumers. Selling, general and administrative expenses increased 11% year over year in the fourth quarter, backed by higher marketing spending.
Key Picks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Vita Coco Company (COCO - Free Report) , Molson Coors (TAP - Free Report) and Coca-Cola FEMSA (KOF - Free Report) .
Vita Coco, which develops, markets and distributes coconut water products in the United States, Canada, Europe, the Middle East and the Asia Pacific, currently sports a Zacks Rank #1 (Strong Buy). COCO shares have declined 7.4% in the past six months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vita Coco’s current financial year’s sales and earnings per share suggests growth of 1.8% and 24.3%, respectively, from the year-ago reported figures. COCO has a trailing four-quarter earnings surprise of 31.3%, on average.
Molson Coors is a global manufacturer and seller of beer and other beverage products, with an impressive diverse portfolio of owned and partner brands. It has a trailing four-quarter earnings surprise of 37.2%, on average. It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Molson Coors’ current financial-year sales and earnings suggests growth of 1.4% and 4.2%, respectively, from the prior-year reported levels. TAP shares have risen 10.7% in the past six months.
Coca-Cola FEMSA is involved in producing, marketing and distributing soft drinks throughout the metropolitan area of Mexico City. It currently carries a Zacks Rank #2. KOF shares have rallied 25.4% in the past six months.
The Zacks Consensus Estimate for KOF’s current financial-year sales and earnings suggests growth of 10.1% and 25.5%, respectively, from the year-earlier actuals. It has a trailing four-quarter negative earnings surprise of 2.1%, on average.
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Coca-Cola (KO) Stays Ahead of Its Industry: Plans on Track
The Coca-Cola Company (KO - Free Report) has been an attractive investor pick, thanks to the positive business trends as reflected by its robust surprise history. The company looks well-poised for growth, backed by its innovation efforts and accelerated digital investments. It is on track with its strategy of becoming a total beverage company through the streamlining of its portfolio, focusing on the core brands and investing in its portfolio of brands to meet the evolving needs of consumers.
Coca-Cola has been witnessing strong revenue growth across most of its operating segments, aided by improved price/mix and increased concentrate sales in the past quarters. Gains from these trends got reflected in KO’s fourth-quarter 2023 results, which marked the fourth straight quarter of top and bottom-line beat. Organic revenues rose 12% from the prior-year quarter.
Shares of this Zacks Rank #3 (Hold) company have risen 9.6% in the past six months compared with the industry’s growth of 7.5%. The broader sector witnessed a rise of 5.2% in the same time frame.
The Zacks Consensus Estimate for KO’s current financial-year sales and earnings suggests growth of 0.2% and 4.5%, respectively, from the year-ago reported numbers.
However, KO continues to witness inflationary cost pressures, related to higher commodity and material costs, as well as higher marketing investments. The persistence of these trends may affect the company’s margins and profitability in the near term.
Image Source: Zacks Investment Research
Initiatives in Focus
As part of its innovation strategy, Coca-Cola has been keen on diversifying its portfolio. It is on track to tap into the rapidly growing RTD alcohol beverages category. The company has adopted a test-and-learn approach since launching its first RTD in 2018 with Lemon-Dou in Japan. It has been leveraging its leading brands, like Topo Chico, while expanding its existing portfolio of Schweppes premium adult cocktail mixers and tonics.
Coca-Cola has tied up with Molson Coors to launch Topo Chico Hard Seltzer and later launched the Simply Spiked Lemonade in early 2022. It launched another spirit-based drink, FRESCA Mixed cocktails, in collaboration with Corona brewer Constellation Brands in 2022. In June 2022, Coca-Cola collaborated with Brown-Forman to introduce the iconic Jack & Coke cocktail. The new RTD pre-mixed cocktail will be made using Jack Daniel’s Tennessee Whiskey and Coca-Cola.
Further, the company’s digital initiatives place it well amid the recent splurge in e-commerce demand. It has been accelerating investments to build strong digital capabilities. Coca-Cola is evolving into an organization that efficiently executes marketing, commercial, sales and distribution, both offline and online.
KO is strengthening consumer connections and further piloting numerous digital-enabled initiatives through fulfillment methods, be it B2B to home or B2C platforms in many countries, to capture online demand for at-home consumption. For example, Coca-Cola continues to add outlets and expand its myCoke B2B platform to new markets. The online-to-offline partnerships with multiple food aggregators ensure beverage availability and visibility.
Coca-Cola is progressing well with the rollout of multi-category eB2B platforms with its bottlers globally. For instance, the company’s Wabi digital ecosystem showcases more than 50 categories on the digital platform, which are contributing significantly to its sales growth on the platform outside of Latin America, its home market. The company’s focus on accelerating expansion in digital channels is likely to be sustainable, positioning it for long-term growth.
Hurdles to Cross
Coca-Cola is not immune to the ongoing inflationary cost pressures, related to higher commodity and material costs. Elevated commodity costs have been hurting the company’s cost of goods sold (COGS). A few hyperinflationary markets impacted the fourth-quarter 2023 results. Inflation intensified and exceeded 60% across these markets in the fourth quarter. As a result, COGS increased 3% year over year in fourth-quarter 2023.
For 2024, the company anticipates inflationary cost pressures to impact several aspects of the business, including input costs, transportation, marketing and operating expenses. The company anticipates the hyperinflationary pricing to continue affecting results in 2024 but is likely to moderate throughout the year.
Additionally, the company continues to significantly increase its marketing investments to engage and retain existing consumers, and attract new consumers. Selling, general and administrative expenses increased 11% year over year in the fourth quarter, backed by higher marketing spending.
Key Picks
We have highlighted three better-ranked stocks from the Consumer Staple sector, namely Vita Coco Company (COCO - Free Report) , Molson Coors (TAP - Free Report) and Coca-Cola FEMSA (KOF - Free Report) .
Vita Coco, which develops, markets and distributes coconut water products in the United States, Canada, Europe, the Middle East and the Asia Pacific, currently sports a Zacks Rank #1 (Strong Buy). COCO shares have declined 7.4% in the past six months. You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Vita Coco’s current financial year’s sales and earnings per share suggests growth of 1.8% and 24.3%, respectively, from the year-ago reported figures. COCO has a trailing four-quarter earnings surprise of 31.3%, on average.
Molson Coors is a global manufacturer and seller of beer and other beverage products, with an impressive diverse portfolio of owned and partner brands. It has a trailing four-quarter earnings surprise of 37.2%, on average. It currently carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Molson Coors’ current financial-year sales and earnings suggests growth of 1.4% and 4.2%, respectively, from the prior-year reported levels. TAP shares have risen 10.7% in the past six months.
Coca-Cola FEMSA is involved in producing, marketing and distributing soft drinks throughout the metropolitan area of Mexico City. It currently carries a Zacks Rank #2. KOF shares have rallied 25.4% in the past six months.
The Zacks Consensus Estimate for KOF’s current financial-year sales and earnings suggests growth of 10.1% and 25.5%, respectively, from the year-earlier actuals. It has a trailing four-quarter negative earnings surprise of 2.1%, on average.