Coca-Cola Rebounds in a Big Way

The soda rebound is in full swing. This week, Coca-Cola (NYSE:KO) reported a sharp sales recovery thanks to waning demand pressure from the pandemic. The boost put the beverage titan back into record market share territory after about a year of declines.

CEO James Quincey and his team also lifted their outlook for the rest of 2021 while warning about continued COVID-19-related risks in several major markets.

Let’s dive right in.

Person holding a soda bottle with a straw in it.

Image source: Getty Images.

Back to volume gains

Coca-Cola posted an 18% volume spike in Q2 compared to a flat result last quarter. Volumes declined 6% through the full 2020 year thanks to social distancing efforts. “Our results,” Quincey said in a press release, “show how our business is rebounding faster than the overall economy.”

The Q2 performance outpaced PepsiCo‘s (NASDAQ:PEP) growth following a year of market share gains by Coke’s major rival. Coke executives had predicted a dramatic rebound once traffic returned to restaurants, theme parks, sporting events, and convenience stores because these are the sales channels that Coke dominates and so it benefits disproportionately from higher demand there.

That scenario played out exactly as hoped, with organic revenue jumping and market share rising to new highs in sparkling beverages and in Coke’s hydration and sports drinks. “We are executing against our growth plan,” Quincey said.

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Coke is cashing in

Coke’s finances were a bright spot throughout the pandemic, and they’re still an attractive point for shareholders today. Operating margin rose to 31% of sales from 30%. Coke increased prices and also benefited from consumers trading up to more premium drinks. The beverage specialist’s profitability is still about twice that of PepsiCo.

KO Operating Margin (TTM) Chart

KO Operating Margin (TTM) data by YCharts.

Cash trends were just as impressive. Coke generated $5.5 billion over the last six months, up 49% year over year.

Looking ahead

Management now expects to produce at least $10.5 billion of cash in 2021, which is a big upgrade from the $8.5 billion target that executives issued back in April. The sales outlook was lifted, too, with organic revenue now likely to grow between 12% and 14%. Coke just three months ago forecast gains of less than 9%.

Executives warned that there were major COVID-19-related risks in the second half of 2021, and in fact, new outbreaks are already pressuring sales in places like India.

Still, Coke is setting sales records in core geographies like China, North America, and Brazil, and generating even stronger financial returns thanks to its slim cost profile. Those wins mean investors can expect the beverage giant to post a bigger earnings spike — and faster dividend growth — than peers like PepsiCo.

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They also imply that Coke is emerging from the pandemic with a faster-growing, more profitable business than shareholders saw in 2019.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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