Coca-Cola: Return to Out-of-Home Drinking Boosts Sales

Written by: Laura Hoy | Hargreaves Lansdown

Organic revenues grew 9% to $9.5bn in the fourth quarter. This reflected improvements in pricing and a more favourable mix of products sold, which offset a 1% decline in concentrate sales, hurt by the timing of the quarter which meant there were 6 fewer trading days.  

Underlying operating income, which strips out currency changes, declined 12% to $2.1bn. Fewer days in the reporting period coupled with higher marketing spend were responsible for the fall. 

The group expects full-year organic revenue growth of 7-8%. Cost inflation is expected to continue at in the mid-single digits and underlying earnings per share growth is forecast to be 8-10%. 

The shares rose 1.2% in pre-market trading.

“Coca-Cola’s bubbling back up to the top as easing coronavirus restrictions helped out-of-home sales recover once again in the fourth quarter. The result was annual case volumes ahead of pre-pandemic levels and a 16% rise in organic revenue. 

The acquisition of BODYARMOR, a sports drink company, helped sports drink sales rise 13% and should help strengthen the company’s position in the growing global health drinks market. The re-opening of Costa in the UK, and the return of footfall to town and city centres gave a big shot of caffeine to coffee sales as well. These are positive signs, considering the group stretched its balance sheet to make these purchases. 

Marketing spend has also been on the rise, unsurprising given the need to maintain Coke’s strong brand awareness.  As long as sales continue pouring in, these outlays are a necessary evil. Cost inflation was flagged as a potential headwind this year, but with EPS expected to grow 8-10% next year, this shouldn’t have too great an impact on margins.”

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