The Coca-Cola Company Bubbles Over On Strong Results In the head-to-head comparison, we prefer Pepsico (NASDAQ: PEP) to The Coca-Cola Company (NYSE: KO) but that does not mean The Coca-Cola Company is no...

The Coca-Cola Company Gets A Lift From Multiple Tailwinds

In the head-to-head comparison, we prefer Pepsico (NASDAQ: PEP) to The Coca-Cola Company (NYSE: KO) but that does not mean The Coca-Cola Company is not a great investment. The two companies are not exactly comparable anymore because they have both been engaged in transformational activities that have The Coca-Cola Company focused on beverage verticals outside of soda and PepsiCo's focus a diversification into snacks and breakfast. Regardless of your choice, The Coca-Cola Company's second-quarter results prove that not only is the company's strategy working but secular tailwinds related to the economic reopening are getting stronger.

The Coca-Cola Company Beats And Raises

There are two takeaways for us in The Coca-Cola Company's second-quarter earnings report. The first is that Revenue has returned to pre-COVID levels, the second is that the company is guiding this year's growth even higher. The $10.10 billion in net consolidated revenue is up 42% from last year, beat the consensus by 860 basis points, and squeaked out a 100 basis point gain over 2019. On an organic basis, growth topped 37% versus the 29.3% consensus driven by double-digit gains in concentrate sales and price/mix. The company noted several times that COVID-related re-openings helped drive a 26% increase in concentrate sales as well as the 11% boost from price and mix.

On a segment basis, sales in the EU were strongest and that makes sense because the EU has suffered the hardest lockdowns over the past year. In Latin America, sales are up 29% while in North America and the Asia-Pacific region sales are up 16% and 15%. Moving down the report, the company reports a 210 basis point improvement to the operating margins that is again related to channel and mix, the salient point is that operating income is up 52% and margin gains are expected to stick in the second half of the year. The company also made note of rising inflationary pressures but the CEO also said the company had significant pricing power, enough to handle inflationary pressures in the second half of the year.

On the bottom line, both the GAAP EPS and the adjusted EPS beat the consensus target with adjusted EPS of $0.68 beating by $0.12. The non-GAAP EPS is up 61% from last year and includes a 500 basis point tailwind from the foreign exchange that will also linger through the end of the year. Looking forward, the company raised its guidance for organic growth to 12% To 14% and EPS growth to 13% to 15% compared to the consensus expectation for 12% EPS growth. This includes a 300 to 400 basis points higher than from foreign exchange as well and should drive some positive commentary from the analysts.

The Coca-Cola Company dividend is as safe as ever

The Coca-Cola Company pays a very safe dividend and one in which we can find but one fault. The yield is a market-beating 3% and comes with a very high expectation for future increases because the company has been increasing for 58 years, the fault is in the pace of expected distribution growth. The payout ratio is running near 80% of consensus earnings and the 5-year distribution CAGR is only 4%, details that tell us future increases are likely to be single-digits and low single-digits at that.

The Technical Outlook: The Coca-Cola Company Will Retest All-Time Highs

The Coca-Cola Company is up more than 2% in early action confirming the last 16 months of uptrend. The move has the stock trading at a new long-term high and on track to retest the all-time highs very soon. If this market can set a new all-time high and maintain it, we see the stock moving up to the $70 to $80 range within the next year.

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