Coca-Cola is a stable safe haven in a tough market

Coca-Cola on Monday reported first-quarter earnings and sales that easily beat forecasts: Sales jumped 16% to $10.5 billion, beating Wall Street expectations of $9.8 billion. Earnings of $2.8 billion, or 64 cents per share, were up 24% from a year ago, beating consensus estimates of 58 cents per share.

Price increases were a major driver of strong numbers. Coca-Cola said its price/mix, a measure of what it charges customers, rose 7% globally and 11% in North America.

Shares of Coca Cola (KO) edged higher Monday morning on strong results, even as the broader market slumped again after Friday’s massive drop. The company also reaffirmed its outlook for the rest of the year, despite inflation concerns that have driven up the price of aluminum and other coke commodities.

“The overall inflationary environment is going to be here for a while. Exactly how long, no one knows,” Coke Chief Financial Officer John Murphy said in an interview with CNN Business Monday morning.

Pressure on commodity prices and wages will continue, Murphy said. But he added that the company has room to raise prices, especially as it introduces more high-end products. Murphy added that Coke must “earn the right” to raise prices by constantly innovating and ensuring it is on top of changing trends.
To that end, Coke has been busy developing new, original flavors — and phasing out some old favorites such as Tab, which was one of hundreds of brands Coke has shut down over the past two years — as the company tries to remain relevant to young consumers.

“When I look back on the last two years, one of the biggest results was that we used that time to clean out the closet. Now we’re rebuilding it again,” Murphy said. “It’s important to stay disciplined and keep a close eye on brands that are performing well. We need to keep the portfolio pruned.”

Investors are happy with the strategy. Coca-Cola stock has now gained 11% so far in 2022, making it one of the best performers in the Dow Jones, which has fallen 8% this year.

Traders have flocked to consumer-heavy staple companies like Coca-Cola because they offer sales and earnings stability in a time of geopolitical turmoil, concerns over Federal Reserve rate hikes and the inflation. Coke also pays a regular dividend which yields almost 3%.

And Berkshire Hathaway (BRKB)the company run by Warren Buffett – a famous big fan of the company, as well as Cherry Coke – is Coke’s largest shareholder with a stake of more than 9%.

Coke continues to do well internationally even as the latest spike in Covid-19 cases worries investors. The company’s sales jumped 34% in Latin America and 13% in Europe, the Middle East and Africa.

As part of its global strategy, Coke continues to invest heavily in emerging markets, Murphy said.

“We need to stay close to those markets and adapt as necessary,” Murphy said. “Investing in times of volatility will allow you to prevail.”

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