Source: PaxForex Premium Analytics Portal, Fundamental Insight
Coca-Cola shareholders are in for a volatile trading week. The beverage giant is scheduled to report its first fiscal quarter results before the market opens on Monday, April 25.
There will be no shortage of important questions before that announcement, including whether the company continues to regain market share after losing it in the earlier stages of the pandemic. Coke executives will also add context about rising costs and consumer reaction to higher prices.
Let's analyze this report, including how it compares to rival PepsiCo, which will also announce its results next week.
During the last market downturn, investors flocked to both Coke and PepsiCo stock, but Coke's results were more impressive. Its more focused portfolio meant it took a bigger hit during the pandemic lock-in phase, but the recovery is well underway. Organic sales jumped 16% in 2021, compared to 13% growth in Pepsi's beverage segment.
Market share dynamics are worth watching, but investors are expecting more good news from Coke on this metric. Its business is focused on on-the-go beverage consumption in places like restaurants, concerts, and theme parks. The recovery in customer traffic in these niches suggests accelerated year-over-year growth for the blue-chip giant. Most investors who follow the company's stock expect revenue to rise 9 percent this quarter, to $9.8 billion.
Coke entered the period with confidence that the company could improve profitability in 2022. But now that costs have risen sharply and the global supply chain is under a lot of pressure, that goal will be harder to achieve.
In the previous quarter, the company increased costs through a 10 percent price increase. Next week, we'll find out if the company has been able to maintain a healthy price increase without sacrificing sales volumes. Ideally, the company will be able to strike a balance between price increases and sales volume increases.
In the meantime, keep an eye on the operating profit margin for signs of business efficiency. This figure has dropped to 22% of sales at the end of 2021 but is still well above the 14% set by PepsiCo. Cash flow is another key financial metric to keep an eye on, as continued success here will help fund rising cash earnings through higher dividend payments and increased share repurchase expenses.
The share price will be sensitive to any changes in Coke's short-term outlook on Monday. CEO James Quincy and his team had assumed back in February that organic sales would grow 7 to 8 percent this year and that profits would grow a little faster, at 10 percent.
The growth rate could change due to slower results in some regions of Europe and Asia. The risk with earnings is that profitability may not increase because of rapidly rising costs.
Still, few companies do better than Coca-Cola in dealing with supply chain issues and inflation. It is highly likely that the company will report unusually strong sales growth for the second year in a row, even if shareholders receive a large dividend.
These positive factors help explain why the company's stock has outperformed the market over the past year, and it should maintain a continued solid return for investors who will hold on to the stock during a potentially volatile short-term period.
As long as the price is above the 62.92 level, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 66.18
- Take Profit 1: 67.00
- Take Profit 2: 68.56
Alternative scenario:
If the level of 62.92 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 62.92
- Take Profit 1: 59.00
- Take Profit 2: 57.45