Source: PaxForex Premium Analytics Portal, Fundamental Insight
Coca-Cola, the renowned soft drink company, reported its second-quarter results on Tuesday morning, surpassing Wall Street's expectations in all areas. The company's management further emphasized their optimistic outlook during the earnings call.
The announcement briefly propelled Coca-Cola's stock to a new 52-week high, nearing the all-time peak achieved in the summer of 2022. However, for those considering investing, the question remains whether the stock is still a good buy after this positive report. Let's delve into Coca-Cola's current business trajectory to find out.
Analysts had predicted a 2% year-over-year decline in Coca-Cola's revenue, estimating it to be around $11.76 billion, with adjusted earnings projected at $0.81 per share, up from $0.78 per share the previous year. Contrary to these expectations, Coca-Cola reported a 3% increase in sales, reaching $12.36 billion, and an earnings per share of $0.84.
Buoyed by these strong results, Coca-Cola's management raised their revenue outlook for the entire fiscal year. The company now anticipates organic revenue growth of approximately 9.5% in 2024, an increase from the 8.5% forecast in the first-quarter report.
This impressive performance raises the question: how did Coca-Cola outshine the analysts?
Coca-Cola's recent success can be attributed to its robust business model and strategic distribution network. The company continues to utilize its established system of franchised bottling partners to effectively distribute its popular products worldwide.
For example, Coca-Cola experienced a rapid rebound from a period of slow sales in India, driven by popular brands such as Fanta and Sprite. In the Philippines, a revamped bottling network and an emphasis on smaller, more affordable soda bottles boosted sales. Similarly, low-cost strategies were successful in navigating the hyperinflation crisis in Nigeria.
Coca-Cola Zero Sugar emerged as a standout product, with a 20% year-over-year increase in volume during the second quarter. The company is now intensifying its marketing efforts for Coke Zero to maintain this growth.
Coca-Cola's extensive product portfolio and unique distribution capabilities provide significant strategic advantages. The company serves approximately 2.2 billion servings of its products daily, translating to around 800 billion servings annually. This vast scale offers valuable consumer insights, allowing Coca-Cola to better tailor its offerings.
Despite its traditional strengths, Coca-Cola is not complacent. The company adapts its distribution strategies to meet global and local market demands and explores innovative approaches like personalized messages for retail outlets. These AI-generated messages analyze local sales data to recommend specific products and quantities, resulting in a significant increase in sales for retailers.
Warren Buffett, a legendary investor, acquired 25 million Coca-Cola shares in 1988. Under his leadership, Berkshire Hathaway has held onto these shares, which have split four times, resulting in 400 million shares today. Instead of reinvesting dividends, Berkshire collects about $776 million annually from these payouts.
Buffett's long-term strategy has been highly effective. In 1998, Coca-Cola's annual dividends were $1.20 per share, yielding about 3.1% based on a stock price of $38 per share. Today, these dividends represent an impressive yield of 81% on Buffett's original investment, given the split-adjusted price of $2.38 per share.
Coca-Cola remains a strong dividend payer, with its quarterly dividends funded by substantial cash flow. The company's free cash flow amounted to $3.3 billion this quarter and $9.0 billion over the past year, with dividend payments accounting for $8.0 billion of these profits. Although free cash flow declined by $693 million year-over-year due to refranchising projects like the Philippine network overhaul, these initiatives are expected to boost long-term profitability.
Coca-Cola's robust performance has driven its stock near all-time highs, making it an excellent choice for dividend-focused investors. With a current yield of 3% and growing payouts, Coca-Cola leverages its strengths while embracing innovations like AI analytics. Despite its valuation at 26 times earnings and 31 times free cash flow, the company represents an enduring industry leader.
Consider adding Coca-Cola to your investment portfolio for consistent dividends and solid long-term growth potential.
As long as the price is above 64.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 65.72
- Take Profit 1: 67.00
- Take Profit 2: 69.00
Alternative scenario:
If the 64.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 64.00
- Take Profit 1: 62.00
- Take Profit 2: 60.00
