KO – Coca-Cola: The Recovery From Covid-19 Has Accelerated

The Coca-Cola Co. (

KO, Financial) reported earnings results last week that showed the company is back to where it was pre-pandemic. The company experienced tremendous headwinds during much of 2020 due to the Covid-19 pandemic, so demonstrating considerable growth from this period of time was likely a given going by Wall Street analysts’ estimates. Still, the company delivered results that were well ahead of what was expected.

Coca-Cola also raised its estimates for the remainder of the year. I added to my position in the company following the beat and raise earnings announcement. Let’s review in more detail why now may be a good time to buy the stock.

A rundown of earnings highlights

Coca-Cola reported second-quarter earnings results on July 21. Revenue surged almost 42% to $10.13 billion, which was $823.11 million better than what the market had anticipated. This was only the second quarter of at least $10 billion in revenue since 2017. Excluding a 5% headwind from currency exchange, net income of $2.9 billion, or 68 cents per share, compared favorably to net income of $1.8 billion, or 42 cents per share, in the prior year. Adjusted earnings per share was 12 cents better than expected.

Considering how weak the prior year’s second quarter was, analysts had high expectations for organic revenue growth, with consensus estimates coming in at 29.3%. Coca-Cola easily topped this as the company had organic revenue growth of 37%.

The company saw an increase in its market share of the nonalcoholic, ready-to-drink beverages as the company saw gains in both the at-home and away-from-home channels. The away-from-home channels were especially hit hard by Covid-19 as convenience store, restaurant and grocery store sales were very weak last year as consumer were largely required to stay home.

Concentrate sales were up 26% companywide, with all regions and business units posting at least 15% year-over-year growth. The Europe, Middle East and Africa region was the top performer with a 41% improvement in concentrate sales. Latin America was up 29%, North America grew 16% and Asia Pacific was higher by 15%. Price and mix added 11% to total revenue, with the EMEA and North America regions being the strongest performers.

Unit case volumes enjoyed robust demand as volumes were up 18%. Bottling investments had 25% increase due to strength in India and South Africa. EMEA led the way by region with a 21% gain. All other regions and businesses improved by at least a double-digit figure.

Looking at beverage types, sparkling soft drink volumes improved 14%, led by high double-digit gains in Sprite and Fanta. Top-selling global brand Coca-Cola grew 12%. The nutrition, juice, dairy and plant-based beverage category was higher by 25%, primarily due to increases in Minute Maid. Hydration, sports, coffee and tea were up 25%. Coffee was the real bright spot as volumes were higher by 78%, mostly as a result of the reopening of Costa retail stores in the U.S. Sports drinks also did well, growing 35% with volumes above what was seen in the same period of 2019. Hydration saw demand across the board geographically as unit cases grew 21%.

As a result of sales and market share gains, Coca-Cola experienced a 210-basis point expansion of its operating margin to 29.8%.

Coca-Cola’s balance sheet appears to be solid. The company ended the most recent quarter with $87.3 billion of total assets, $19.2 billion of current assets and $10.9 billion in cash, cash equivalents and short-term investments. Total liabilities numbered $68.1 billion, including $14.6 billion of current liabilities. Total debt is sizeable at $42.8 billion, but just $2.7 billion of debt matures within the next 12 months. The company also generated free cash flow of $5.1 billion in the first half of the year, a staggering $2.8 billion increase from the prior year.

On the strength of the most recent quarter, Coca-Cola lifted its guidance for 2021. The company now expects organic revenue growth of 12% to 14%, up from high single digits previously, and adjusted earnings per share growth of 13% to 15%, up from high single digits to low double digits previously.


While the most recent quarter was going up against greatly depressed figures, the results were good even against pre-pandemic numbers. Looking back at the second-quarter of 2019, revenue and net income were both up 1.3%. These are not exactly barn-burning growth rates, but the second quarter of 2021 does stand as Coca-Cola’s most successful quarter in a very long time.

Unit cases are also much more in line with 2019 levels as the loosening of some social distancing restrictions has seen an uptick in demand throughout Coca-Cola’s distribution channels. This combined with market share gains seen in the most recent quarter show that consumers continue to seek out the company’s products.

Organic growth also accelerated from the first quarter of the year to the high 30% range from 18% in the first quarter. Growth was broad based, with all parts of the company contributing to results. EMEA was the standout with organic growth of more than 60%. Latin America added a gain of nearly 40%, while North America and Asia Pacific were in the high 20% range.

Wide-ranging growth also applies to the Coca-Cola’s different beverage categories, with each up at least 14%. Some of this is due to the relaxing of social distancing restrictions in certain markets, but some products, such as sports drinks, are also ahead of where they were before the pandemic. And considering how entrenched trademark Coca-Cola is as the world’s top-selling carbonated beverage, a double-digit increase speaks to the brand’s demand amongst consumers.

Another positive sign is that Coca-Cola’s operating margin is within striking distance of its result in the second quarter of 2019. The most recent quarter’s 29.8% mark is just below the 29.9% figure in 2019. Year-to-date cash from operations ($5.5 billion versus $4.5 billion) also favors the latest quarter.

The company followed up an excellent quarter with an increase in its expectations for both organic revenue and adjusted earnings per share. This implies that leadership believes the results seen in the second quarter are at least somewhat sustainable through the end of the year. The comparisons will likely be more formidable for the second half of the year just because Coca-Cola saw improvements in its business over this same time period in 2020. The upwardly revised guidance supplies some confidence that the company will continue to do well even if the comparable quarters become slightly more difficult.

Valuation analysis

Coca-Cola’s stock does come at a premium to its valuation, at least on a historical basis. Using my July 22 purchase price of $56.46 and the new midpoint of expected earnings per share of $2.22, Coca-Cola has a forward price-earnings ratio of 25.4.

Shares have an average price-earnings ratio of just over 21 since 2011. Reverting to the mean valuation would result in a 17% decrease in share price.

However, using intrinsic value as calculated by GuruFocus, referred to as the GF Value, Coca-Cola doesn’t appear to be overtly expensive at all.


Coca-Cola has a GF Value of $53.28, equating to a price-to-GF Value of 1.06 from my purchase price. The stock earns a rating of fairly valued from GuruFocus.

Final thoughts

Coca-Cola faced an easy comparison to the same quarter a year ago, but still managed to see organic revenue and earnings per share figures that was far ahead of what analysts had expected. The company’s organic growth rate increased sequentially and market share was taken in multiple product categories. Coca-Cola saw strength in every business segment and region and raised its forecast for the year.

I have concentrated nearly all of my investments in dividend-paying stock,s and Coca-Cola has a lot to offer on this front. As I discussed previously, Coca-Cola has one of the longest dividend growth streaks in the marketplace. The stock also offers a dividend yield of nearly 3%, which is more than twice that of the average yield of S&P 500 index.

One of my principal investment strategies is to acquire stocks of companies that beat and raise revenue and earnings estimates. Given the quality of Coca-Cola’s most recent quarter, the raising of expectations for the rest of the year, the fact the company is recovering from the Covid-19 pandemic at a fast rate, the stock’s yield and the company’s status as a Dividend King, adding to my position made much sense from my perspective. I would be a buyer of the stock on any weakness as well.