Coca-Cola – spritely sales leads to profit upgrade
- Third-quarter revenue grew 11% organically to $12.0bn
- Operating income of $3.3bn, up 6%
- Free cash flow of $7.9bn year-to-date, up $636m
Aarin Chiekrie, equity analyst at Hargreaves Lansdown:
“Coca-Cola’s diverse range of brands continues to keep performance fizzing. Organic revenue grew at double-digit rates again this quarter, with both prices and volumes contributing positively. And spritely sales of household names like Coca-Cola, Fanta and Costa Coffee means full-year revenue and profit guidance got a hefty upgrade.
A major differentiator between Coca-Cola and most other drinks-makers is its operating model. Rather than investing in big manufacturing plants, the group partners with and holds stakes in, local bottling companies. That allows the group to keep a lid on costs and is supporting industry-leading gross margins of around 60%. Acquisitions of Costa Coffee and BODYARMOR sports drinks in recent years have brought plenty of benefits, not least giving the group exposure to areas of the drinks market with plenty of room to grow. However, these acquisitions have put some strain on the balance sheet, so paying down debt levels will likely remain a major focus for the group in the near term.
Being one of the strongest brands in the world, Coca-Cola’s got plenty of staying power, and there’s a lot to be said for that in an uncertain environment. Stable dividends add to the investment case, but expect to pay a premium for these benefits as the group trades at around 20x next year’s earnings.”
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