Coca-Cola (NYSE:KO) Exceeds Q4 Expectations

Jabin Bastian /
2024/02/13 7:57 am EST

Beverage company Coca-Cola (NYSE:KO) reported Q4 FY2023 results topping analysts' expectations, with revenue up 6.4% year on year to $10.85 billion. It made a non-GAAP profit of $0.49 per share, improving from its profit of $0.45 per share in the same quarter last year.

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Coca-Cola (KO) Q4 FY2023 Highlights:

  • Revenue: $10.85 billion vs analyst estimates of $10.65 billion (1.9% beat)
  • EPS (non-GAAP): $0.49 vs analyst estimates of $0.49 (small beat)
  • Guidance for 2024 EPS (non-GAAP): 4-5% year on year growth from 2023 (in line with expectations)
  • Free Cash Flow of $1.82 billion, down 53.5% from the previous quarter
  • Gross Margin (GAAP): 57.3%, up from 55.7% in the same quarter last year
  • Organic Revenue was up 12% year on year
  • Sales Volumes were up 2% year on year
  • Market Capitalization: $258.1 billion

A pioneer and behemoth in carbonated soft drinks, The Coca-Cola Company (NYSE:KO) is a storied beverage company best known for its flagship soda of the same name.

Beverages and Alcohol

The beverages and alcohol category encompasses companies engaged in the production, distribution, and sale of refreshments like beer, wine, and spirits, along with soft drinks, juices, and bottled water. These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the explosion of alcoholic craft beer drinks or the steady decline of non-alcoholic sugary sodas. The industry is highly competitive, with a diverse range of products from large multinational corporations, niche brands, and startups vying for market share. It's also subject to varying degrees of government regulation and taxation, especially for alcoholic beverages.

Sales Growth

Coca-Cola is one of the most widely recognized consumer staples companies in the world. Its influence over consumers gives it extremely high negotiating leverage with distributors, enabling it to pick and choose where it sells its products (a luxury many don't have).

As you can see below, the company's annualized revenue growth rate of 11.5% over the last three years was decent as consumers bought more of its products.

Coca-Cola Total Revenue

This quarter, Coca-Cola reported solid year-on-year revenue growth of 6.4%, and its $10.85 billion in revenue outperformed Wall Street's estimates by 1.9%. Looking ahead, Wall Street expects sales to grow 2.8% over the next 12 months, a deceleration from this quarter.

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Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether Coca-Cola generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, Coca-Cola's average quarterly volume growth was a healthy 3.5%. Even with this good performance, we can see that most of the company's gains have come from price increases by looking at its 13.9% average organic revenue growth. The ability to sell more products while raising prices indicates that Coca-Cola enjoys some degree of inelastic demand. Coca-Cola Year-On-Year Volume Growth

In Coca-Cola's Q4 2023, sales volumes jumped 2% year on year. This result was an acceleration from the 1% year-on-year increase it posted 12 months ago, certainly a positive signal.

Key Takeaways from Coca-Cola's Q4 Results

We were impressed with the magnitude of organic revenue growth this quarter, which also exceeded analysts' estimates. This led to a revenue beat, and while operating margin missed, EPS was in line with analysts' expectations. Looking ahead, guidance for 2024 EPS is also in line with expectations, showing that the company is staying on track. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is flat after reporting and currently trades at $60.15 per share.

So should you invest in Coca-Cola right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.