Coca-Cola Boosts Annual Revenue Forecast After Unexpected Surge in Demand

Coca-Cola reported that it raised its annual revenue forecast on July 26, after a better than expected report, that demand for its sodas went up despite price increases to combat rising costs.

The company’s second-quarter earnings for 2022 exceeded expectations, boosting investor confidence that the soda giant will be able to navigate through a period of high global inflation.

Global sales volumes rose 8 percent in the second quarter, the beverage manufacturer reported, with adjusted earnings of 70 cents a share on $11.3 billion in annual revenue.

Analysts had earlier expected earnings per share of 67 cents on revenue of $10.57 billion, compared to earnings per share of 68 cents on revenue of $10.1 billion, the same time a year ago.

Organic Revenue Growth

Coca-Cola is expecting to deliver organic revenue growth of 12 to 13 percent for the 2022 fiscal year, up from previous estimates of between 7 to 8 percent.

Average selling prices increased by about 12 percent for the quarter, powered by growth in both developed and emerging markets.

For the three months ended July 1, net income was $1.91 billion, or 44 cents per share, it was $2.62 billion a year ago, at 61 cents per share.

Bottles of Coca-Cola are seen at a Carrefour Hypermarket store in Montreuil, near Paris, France, on Feb. 5, 2018. (Regis Duvignau/Reuters)

The corporate report noted that commodity price inflation is expected to be steeper than had been forecasted and maintains its previous outlook for comparable earnings per share to grow 5 to 6 percent from a year ago.

Coca-Cola said it is expecting a 6 percent currency headwind for the fiscal year, up from a previous guidance of 2 to 3 percent, and is also expected to impact third-quarter revenue by between 7 and 8 percent.

Adjusted earnings per share growth will also make a 9 percent negative impact from foreign exchange rates.

Resilience

Packaged food makers tend to be more resilient in markets where consumers spend more time eating at home than at restaurants and at venues like theme parks and movie theaters.

“Our results this quarter reflect the agility of our business, the strength of our streamlined portfolio of brands, and the actions we’ve taken to execute for growth in the face of challenges in the operating and macroeconomic environment,” said Coca-Cola CEO, James Quincey.

However, rising operational expenses are making an impact on prices, as comparable operating margins fell to 30.7 percent from 31.7 percent on an adjusted basis.

Quincey said that the company was prepared for an economic downturn with a switch to smaller and cheaper packaging while touting that its products have historically been among the last to see a slowdown in demand during a recession.

“We tend to have long lead times heading into a recession,” said Quincey.

A sign of the factory is during the inauguration of a new Coca-Cola mega factory in Sebeta, Ethiopia, on May 31, 2022. (Amanuel Sileshi/AFP via Getty Images)

When recessions do hit, consumers trend towards cheaper private-label items, but trading down in soft drinks normally only comes when people begin to face serious financial trouble.

He said that future price increases should be expected in markets where costs were increasing and passed onto consumers before a potential recession.

Coke’s shares on the Dow were up 2.2 percent in early trading, while the market, in general, dropped after Walmart announced a decrease in its 2022 profit expectations due to a slowdown in discretionary spending.

Its main rival PepsiCo, released a similar report last week and had expected an increase in organic sales growth of 13 percent, fueled by higher prices.

The beverage company reported no projected slowdown in annual demand while adding that there was space for prices to go up, as they expect inflation to worsen in the second half of the year.

Reuters has contributed to this report.