Champagne Results On A Coca-Cola Budget

Champagne Results On A Coca-Cola Budget
Daniel Johnston

10 months ago2 mins

Mentioned in story

What’s going on here?

Coca-Cola reported sparkling quarterly results on Monday.

What does this mean?

Consumer staples companies like Coca-Cola sell products that folk tend to buy come hell or high water. So even though this year feels like the former, the beverage firm’s results were heavenly. Coca-Cola coughed up more for raw materials and shipping, sure, but it pulled up prices to help plug the gap. And soft-drink-aficionados were willing to spend big on the sweet stuff: they guzzled the drink, especially at public venues like restaurants and events. So even though the firm’s drinks were 11% more expensive on average, Coca-Cola sold 3% more. Tumblers were likely switched for champagne glasses in the boardroom: the company’s revenue and profit both smashed through expectations.

Coca-cola sales

Why should I care?

The bigger picture: Buffett’s beverage.

Mind you, Coca-Cola must’ve done something right besides simply being a consumer staple. After all, Procter and Gamble’s results last week revealed slipping demand, despite the firm boasting expectation-beating results. There will be a, ahem, secret formula to the beverage firm’s success, for sure, but one key ingredient will be its dominance in the carbonated drinks industry, with only PepsiCo keeping it company. Add on its world-famous brand and a dependable dividend, and it’s no wonder why Warren Buffett’s long been a fan of the fizzy stuff.

For markets: PepsiOhNo.

Still, Coca-Cola’s stock has only crawled up 2% this year, languishing far below the S&P 500’s 8% pick-up – and rival PepsiCo’s in the same boat. There might be a couple of reasons for that. For one, the sector’s trading at a valuation around 25% higher than its historical average, so it’s far from a bargain. And for another, safety-seeking investors have a whole bunch of lower risk, higher yield alternatives now that interest rates are floating higher.

Coca-Cola stock
Source: Google Finance


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