The release of Coca-Cola's first-quarter financial report has excited many investors. Q1 performance exceeded expectations across the board: revenue and net profit increased, while bubbles, sugar-free, juices, plant-based and coffee and other categories also achieved strong growth.
On April 25, before the US stock market, Coca-Cola released its financial report for the first quarter of 2022, and its performance was eye-catching. According to the earnings report, Coca-Cola's first-quarter revenue was $10.491 billion, up 16% year-on-year, exceeding market expectations of $9.83 billion; operating profit was $3.405 billion, up 25% year-on-year; net profit was $2.793 billion, compared to $2.245 billion in the year-ago quarter, up 24% year-on-year; basic and diluted earnings per share were $0.64, exceeding the market's general estimate of $0.57, compared with $0.52 in the same period last year.
Image source: Coca-Cola earnings report
As of the close of trading on April 25, EST, Coca-Cola rose 1.06% to $65.94, better than the U.S. stock market, on the back of strong fundamentals in the first quarter.
The performance exceeded expectations across the board, and revenue and net profit both increased
Under gaap guidelines, Coca-Cola's first-quarter operating profit was $3,405 million, up 25% year-over-year, and operating margin was 32.5% compared to 30.2% last year. Under non-GAAP guidelines, Coca-Cola's first-quarter comparable operating margin was 31.4 percent, compared to 31 percent in the year-ago quarter.
In the last annual report and fourth quarter financial report, Coca-Cola's operating margin for the fourth quarter and full year of 2021 was still declining, and Coca-Cola said at the time that it was mainly due to a significant year-on-year increase in marketing investment and a 6-day decrease in the fourth quarter, which brought about 6% of revenue growth resistance and the adverse impact of shipping time.
In terms of sales, global single-carton sales increased by 8% year-on-year; single-carton sales in the Asia-Pacific market increased by 4% year-on-year.
Coca-Cola said in its earnings report that operating margin growth was primarily driven by strong revenue growth, but was partially offset by higher marketing investments compared to the previous year, the acquisition of BODYARMOR and currency headwinds. In the fourth quarter of last year, Coca-Cola acquired the remaining 85% stake in the sports performance and water-replenishing beverage line BODYARMOR, transforming it into its own subsidiary.
By region and segment, net revenue in the EMEA region increased 13% year-over-year, Latin America net revenue increased 34% year-over-year, North America net revenue increased 22% year-over-year, and Asia Pacific net revenue increased 2% year-over-year. It is worth mentioning that the net revenue of the global venture capital division increased by 28% year-on-year, and the net revenue of the bottled product investment division increased by 8% year-on-year, that is, the number of Coca-Cola beverage sales increased by 8% in March.
Coca-Cola is building a competitive advantage through Revenue Growth Management (RGM): Leveraging RGM to deliver compelling customer and consumer solutions by niche, brand, price, packaging and channel segments. In India, for example, Coca-Cola is expanding its consumer base, expanding affordable products with key transaction-driven price points by using single-share packages. In the first quarter, this strategy yielded strong results, adding more than 500 million new transactions in India, an increase of nearly 20% over the same period last year.
Coca-Cola reduces its carbon footprint through packaging recycling and sustainable sourcing. Over the past quarter, Coca-Cola has expanded its reusable packaging portfolio by increasing recycling in many markets, including Australia, Brazil, Japan and Mexico. Among them, The Ocean Cleanup launched a garbage collection system in Vietnam for testing. The system will intercept plastic debris in major waterways before reaching the ocean, driving packaging cycles and supporting the company's "Waste-Free World" initiative, which includes recyclability and reduced virgin plastics.
Coca-Cola will also focus on cheaper, reusable glass bottles while countering the intense pressure on rising costs under high inflation.
In terms of cash flow, as of the first quarter of this year, the company had operating cash flow of $620 million, a decrease of $1 billion from the same period last year. Free cash flow (non-GAAP accounting standards) was $406 million, a decrease of $1 billion from the year-ago quarter. Coca-Cola said the decrease in cash flow was due to strong business performance offset by the impact of a higher working capital gains time cycle in the previous year.
The juice, plant-based, sugar-free beverages and coffee categories grew significantly
Coca-Cola's "All-Category Beverages" strategy has been successful and is constantly changing its product mix and innovating new products that reduce the sugar in beverages, focusing on new consumer goods such as juices, plant-based, sugar-free drinks and coffee, which are loved by Gen Z youth.
From the perspective of global beverage development trends, the decline in the market share of carbonated beverages has become an irreversible trend. Currently, Coca-Cola sells multiple multi-billion dollar brands in multiple beverage categories around the world. The bubble soft drink brand portfolio includes Coca-Cola, Sprite and Fanta.
Hydration, sports, coffee and tea brands include Dasani, Smartwater, vitaminwater, Topo Chico, BODYARMOR, Powerade, Costa, Georgia, Gold Peak, Honest and Ayataka. Nutraceutical, juice, dairy and plant-based beverage brands include Beauty Juice, Simply, Innocent, Del Valle, fairlife and AdeS.
By product category, Coca-Cola juices, plant-based, sugar-free drinks and coffee categories grew significantly. In 2021, traditional giants such as Nongfu Spring and Pepsi Cola have successively launched sparkling water products in the Chinese market after Yuanqi Forest, and Coca-Cola also launched AHHA small universe bubble water in the Chinese market last April.
In the first quarter of 2022, Coca-Cola sparkling soft drinks grew by 7% and zero sugar by 14%, and global single-carton sales in the nutritional, juice, dairy and plant-based beverage categories increased by 12%, mainly driven by strong growth in the Chinese market, fairlife in the US market and Maaza in india.
The Hydration, Exercise, Coffee and Tea categories grew by 10%. Of these, hydration increased by 8 percent, driven by strong growth in Latin America and Europe, the Middle East and Africa. Sports drinks grew 22 percent, driven by strong growth from BODYARMOR and Powerade®.
In Brazil, Japan and Mexico, tea grew by 8% and coffee by 27%, driven by the closure of Costa retail stores in the UK the previous year and the continued expansion of Costa coffee, which had been acquired in 2018.
In addition, Coca-Cola's share of value in the non-alcoholic ready-to-drink beverage market has increased, with both home and out-of-home channels increasing.
As a result of the conflict between Russia and Ukraine, Coca-Cola announced the suspension of operations in Russia, with an estimated direct impact roughly as follows: an impact of approximately 1% on single-box sales, a 1% to 2% impact on net income and operating income, and an impact of $0.04 on comparable earnings per share (non-GAAP principles).
Coca-Cola Company Chairman and CEO James Quincy said in the earnings report that he was satisfied with the results of the first quarter and was confident in the guidance for the full year.
For 2022 performance expectations, Coca-Cola expects organic revenue growth in the full year 2022 to be in the 7%-8% range; earnings per share will increase by 5%-6% compared to $2.32 in 2021. For the second quarter, Coca-Cola expects the foreign exchange factor to have a negative impact of approximately 4% on comparable net income (non-GAAP), including the impact on hedging positions.
At the same time, in terms of supply chain, Coca-Cola is also deepening and expanding to meet the growth needs of the market. However, in the context of emerging new product competition in China's beverage market environment and the cost of inflation has not yet cooled, How Coca-Cola continues to maintain its existing market share and steadily advances, it still faces certain challenges.
(This article was first published on titanium media APP, the author | Liu Dafang, the editor | Tianpeng)