First the good news. Coca-Cola (KO) reported the firm's second quarter financial performance on Wednesday morning. The global purveyor of soft drinks and other beverages reported earnings growth for a second consecutive quarter on revenue growth for a first quarter after four consecutive quarters of year over year contraction.
For the period reported, Coca-Cola posted adjusted EPS of $0.68, which beat Wall Street. GAAP EPS of $0.61 still beat Wall Street. Revenue generation increased 42% over last year's pandemic suppressed comparison to land at $10.1 billion. Organic revenue growth landed at 37%, and that decisively beat expectations that were down around 29%. This includes 26% growth in concentrate sales and 11% growth in price/mix... the implication being that Coke's improved performance is closely tied to the reopening of restaurants, stadiums, theaters and all kinds of institutional sales linked to the economic reopening.
Operating margin printed at 29.8% for the quarter, up from 27.7% a year ago. Comparable (adjusted) operating margin improved to 31.7% from an even 30%. This improvement was primarily driven by favorable channel and package mix where uncertainty related to the virus is abating.
Segment Performance & Outlook
Unit case volumes increased some 18% overall, as Europe, Middle East & Africa produced unit case sales growth of 21%. Unit case volumes increased 12% in Latin America, 17% in North America, 16% in the Asia Pacific region, 48% for Global Ventures, and 25% for Bottling Investments.
The company for full year 2021 now expects to see organic revenue growth of 12% to 14%, and comparable EPS growth of 13% to 15% or EPS of $2.20 to $2.24. This is above the roughly 12% comp earnings growth or EPS of $2.18 that Wall Street is looking for.
Coca Cola CEO James Quincey said on Wednesday morning: "Our results in the second quarter show how our business is rebounding faster than the overall economic recovery, led by our accelerated transformation. As a result, we are encouraged and, despite the asynchronous nature of the recovery, we are raising our full year guidance." Separately, and quite interestingly, on CNBC after the results had been released, Quincey mentioned that the firm is not seeing an impact from the spread of the Delta variant of the SARS-CoV-2 coronavirus, even in areas suffering from high rates of infection.
I do like the direction that the firm is moving, despite the fact that I am long PepsiCo (PEP) , and when I have myself a cola, I prefer Pepsi. That said, I am not sure this morning is a good time for a purchase of the stock. Readers will see that KO has been appreciating all year, and instead of basing as a means of consolidation, the stock formed a smallish cup with handle pattern with a pivot of $56.75.
Nothing wrong with that. What troubles me a bit, is the gap formed this morning between $56.30 and $57.50. I think this gap likely fills. At the very same time, the RSI (Relative Strength Index) and the Full Stochastic Oscillator appear to agree that KO is technically overbought at the moment. If you want these shares, I think you can buy them a dollar cheaper than they are trading right now.
My thinking is instead of paying $57 and change for these shares, go out a month (to August 20th) and either sell the $56.50 puts for about $0.70 or the $56 puts for roughly $0.50. Might as well get paid to have the shares come to you. This is a worthy stock, and it does pay shareholders 3% just to stick around.
Watch Real Money's Real Talk: Debating the Death of FAANG, Thursday, July 22, 2021 at 11:30 am E.T.
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