Kudos to Coca-Cola(NYSE: KO). The beverage behemoth topped its fourth-quarter revenue estimates and matched its earnings expectations. Shares slumped a little following the news, but that stumble had more to do with marketwide weakness than the company's fourth-quarter results.
Perhaps more important than Coca-Cola's quarterly numbers, however, is what a couple of details buried within those numbers mean. The already bullish case for owning a stake in this company just got even better.
Two clear clues that Coca-Cola is unstoppable
For the three-month stretch ended in December, Coca-Cola turned sales of $10.8 billion into non-GAAP (adjusted) earnings of $0.49 per share. The top line improved 7% on a year-over-year basis (although organic non-GAAP sales were up 12%), while operating per-share profits grew 10%.
Earnings were in line with estimates, but the top line topped analysts' expectations of only $10.7 billion. Those numbers cap off a similarly solid full fiscal year. The exciting part of the fourth-quarter figures, though, is buried deeper in the report -- in two places.
1. Coca-Cola still enjoys plenty of pricing power
The first of these places is in the company's explanation of how it managed to grow its sales so well in an economic environment that's proving challenging for consumers. Coca-Cola's Q4 press release notes that "organic revenues (non-GAAP) grew 12%, driven by 9% growth in price/mix and 3% growth in concentrate sales."
Translation: Most of last quarter's top-line improvement is the result of price increases passed along to its bottling partners and, ultimately, to consumers. The total volume of beverages sold in Q4 was only up 2% year over year.
This is not insignificant. Plenty of households in the U.S. and abroad are more cost-conscious than usual right now. Domestic credit card debt is at record levels, and delinquencies are (finally) starting to surge. More people are also borrowing from their 401(k) accounts now, underscoring just how tough things are at this time. These strained consumers still found a way to pay a slightly higher price for their favorite Coca-Cola-made drink.
That's not a mere stroke of luck, by the way. That's the outcome of years' worth of brilliant advertising, with lots of lifestyle marketing to back it up. More to the point, it's the result of the incredible brand loyalty the beverage company has fostered over the years -- a tailwind that doesn't die easily. In fact, although it didn't offer any specifics, Coca-Cola's Q4 press release adds, "For both the quarter and the full year, the company gained value share in total nonalcoholic ready-to-drink (NARTD) beverages."
2. Costs remain in check
And the other hidden victory in last quarter's numbers? Although Coca-Cola may be charging higher prices to its customers, it's not experiencing as much cost pain itself.
There are a couple of metrics pointing to this conclusion. One of them is the company's operating margin rates. Coca-Cola's operating profit margin of 21% for the three months ended in December was up slightly from the year-ago comparison of 20.5%. For the entirety of 2023, operational margins improved from 22.7% to 23.1%. In this vein, the company's cost of goods sold (production, logistics, inputs, etc.) was only up 3% year over year during Q4, as it was for all of 2023.
Another way of measuring the success of Coca-Cola's cost-curbing efforts is the company's cash flow. It grew, too. All told, last year's operating cash flow of $11.6 billion was up 5% year over year. Per-share operating earnings of $2.69 improved 2022's tally by 8%, boosted slightly by stock buybacks.
More of the same is in the cards too, at least according to CFO John Murphy. He believes growth of the company's operating costs will continue cooling off this year, and at the same time expects Coca-Cola's organic revenue to improve between 6% and 7%. The end result, he said during the company's latest earnings call, will be wider profit margins.
The bullish case here is (still) rock-solid
Obviously, there's more information in Coca-Cola's Q4 report to consider than just these two points of data. Besides, companies are more than their numbers. Product quality, marketing ideas, intellectual property, name recognition, and even corporate leaders are also factors that matter, as the right combination of these things can change a company's results for the better. That's why you should always consider the bigger picture before stepping into any stock.
On the flip side, strong numbers are often evidence that an organization has mastered the business it's in. That's particularly true when the organization in question is a company like Coca-Cola, which has been producing these kinds of results and this kind of growth for a long, long time.
It's getting very difficult to find any reasons not to own a piece of this beverage giant.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
