A rebound in the away-from-home business helped The Coca-Cola Company to beat analysts’ revenue projections for Q4 2021, even as lingering supply chain questions means an asynchronous recovery.
As highlighted by CEO James Quincey in remarks this morning, Coca-Cola gained market share in both the at-home and away-from-home segments, surpassing 2019 levels, which the company interprets as a mandate to further “invest in growth.” The fourth quarter marked the first earnings period in which away-from-home volume was ahead of pre-pandemic 2019 levels.
Here are the top-line highlights:
- Net revenue in Q4 2021 was up 10% to $9.5 billion, including a nearly 10% increase in price/mix, credit in part to “recovery in the fountain business and away-from-home channels, and strong growth in premium offerings.” Net revenue rose 17% to $38.7 billion for the full-year.
- Unit case volume grew 8% for the quarter, led by sparkling soft drinks and sports drinks.
- Nutrition, juice, dairy and plant-based beverages grew 11% for the quarter and 12% for the year, finishing with higher volume than 2019.
- Hydration (+11%), sports drinks (+18%), coffee (+17%) and tea (+10%) together were up 12% during Q4. The segment increased 7% for the full year.
- Sparkling soft drinks rose 8% during Q4 2021 and 7% for the full year, resulting in volume ahead of 2019. Trademark Coca-Cola (+7%) and sparkling flavors (+9%) were both highlights, with the majority of growth being driven from Europe, Middle East & Africa and Asia Pacific markets.
- Operating income declined 28% for the quarter and grew 15% for the year.
Looking ahead to the full year 2022, Coca-Cola is projecting organic revenue (non-GAAP) growth of 7% to 8%.
BodyArmor Sticking With U.S. Co-Packing Model, For Now
Coke’s acquisition of BodyArmor last year was the culmination of years of close work between the two brands, beginning when the soda giant became an investor and the primary distribution partner in 2018. Though BodyArmor is now officially an in-house brand, the relationship is “connected but not integrated,” according to Quincey, as long-term questions over manufacturing strategy are yet to be answered. The sports drink is currently produced via a network of independent co-packers, then handed off to Coke to distribute as a finished product. That model will remain in place for the foreseeable future, said Quincey, who characterized it as having a “mechanical effect on revenue and gross margins.”
However, the CEO was more ambivalent about how BodyArmor will be manufactured outside of North America. The location and timetable for the brand’s international expansion will be determined this year, he said, at which point Coke will consider making the switch to manufacturing product via a concentrate model, which he acknowledged would “make sense” for it to organize under. That concentrate model could run either through its affiliated bottlers or copackers on a “situational” basis, he said.
“Vision” For Coffee Still There, Despite “Lost Years”
While its BodyArmor acquisition has been the big M&A story of the past year, Coke’s equally big bet on international coffee roaster and retailer Costa has been somewhat lost in the mix. Quincey pointed to limited wins — including leaning into automated coffee vending technology with the launch of Costa Express in the U.K. and 2020’s acquisition of Texas-based BaristaBot — and emphasized that the “vision is still there” for coffee, while acknowledging that “clearly we lost years” on the project due to pandemic setbacks.
Prudent Approach To Pricing
Coke’s outlook for 2022 assumes that the COVID-19 pandemic will continue to recede globally, that markets will reopen and that previously planned activations will be back on schedule. With regards to inflation, Quincey noted that the company has broad experience managing inflationary changes across markets over a long period, and that Coke will continue to leverage innovation and marketing activity in order to avoid passing price increases onto consumers if possible. The CEO stated that inflation will eventually have a pronounced effect on real income, and that Coke does not want to lose consumers because of affordability issues. The balance of volume and price mix within the overall 2022 guidance reflects that, he noted.
Supply Chain Forecast Remains in Flux
As it examines ways to strategize around pricing, Coke must weigh supply chain considerations into that equation. Speaking broadly about his observations in the segment, Quincey noted that COVID-19 didn’t cause but rather exacerbated existing underlying issues within manufacturing and trucking, with “structural problems coming home to roost.” That includes factors like resistance to vaccine mandates and truckers aging out of the job; in production, it means trying to quickly close the gap in can manufacturing after years in which production levels remained flat. As it works alongside the rest of the industry to make the necessary adjustments and fixes to the chain, Quincey said he expects to see a reduction in the “kind of temporal amplitudes from the swings from COVID and the steady fixing of some of these structural issues.”