The Coca-Cola Company’s continued optimism in the face of rising supply costs and pandemic volatility has analysts feeling that the conglomerate is in a strong position to meet growth projections next year, according to reports from a reception led by Coke’s senior management team in New York this week.
Speaking during a live event Wednesday, Coke chairman and CEO James Quincey, CFO John Murphy and global CMO Manolo Arroyo reiterated the positive 2022 outlook from the company’s Q3 earnings call in October. According to analysts from Goldman Sachs Equity Research, Coke is confident it can offset input cost pressures through its pricing power, respond to COVID-related market shifts in a “faster, more targeted way,” and reinvest savings from its corporate restructuring into marketing and target innovations.
“[Given] the company’s ongoing restructuring program, it’s clear that [management] believes that the company’s more nimble operating structure puts it in a far better position to pivot its business with greater agility and speed in the event mobility decreases & restrictions increase against the backdrop of an asynchronous recovery,” the report stated.
While Coke leadership has refrained from giving explicit guidance for fiscal year 2022 due to significant market uncertainties, the Goldman report estimated that the company is on track to meet its top and bottom line growth algorithm of 4%-6%.
“Additionally, we also came away with a more reinforced view that [Coke] has the pricing power on top of improving mix as mobility continues to rebound, something that should broadly offset rising cost pressures next year,” the report added. “Finally, with respect to capital allocation and M&A, it’s clear that [Coke] is confident in its balance sheet & ability to generate free cash flow.”
Analysts from Credit Suisse were similarly optimistic about the company, providing an Outperform rating for its target stock price and noting that with “the pandemic’s worst likely passed” Coke is positioned for a period of mid-single or double-digit topline growth and high-single digit bottom line growth.
In particular, Credit Suisse pointed to Coke’s restructuring efforts as a significant advantage, as the elimination of “Zombie brands” (including products like Zico and Odwalla) has left the portfolio “in a good place” as the company has focused more on scalable, regional and global innovations. However, the extent of the company’s restructuring in fall 2020 has gone “under-appreciated by investors,” the analysts said; according to the company, 62% of corporate employees were in new roles as of the first six months of 2021 and the new model “can support high investment spend as well as operating leverage.”
Goldman highlighted the recent acquisition of BODYARMOR as another positive sign, noting that Coke can extend the brand’s reach in the U.S. and overseas and, combined with Powerade, positions the company to go head-to-head with Gatorade.
During the reception, Goldman reported that Coke leadership also said they’ve seen an “encouraging” early performance from Topo Chico Hard Seltzer, a sign that the company could go further into the alcoholic sector in the future. Notably, Daniel White, chief of new revenue streams at Coke, told an audience in Santa Monica, California during BevNET Live Winter 2021 this week that the company has identified alcohol as one of five new pillars for growth. While he said Coke is approaching the space with caution, very little is off the table, including potential line extensions for core brands.