Despite high inflationary pressures, The Coca-Cola Company beat analyst expectations for its Q1 2022 earnings report today, announcing 16% net revenue growth to $10.5 billion, and 18% organic revenue growth – about double analyst consensus prior to the announcement.
The Atlanta-based beverage giant saw its cost of goods rise 17% to over $4 billion during the quarter, as the global economy grapples with escalating inflationary pressures. Price/mix grew 7%, and operating income increased 25% to approximately $3.4 billion. Consolidated unit case volume was up 8%.
“After a promising start to the year, the operating environment soon changed with very significant geopolitical conflict, a resurgence of COVID in various places, record-high inflation and continued challenges on the supply chain front,” chairman and CEO James Quincey said during an earnings call today. “Nonetheless, we’ve consistently sustained our momentum from last year, moving with agility as conditions changed to generate strong top and bottom line growth in the quarter.”
Sparkling soft drinks were up 7% globally, propelled by trademark Coca-Cola (+6%), Coca-Cola Zero Sugar (+14%) and sparkling flavored drinks (+7%). Nutrition, juice, dairy and plant-based beverages were up 12%, led by fairlife in the U.S., Minute Maid Pulpy in China and Maaza in India. Hydration, sports, coffee and tea was up 10% in the quarter and hydration in particular rose 8%, led by strong growth in Latin America and Europe, Middle East and Africa.
Sports drinks increased 22%, with strong growth from BodyArmor and Powerade. Tea improved 8%, led by Brazil, Japan and Mexico. Coffee was up 27% as the company cycled the impact of Costa retail store closures in the U.K. last year and continued expansion of the Costa brand across global markets.
Operating margin was 32.5% compared to 30.2% in the previous year and comparable operating margin (non-GAAP) was 31.4% versus 31%. The expansion was fueled by “strong topline growth” but was partially offset by increases to marketing spend and costs from its acquisition of sports drink BodyArmor. Earnings per share rose 23% in the quarter to $0.64.
In North America, unit case volume grew 5%, driven by recovery of the company’s fountain business, while sparkling soft drinks and sports drinks led CPG growth. Price/mix increased 11% as Coke has issued price hikes across its portfolio. Operating income grew 33%.
The company also said it intends to focus on its new “Magic Weekends” marketing campaign for trademark Coca-Cola by partnering with food service aggregators, including DoorDash, to push more digital point-of-sale engagement with a focus on Coca-Cola Zero Sugar.
During the call, Quincey noted that despite an uncertain market environment, the company believes the impacts of the pandemic are continuing to subside and is working closely with its bottling partners to navigate supply chain disruptions and inflation.
“The multiple levers of revenue growth management [RGM] have never been more important, and our investments in building this capability over the past few years are giving us a clear advantage,” he said. “Further actions on pricing will depend on the consumer and inflationary environment as the year progresses, but we will continue to rely on a mix of price, package differentiation and ever-sharper promotional strategies. Through integrated RGM and execution capabilities, we adapt to local market conditions and give consumers what they want, where they want it and at the right price.”
Speaking during the call’s Q&A portion, Quincey noted that as Coke mulls more price increases across its product lines, its brands need “to earn the right for pricing,” with hikes being backed by more investment in marketing, retail activation and innovation.
“It would be great if there were a perfect landing out of this inflationary environment,” he said. “The rhyme of history would tell you that at some point, either inflation or reduction in purchasing power or supply constraints eventually create a bump. And at that point, we will want to both be accessing the premium opportunities that have but very much with an anchor in the affordability and entry price point opportunities and necessities as consumers come under pressure.”
Outside of the U.S., Coke’s international business has taken a hit since the company announced the suspension of business operations in Russia in response to the war in Ukraine. As a result, unit case volumes are estimated to have slipped 1%, with a 1% to 2% impact to net revenues and operating income. The Coca-Cola Foundation has committed to financial support for the Red Cross and product donations to Ukraine totaling around $15 million.