The Coca-Cola Company announced strong Q2 earnings as it uses pricing strategies to offset inflationary headwinds and the looming pressure of a recession.
The Atlanta-based beverage company reported that net operating revenues were up 14%, $21.8 billion, in the first half of the year compared to the same period last year. The drink maker beat analyst expectations on adjusted earnings per share which were up $0.03 to $0.70 and revenue from $10.56 billion to $11.3 billion.
“Our first half 2022 results and the resilience of our business gives us confidence to raise our top line guidance,” chairman and CEO James Quincey said during a Tuesday morning earnings call. “This is offsetting the meaningful increases in cost and currency headwinds to hold our bottom line US dollar outlook of five to 6% growth even as we accelerate investments in our business to drive future growth.”
Coke’s operating margin was 20.7% compared to 29.8% in the previous year. Comparable operating margin (non-GAAP) was tighter at 30.7% versus 31.7% in 2021. Company executives pointed to the ongoing consolidation of the BodyArmor brand within Coke’s markets in pushing margins down.
The beverage maker remains optimistic that the sports drink brand will continue to innovate and grow within the system once it is fully integrated into the company’s system.
Quincey and analysts congratulated CFO John Murphy during the call on the recent news that he would be taking over the role of president along with his current title from retiring Brian Smith in October. Murphy attributed recent pricing actions and a return of away-from-home sales as contributors to the 12% price/mix. Yet, the company was preparing for more turbulent waters on the horizon as recessionary fears, unclear inflation data and the continuing impact of COVID on consumer buying trends weighs on the CPG market.
“We don’t know how it’s going to turn out,” Quincey said. “There’s clearly a set of things going on, and the net impact is difficult to predict in terms of the rest of the year.”
Whether a recession will squeeze consumers’ purchasing power and force trading down or slow the progress that Coke has seen in away-from-home channels is still unknown, but Quincey was confident during the call that Coke is “anchoring itself in affordability” to maintain the consumer base.
The company announced that it expects organic revenue growth at about 12%. Unit case volume grew 8% across all operating segments in Q2 with sparkling soft drinks leading the way while operating income declined by 22%.
Both Quincey and Murphy assured investors that pricing is front of mind for Coke moving forward and the company does not want to be chasing too far behind inflation; yet, how it strategizes price is dependent on many factors and is not based on the fluctuations of the spot commodities market.
The beverage giant remains confident that its infrastructure of bottlers is well-suited for a high inflationary period across all markets and the bottlers remain in “good health.” Coke’s leadership is banking on this adaptability and resilience to carry it through the tough economic periods ahead.
“We’ve been growing coming out of last year. We’re growing in each of the quarters this year. We’re still growing,” Quincey said.