Outlook for the full year improves as The Coca-Cola Company posts strong Q1 results
The Coca-Cola Company (KO) posted its expectation-beating Q1 2021 earnings. Revenue grew by 4.7%, and — more importantly — organic revenue growth came out higher by 6% (versus a flat consensus). Forward guidance confirmed the strong organic revenue growth as the management hinted at data into high single digits for the fiscal year 2021.
Investors rewarded the positive results by sending the stock price up $1 before some profit-taking took place. The company’s earnings-per-share (EPS) for the quarter also beat expectations, coming out at $0.52 (non-GAAP EPS $0.55) compared with an expected $0.51.
Strong Cash Flow Position and Improved Outlook
Cash flow from operations in the first quarter of the new fiscal year was $1.6 billion mainly due to positive working capital initiatives (net current assets on current liabilities). The company noticed a strong link between consumer mobility and consumption, as well as a link to the vaccination rates in different markets.
Solid growth in the sparkling soft drinks category in China, Latin America, and India was partially offset by losses in other regions of the world. Yet, The Coca-Cola Company strengthened its forward guidance, reiterating its FY 2021 outlook.
Goodwill remains an important position in the company’s balance sheet, growing slightly when compared to the last quarter. It suggests the company has made some acquisitions in the past that are still due to be tested for impairment in the period ahead.
An interesting detail from the first quarter’s earnings release is the increase of $121 million from the company’s economic hedging activities. Like many US corporations selling overseas, The Coca-Cola Company uses the derivatives market to hedge and mitigate the foreign exchange risk for certain currencies. It also uses hedges to protect against the changes in prices of vehicle fuel and materials used in the manufacturing process.
This is one of the updated categories under the full-year outlook, as the company expects about a 2% currency tailwind that basically includes the hedged positions. Similarly, comparable EPS will benefit from the same tailwind.
All in all, this is a strong report for a company that was partially affected by restricted mobility during the pandemic, and The Coca-Cola Company shares are up 16.42% in the last twelve months. Should the pandemic ease, as suggested by the vaccination rates so far, the company stands to benefit more from increased mobility.