Coca-Cola Exits Recession, Growth On Tap When it comes to consumer staples and the beverage industry we prefer Pepsico (NASDAQ: PEP) over Coke (NYSE: KO) for its value, dividend growth, and diversification.

The Coca-Cola Company Moves Up After Q1 Earnings

When it comes to consumer staples and the beverage industry we prefer Pepsico (NASDAQ: PEP) over Coke (NYSE: KO) for its value, dividend growth, and diversification. When it comes to the reopening and a play on food-away-from-home, travel, and leisure Coke is it. The company is by far the leading choice among both consumers and establishments when it comes to beverage service. With reopening already underway and expected to gain momentum, we view Coca-Cola as not only a good dividend-growth investment but one supported by strong secular tailwinds that are itching to be released.

The Coca-Cola Company Beats And Raises, Shares Move Higher

Shares of The Coca-Cola Company are moving higher after the company not only beat the top and bottom line consensus but raised its full-year guidance as well. The company reported $9.0 billion in net consolidated revenue which is up 4.7% from last year and beat the consensus by 420 basis points. The revenue is also noteworthy because it is up sequentially by 460 basis points and back to pre-pandemic levels. Based on the fact the $9.0 billion is a three-year seasonal high we view this data as better than pre-pandemic. And there is more growth on tap. The only downside to the data is that there were five more days in the 2021 quarter which impacted results by 6.0% so there is that to consider.

At the organic level, Coke grew its revenue by 6.0% versus the 0.0% expected by analysts driven by strength in most operating regions. Europe was the weakest with -7% organic growth while Global Ventures shrank a smaller -2.0%. Asia-Pacific was strongest with 18% organic growth followed by 17% growth in the Bottling Investments business.

Moving down to the earnings, the company was able to leverage its business and cost-savings initiatives. Both the gross and operating margins came in above the consensus to drive operating income up 14% for the quarter and produce better than expected EPS. The GAAP EPS beat by $0.02 despite falling YOY while the adjusted $0.55 beat by a nickel and grew from last year despite a 2.0% FX headwind.

As for guidance, the company is expecting to see FY 2021 revenue growth in the high-single digits with a high-single to low-double-digit increase in earnings. This is, of course, against some fairly easy comps but assumes sequential growth over the coming quarters. Based on our estimates The Coca-Cola Company should see its revenues advance high-double-digits in the 2nd quarter and approach the $10 billion mark.

The Coca-Cola Company Delivers Value To Shareholders

The Coca-Cola Company yields about 3.15% with shares trading near $53.50 and is on track to increase the payout for the 59th year. The payout ratio is a bit high at 78% but there are a few things to consider. The first is that growth is back on the table and supported by what we view as a very strong reopening scenario. The second is that this company has a strong balance sheet and ample free cash flow, more than enough to sustain future increases. The third is that this is not the only way The Coca-Cola Company gives value, there are also potential buybacks to consider and the just-announced spin-off of CCBA. CCBA, or Coca-Cola Bottling of South Africa, will be spun into a stand-alone company to include a small IPO. Funds from the move may be used to pay down debt, free up cash flow, and invest in growth.

The Technical Outlook: The Coca-Cola Company Is On Break-Out Alert

Shares of The Coca-Cola Company are up nearly 1.0% in premarket trading and at a new three-month high. The new high confirms the uptrend and puts the stock on track to retest the current all-time high by early to mid-summer. If the reopening is half as strong as we think it will be this stock should break out to new all-time highs by the Q3 reporting season, if not sooner.

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