Coca-Cola $KO once again confirmed in Q3 why it is one of the most reliable stocks on the market 🥤
Revenue reached 13.4 billion USD, versus an estimate of 12.92 billion (+7% year over year). Adjusted earnings per share came in at 0.91 USD, compared with an estimate of 0.88 USD (+11%). Both figures beat expectations.
But what honestly caught my attention most in the report was:
- Unit sales rose 5%. This is key. In recent years, Coca-Cola’s growth has mainly come from price increases, but now it is also selling more beverages in real terms. So it is growing through quality, not just higher prices.
- Operating margin is 33.4%, up 1.4 percentage points from last year. For every dollar of revenue, the company keeps more than 33 cents after operating expenses. For a company that sells sugary water, that is an absurdly high figure.
- Operating profit rose 12%, faster than revenue. The company is scaling.
Free cash flow for the first three quarters reached 11.4 billion USD. This is what pays the dividend.
Management raised its full-year outlook:
- organic revenue growth of at least +5%
- comparable earnings per share growth of at least +11%
- free cash flow of at least 13 billion USD
In Q4, acquisitions and structural changes will weigh on results, by roughly 4% for revenue and 3% for earnings. A weaker dollar will provide an offset (+1% to revenue, +4% to EPS). The effects should roughly cancel out in the accounts, but the fourth quarter will not be as clean as this one.
Coca-Cola is not a stock that will double your money in a year. People are cutting back and many brands are losing volume, yet it is selling more units and achieving higher margins. That is something only a company with real pricing power and a brand people do not want to switch from can do.
Coca-Cola is a textbook example of a defensive stock: even when markets fall, people keep drinking cola. The question that remains is valuation, because quality always commands a premium in the market.
