Coca-Cola (NYSE:KO) reported earnings last week, continuing to post strong results amid inflation. The company’s revenue for the second quarter rose by 3% to $12.4 billion, which was higher than analyst expectations of just $11.8 billion. It was sound beat for the company, which once again benefited from boosting prices. And management says it is still incurring higher costs and suggested that its prices may continue to rise.
Although the company is experiencing lighter demand, particularly in North American where unit volumes were down by 1%, Coca-Cola remains bullish on the year, as it raised its guidance. The company now projects its organic sales to rise between 9% and 10%, which is higher than its previous forecasted range of 8% to 9%.
The company, has, however, benefitted from hyperinflation in markets such as Argentina and Nigeria. Rising prices can help offset low rates of volume growth and the risk is that once Coca-Cola stops getting a boost from price increases, that could give way to a lower guidance, and potentially, a falling stock price.
For now, however, Coca-Cola’s business is still doing fairly well, even though it is seeing some softness in certain areas; it’s not enough to detract from a solid performance. Year to date, shares of Coca-Cola are up 13%, which is around the same as the S&P 500’s gains this year.
Coca-Cola remains a good long-term investment but at 27 times earnings, there are probably better stocks to buy at this valuation, especially with the headwinds the stock may face should demand worsen in future quarters.
