Coca-Cola Consolidated (NASDAQ:COKE) shares are currently trading in the $502 range. That’s a 20% decline from the start of the year when COKE stock was hitting all-time record highs. Here’s the thing, though: We all know that the market has struggled in general so far in 2022, and a big part of the decline in COKE is directly attributable to the company’s fourth-quarter and full-year 2021 results.
The company reported a decent quarter, but not as good as analysts were expecting. In response, COKE shares dropped over 23% in a single day.
With shares in the nation’s largest bottler of Coca-Cola (NYSE:KO) products still feeling the effect of February’s earnings report, should you pick up COKE stock on the dip? Or, could the recent performance of COKE be a warning sign that this company has become overvalued?
COKE Stock: What Happened in Q4?
Coca-Cola Consolidated reported its fourth-quarter and full-year 2021 earnings on Feb. 22. The company had a pretty solid quarter, capping a strong year.
Net sales for the quarter were up $1.4 billion. That’s an increase of 10% over 2020, although Q4 2020 had four additional selling days. If you take that into account, comparable net sales were up 15% year-over-year. Adjusted net sales for fiscal 2021 were up 12% YoY. So far so good. However, as InvestorPlace’s Shrey Dua pointed out at the time, net income per share is where the company stumbled. For Q4, analysts were looking for non-GAAP net income per share in the $7.62 range. When COKE reported $6.67 (a near 7% YoY drop), they were not impressed.
COKE stock closed at $583.64 on Feb. 22. On Feb. 23, as the market reacted to the earnings news, COKE stock plummeted. It closed at $446.66 for a 23.5% single-day drop.
It’s worth noting that Coca-Cola Consolidated is not sitting still. Last April, the company spent $60 million to build a 400,000 square foot automated distribution and warehouse facility in Indiana. The company has also been buying up Coca Cola distribution rights from other territories, increasing its distribution area. The company’s CEO pointed this out in the COKE’s February earnings release:
“These strong results enabled us to continue to make strategic investments in our business like our automated warehouse in Whitestown, Indiana and a new production line in Richmond, Virginia, which adds PET bottle capacity. Our recent purchase of the distribution rights for Coca-Cola Bottling Company of Washington, North Carolina further reflects our long-term commitment to growth across our territory.”
Strategic expansion is a key driver of growth, and a positive for COKE stock’s long-term growth prospects.
Soda, Sports Drinks and Bottled Water Markets Continue to Grow
Expansion is one way to increase revenue, but Coca-Cola Consolidated is operating in an industry that is seeing a continued increase in demand. The market for soft drinks is expected to grow at a CAGR of 5.37% between 2022 and 2026. The sports drink market is projected to grow at a CAGR of over 4% through 2027. Bottled water — with North America as its largest market — is setting a blistering growth rate, with a CAGR of 9.2% projected between 2021 and 2030.
All signs point to Coca-Cola Consolidated’s plants running at full capacity to keep up with consumer demand.
It’s also important to know that, despite its name, Coca-Cola Consolidated is not limited to bottling and distributing Coca Cola products. The company counts 300 brands and flavors of beverages in its portfolio from both Coca Cola and other partner companies.
In other words, COKE stock is definitely impacted by the popularity of Coca Cola, but Coca-Cola Consolidated can also take advantage of other opportunities to grow its revenue.
Bottom Line on COKE Stock
There are challenges investors should be aware of that could have real implications for the bottled beverage industry in general. For example, Coca-Cola (and its bottlers) have been facing increased scrutiny over the low fees they pay for municipal water. The environmental impact of the plastic bottles used by the industry is becoming a hot button issue. States are increasingly looking at implementing sugar taxes on soda and other sweetened beverages in an effort to fight obesity.
In the short term, spiking fuel prices are impacting the cost of transportation. Inflation is raising the cost of ingredients and will bring pressure to increase worker wages.
Over the long term, this Portfolio Grader “B” rated stock is well-positioned to deliver the kind of returns that would make it a good pick for a growth-focused portfolio. However, be aware that in the short term, factors like surging transportation costs might be a drag. And there is always a possibility that one of the bigger issues — like the price paid for municipal water — might come into play.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article