Fizzing Higher: Coca-Cola Is Outperforming Ahead of Earnings

During turbulent markets, the resilience of select blue-chip stocks shines through, none more so than The Coca-Cola Company (NYSE: KO). This global beverage sector powerhouse, a long-favored holding of investment icons like Warren Buffett, is a testament to stability. 

While major market indicators have faltered, Coca-Cola's shares have maintained an upward trajectory, highlighting its inherent defensive attributes and the enduring power of its brand. This recent outperformance signals significant investor trust in Coca-Cola's ability to weather uncertainty.

Bolstered by consistent shareholder returns and a promising future outlook, Coca-Cola is a compelling option for investors prioritizing stability, especially as its Q1 2025 earnings announcement draws near.

Coca-Cola Bucks the Market Trend

Coca-Cola's recent market performance underscores its defensive nature. In the three months leading up to late April 2025, Coca-Cola stock surged by approximately 19.7%, approaching its 52-week high. The year-to-date gain stands at roughly 18.8%. This strong performance contrasts sharply with the S&P 500's recent downward trend (down about 10%), illustrating a typical flight to safety during market volatility and economic uncertainty.

As a consumer staples company, Coca-Cola benefits from consistent demand irrespective of economic conditions. Its low beta of 0.45, indicating lower volatility than the market average, further solidifies its appeal for investors seeking to mitigate portfolio risk during market downturns. The stock's upward trajectory during times of broader market weakness provides clear evidence of its defensive qualities in action.

The Dividend Monarchy: 63 Years of Consistent Rewards

Coca-Cola's long-standing commitment to returning value to shareholders, particularly through dividends, enhances its investment appeal for income seekers. In February 2025, the company declared its 63rd consecutive annual dividend increase, solidifying its position as a Dividend King, a designation reserved for companies with over 50 years of continuous dividend growth.

The latest increase raised the quarterly dividend by roughly 5.2%, from $0.485 to $0.51 per share. This resulted in an annual dividend of $2.04 per share, up from $1.94 in 2024.

Based on the current stock price, this translates to a dividend yield of approximately 2.76%. In 2024, Coca-Cola distributed $8.4 billion in dividends to its shareholders, contributing to a total payout of $93.1 billion since the beginning of 2010.

While the reported earnings payout ratio appears elevated at around 82.6% based on FY2024 reported earnings-per-share (EPS), a review of metrics less influenced by accounting adjustments offers further insight. The payout ratio based on comparable (Non-GAAP) EPS is a more sustainable 70.8% ($2.04 dividend / $2.88 comparable EPS), and the cash flow payout ratio is about 61.7%.

These figures indicate that the dividend is strongly supported by the company's core business performance and cash generation. This consistent, multi-decade history highlights the dividend's dependability and the company's financial health.

The Recipe for Success

Its solid financial results and effective strategies support Coca-Cola's enduring stability. In fiscal year 2024, the company demonstrated its resilience in a challenging environment, with organic revenues (Non-GAAP) increasing by an impressive 12%.

This growth was primarily driven by an 11% improvement in price/mix, indicating strong pricing power and successful revenue growth management (RGM), which helped offset inflationary pressures and maintain topline momentum.

Operational efficiency is also evident in Coca-Cola's margin performance. The company's asset-light model, focused on selling concentrates and syrups to independent bottlers, helps protect margins from the capital demands of bottling operations. The Comparable Operating Margin (Non-GAAP) expanded to 30.0% in FY2024 from 29.1% in the previous year.

Despite increased input costs and unfavorable currency exchange rates, this improvement was fueled by strong organic growth and the ongoing impact of bottling refranchising efforts. While reported operating income saw a 12% decline in FY2024, this was mainly due to significant non-recurring items, most notably a $3.1 billion charge related to the fairlife contingent consideration remeasurement.

Underlying profitability remained strong, with Comparable Currency Neutral Operating Income (Non-GAAP) growing by a substantial 16%.

Profitability also remained strong. Comparable EPS (Non-GAAP) increased by 7% to $2.88 in FY2024, even after absorbing a significant 9-point currency headwind. The year concluded on a high note, with the company exceeding Q4 consensus EPS estimates ($0.55 reported vs. $0.51 estimate).

Reported cash flow from operations decreased by 41% to $6.8 billion in FY2024. However, this figure was significantly impacted by a $6.0 billion deposit related to ongoing tax litigation with the U.S. Internal Revenue Service.

Excluding this substantial and non-operational item, Free Cash Flow (non-GAAP) reached $10.8 billion, an 11% increase in the core business's strong cash-generating capabilities year over year, highlighting this. 

Strategically, Coca-Cola continues to adapt its product portfolio by expanding its offerings in categories such as water, sports drinks (BODYARMOR, Powerade), coffee (Costa), and low/no-sugar options like Coca-Cola Zero Sugar (which experienced a 9% volume increase in FY24), in response to evolving consumer preferences for health and wellness.

Wall Street Weighs In

Analysts are generally optimistic about Coca-Cola's future, with a strong consensus Buy rating. The average 12-month price target suggests some potential for price increase, supported by recent upward revisions from several firms following strong performance and guidance.

The company's management has also issued a positive outlook for the fiscal year, projecting solid growth in organic revenue and comparable EPS despite anticipated currency headwinds.

The upcoming Q1 earnings release for KO will be key for confirming these trends and any forecast adjustments. 

Refreshing Stability in Uncertain Times?

Coca-Cola's sustained market success stems from its core defensive attributes and strong fundamentals, not just a temporary upswing. The company's well-known brands provide substantial pricing leverage, and its lean asset structure bolsters healthy profit margins.

Coupled with a hard-to-match 63-year history of increasing dividends, Coca-Cola presents an attractive option for investors seeking protection against market fluctuations and a dependable income stream. 

The proven resilience, consistent execution, and favorable analyst sentiment indicate that Coca-Cola remains a key investment for those prioritizing stability and long-term shareholder returns. The upcoming first-quarter earnings report will be crucial in evaluating the company's progress in 2025.

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