Coca-Cola (NYSE:KO) just closed the books on a rough fiscal 2020 that included rare declines in sales volume, earnings, and cash flow. The beverage titan also lost market share in a year characterized by sharply reduced consumer mobility. Its focus on away-from-home drink sales was a liability during the pandemic compared to more diversified companies like PepsiCo (NASDAQ:PEP).  

But Coke still boosted profitability in that tough selling environment. It ended its market share slide in the fourth quarter, too, which points to a brighter 2021 ahead.

Let's take a closer look.

Sales volumes

Sales volumes continued dropping, but trends improved compared to recent quarters. Coke reported a 3% dip worldwide as COVID-19 continued to keep people away from restaurants, sports events, and concerts.

Two women drink soda sitting outside.

Image source: Getty Images.

That's a bit better than the 4% slump it reported in the third quarter. The boost included rising volumes for core brands like Coca-Cola and Coca-Cola Zero Sugar. Yet Pepsi, whose business is tilted toward retailing sales, has been steadily growing its beverage and snack food businesses all year.

Coke executives said they were encouraged by the improving growth trends, especially given that market share losses ended this past quarter. "The progress we made in 2020," CEO James Quincey said in a press release, "gives us confidence in returning to growth in the year ahead."

Sparkling finances

The news was brighter around Coke's finances, which benefited from aggressive cost cuts. Coke's adjusted operating margin actually edged up for the year even though organic revenue dropped 9%. That win produced just a minor earnings shortfall for 2020.

KO Operating Margin (TTM) Chart

KO Operating Margin (TTM) data by YCharts

Cash flow was down for the year, too, but still solidly positive. Success here supported rising dividend payments, even though management dramatically reduced stock repurchase spending to preserve financial flexibility.

A rebound ahead?

Coke's business is closely tied to the freedom that consumers have to attend in-person entertainment events, and so it is likely to stay pressured until the COVID-19 threat is over. Management also warned investors to expect volatility given all the uncertainty about further outbreaks and shaky global economic growth trends. Sales are still trending lower through early February, executives explained.

Yet Coke is feeling confident enough to reinstate its annual outlook after pulling that forecast early last year. Quincey and his team believe organic revenue will rise by high single digits in 2021, with growth accelerating as the year progresses. Heading into the second half of the year, Coke should benefit from the spread of vaccines and from a comparison with prior-year sales periods that included sharp sales slumps starting in mid-2020.

The progress management made at cutting costs will amplify those sales gains and allow core earnings to rise by around 10% this year. If that happens, investors should expect to see Coke ramp up its stock buyback spending again and perhaps issue a bolder dividend hike for 2022.

In the meantime, the consumer staples giant's revenue trends will continue lagging peers like Pepsi, which has already recovered the momentum it lost during the early days of the pandemic.

 
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