Coca-Cola (KO, Financial), the global beverage giant, announced its third-quarter financial results, reporting adjusted earnings per share of $0.77, surpassing the anticipated $0.74. Despite a 0.8% year-over-year revenue decline to $11.95 billion, this exceeded the analysts' forecast of $11.6 billion. The company revised its full-year organic revenue growth outlook to approximately 10%, up from a previous range of 9%-10%.
This performance was largely driven by price hikes, which helped counterbalance weak demand. Coca-Cola noted that consumers are still willing to pay higher prices, boosting a key sales metric in the recent quarter. Organic revenue, excluding currency fluctuations and acquisitions, grew by 9%, beating the 6.3% average analyst expectation.
Meanwhile, competitor PepsiCo (PEP) revised its 2024 sales forecasts following underwhelming third-quarter sales in North America and internationally. CEO Ramon Laguarta highlighted significant consumer challenges and trade-offs, particularly affecting the snack sector.
Before Coca-Cola's results release, JPMorgan analyst Andrea Teixeira commented on consumers, especially in the U.S., facing tighter budgets and being selective with spending. This has pushed Coca-Cola to raise prices to sustain growth. Teixeira also noted a strategic pricing approach for single-service drinks and larger store offerings, with examples such as 20-ounce cans priced between $2.25 and $2.69, up from $1.99.
Despite a 10% increase in Coca-Cola's overall product pricing, total unit case volume fell by 1%, contrary to the expected 0.42% growth. Price increases offset cautious consumer pressure, uncertain commodity costs, and challenging international market trends.
In North America, while growth was observed in sodas, juices, dairy, plant-based, and sparkling beverages, it was balanced by declining demand for water, sports drinks, coffee, and tea, resulting in flat unit case volume. Europe, the Middle East, Africa, and Asia-Pacific saw a 2% drop in unit case volumes, with notable declines in China and Turkey. Similar to North America, Latin America experienced stable sales.
Teixeira mentioned that Coca-Cola's management is comparing costs for at-home consumption and dining out, especially for middle to lower-income families. According to the U.S. CPI report, grocery prices rose 1.3% year-over-year in September, with dining out costs up by 3.9%. In response, Coca-Cola is collaborating with grocery retailers on strategies like selling affordable 2-liter bottled drinks bundled with rotisserie chicken.
The company is also exploring growth in the alcohol sector. Deutsche Bank analyst Steve Powers anticipates increased focus on the alcoholic beverage market. Coca-Cola plans to introduce Bacardi rum and coke cocktails in Europe and Mexico next year.
As of the latest market update, Coca-Cola shares dropped 1.56% in pre-market trading on Wednesday. The stock has risen 18% year-to-date, compared to a 23% increase in the S&P 500 index over the same period.
