Reassessing Coca-Cola Europacific Partners: Diminishing Margins and Stretched Valuation Undermine Attraction

The beverage bottler sector has long been a haven for investors seeking stable cash flows and brand-driven pricing power. However, Coca-Cola Europacific Partners (CCEP), one of the largest bottlers in the Coca-Cola system, is now facing a reckoning. Despite reaffirming its 2025 earnings guidance and executing aggressive share buybacks, the company's financials reveal a troubling narrative: eroding margins and a valuation that appears increasingly detached from fundamentals. For investors, this raises critical questions about whether CCEP's current price reflects a realistic assessment of its risks and growth prospects.

Margin Compression: A Structural Headwind

CCEP's gross margin, a key indicator of its pricing power and cost control, has declined to 35.40% in the June 2025 quarter, down from historical highs of 38.86%. This erosion is not an anomaly but part of a broader trend. Between 2020 and 2025, the company's operating margin has swung wildly-from 11.30% in 2022 to a jaw-dropping 0% in recent quarters. Such volatility underscores the fragility of its business model in the face of rising input costs, currency fluctuations, and intensifying competition.

The operating margin contraction is particularly concerning given CCEP's role as a bottler. Unlike Coca-Cola itself, which benefits from high-margin brand licensing, CCEP's profitability is tied to manufacturing and distribution, making it more susceptible to cost pressures. Data from its 2024 annual report shows an operating profit of €2.1 billion on €20.4 billion in revenue-a 10.3% margin that, while respectable, lags behind the beverage bottlers industry average of 12–14%.

Valuation Realism: A Premium with Few Justifications

CCEP's valuation multiples further complicate the investment case. As of November 2025, the company trades at a trailing twelve-month (TTM) P/E ratio of 25.28, significantly above the beverage bottlers industry average of 28.93 for 2023–2024. While this might seem like a discount, context matters: CCEP's earnings growth has slowed, with analysts revising fair value estimates downward from €85.66 to €85.17 per share due to more conservative revenue assumptions.

The disconnect between valuation and performance is stark. For instance, CCEP's gross margin of 35.40% is below the non-alcoholic beverage industry average of 38–40%, yet it commands a premium multiple. This suggests investors are paying for intangible assets like brand equity and geographic diversification, but such justifications are weakening. The company's recent Q3 2025 results, while meeting revenue forecasts, revealed softer demand in key markets like Germany and Indonesia. Meanwhile, currency headwinds-estimated to impact revenue by 180 basis points annually-add another layer of uncertainty.

Risk-Reward Recalibration: A Tenuous Balance

CCEP's management has attempted to offset these challenges with a robust capital allocation strategy. The company's €1 billion share buyback program and 50% dividend payout ratio signal confidence in its cash flow generation. However, these initiatives come at a cost. The share repurchases, while boosting short-term shareholder returns, may strain liquidity if operating profit growth falters. Moreover, the dividend yield, while attractive, is not immune to margin compression. A 7% operating profit growth target for 2025 appears ambitious given the company's recent operating margin of 0%.

Analysts have also flagged structural risks. The exit from Suntory alcohol distribution in Australia, for example, has reduced revenue per unit case in the Asia-Pacific segment. Meanwhile, the beverage bottlers industry is entering a period of normalization. With the TTM P/E ratio for non-alcoholic beverages at 23.69 in Q2 2025, CCEP's 25.28 multiple suggests it is priced for continued outperformance-a bet that may not pay off if macroeconomic conditions deteriorate further.

Conclusion: A Cautionary Tale for Investors

Coca-Cola Europacific Partners remains a well-managed company with a strong brand and a disciplined approach to capital allocation. However, the combination of margin compression, a stretched valuation, and macroeconomic headwinds paints a less compelling picture. For investors, the key takeaway is clear: CCEP's current price reflects optimism about its ability to navigate a challenging environment, but the margin of safety is thin. In a sector where valuations are already trending lower, paying a premium for a company with eroding margins and uncertain growth is a high-risk proposition.

As the company moves into 2026, the focus should be on whether it can stabilize its operating margin and demonstrate that its valuation is justified by sustainable earnings growth. Until then, the risk-reward profile remains unattractive.