The Coca-Cola Company (KO) Q3 Earnings call transcript Oct 23, 2024

The Coca-Cola Company held its third quarter 2024 earnings call, showcasing a resilient business that navigated through a dynamic external landscape. Despite a 1% volume decline in the quarter, driven by a slow start in July, the company's business trends improved each month, with Trademark Coca-Cola volume outperforming. The company's year-to-date performance gives confidence in delivering at the high end of its previous top line guidance and earnings growth of 5% to 6%, including approximately 9% of currency headwinds.

Global Consumer Landscape and Business Performance

The global consumer landscape and spending held up well, with the broader industry expanding. Coca-Cola delivered robust organic revenue growth with value share gains in both at-home and away-from-home channels. The company expanded comparable margins, leading to 5% comparable earnings per share growth despite nearly double-digit currency headwinds and the impact of bottler refranchising.

Market Performance and Strategic Initiatives

The North American market showed robust top line growth and value share gains, with Trademark Coca-Cola and sparkling flavors both growing volume. In Latin America, volume was flat, but the company saw solid revenue growth led by Coca-Cola Zero Sugar and Powerade. The company benefited from integrating marketing activations across the region, with notable success in Brazil. In Europe, the company grew volume and benefited from the Olympic and Paralympic Games, with both Fuze Tea and Powerade continuing their strong momentum.

In Eurasia and Middle East and North Africa, the company faced challenges, but is taking action to address affordability and availability. In Africa, volume declined largely due to pressure in some North African markets, but the company is investing for the long term by accelerating refillable offerings, cooler placements, and increasing manufacturing capacity. In Asia Pacific, despite weakness in China and a couple of markets in Southeast Asia, the company grew organic revenue and comparable operating income, with gains in value share led by the Philippines and Australia.

Marketing and Innovation

The company's marketing and innovation efforts were highlighted, with a focus on integrating digital, live, and retail experiences to connect with consumers in unique and personalized ways. The Olympic and Paralympic Games served as a great example of this strategy, featuring total beverage portfolio activations and generating positive engagement scores across the portfolio. Topo Chico, the 1 premium sparkling water brand in the U.S., showed strong consumer demand through grassroots experiential campaigns in 13 cities, and a similar playbook is being applied in Mexico.

Financial Performance and Outlook

Financially, the company grew organic revenues 9% in the third quarter, with price/mix growth of 10%. Comparable gross margin and operating margin both expanded, driven by underlying expansion and the benefit from bottler refranchising, partially offset by currency headwinds. The company made a $6 billion deposit with the IRS related to its ongoing tax dispute and filed an appeal with the 11th Circuit Court. Free cash flow was approximately $7.6 billion, down from the prior year due to higher other tax payments, higher capital expenditures, and cycling some working capital benefits.

Looking forward, the company expects organic revenue growth of approximately 10% and comparable currency-neutral earnings per share growth of 14% to 15% for full year 2024. For 2025, the company is encouraged by its underlying performance and expects pricing from intense inflationary markets to moderate, recycling the impact of currency devaluations from these markets in 2024. The company will continue to invest behind its brands while leveraging productivity levers to drive efficiency and effectiveness across its P&L.

Conclusion

In conclusion, Coca-Cola's third quarter 2024 earnings call highlighted a resilient business that navigated through a dynamic external landscape, demonstrating strong performance and strategic initiatives. The company's focus on marketing, innovation, and execution, coupled with its ability to adapt to market dynamics, positions it well for future growth. With a robust portfolio and a strategic focus on affordability, availability, and digital capabilities, Coca-Cola is well-positioned to deliver on its ambitions and create sustainable value for its stakeholders.