## Coca-Cola Outperforms on Earnings, but Demand Slows
The Coca-Cola Company (KO) delivered a strong third-quarter performance, exceeding Wall Street expectations on both revenue and earnings. However, the beverage giant faced a challenging environment, with sluggish demand for its products, particularly in North America.
Strong Earnings, But a Mixed Bag
Adjusted net sales for the quarter were essentially flat compared to the previous year, coming in at $11.95 billion, surpassing the analyst consensus estimate of $11.60 billion. Excluding acquisitions, divestitures, and currency fluctuations, organic revenue climbed by a robust 9%. Net income attributable to shareholders dipped to $2.85 billion, or 66 cents per share, while adjusted earnings reached 77 cents per share, topping the analyst expectation of 74 cents.
North American Slowdown
The positive financial results were overshadowed by a noticeable decline in demand for Coca-Cola’s beverages. Consumers in North America are cutting back on their snacking and drinking habits, a trend mirrored by rival PepsiCo (PEP). Pepsi also reported a 3% drop in beverage volume for its North American business in the third quarter.
Global Impact
The weakening international demand also impacted Coca-Cola’s global performance, resulting in a 1% decrease in unit case volume. Notably, the company highlighted declines in China and Turkey. Unit case volume also fell by 2% in both the Europe, Middle East, and Africa region as well as the Asia-Pacific region. North America remained flat, with growth in namesake soda, juice, dairy, plant-based beverages, and sparkling flavors offset by a decline in water, sports, coffee, and tea products. Premium products, such as seltzers, performed well due to their higher price points.
Pricing Strategy
Coca-Cola executives attributed the rise in pricing, reaching 10%, to their efforts to offset the challenges posed by rising input costs and supply chain disruptions. However, they indicated that pricing will normalize heading into 2025.
Looking Ahead
Coca-Cola has maintained its full-year outlook, projecting organic revenue growth of approximately 10%, aligning with the high end of its previous guidance of 9% to 10%. The company also reiterated its earnings per share growth projection of 5% to 6%.
While Coca-Cola will provide a detailed outlook for 2025 when it releases its fourth-quarter earnings report, it has already signaled that currency fluctuations will negatively impact its 2025 performance. It anticipates comparable revenue headwinds in the low-single digits and earnings per share headwinds in the mid-single digits.
For the fourth quarter, Coca-Cola issued a warning that earnings per share growth will face a 10% headwind due to currency fluctuations. Additional headwinds related to acquisitions, divestitures, and structural changes are expected to amount to 3% to 4%.
Conclusion
Despite exceeding earnings expectations, Coca-Cola’s third-quarter results reflect the ongoing challenges of a slowing economy and consumer spending adjustments. The company’s ability to navigate these challenges will be crucial in maintaining its growth trajectory in the years ahead.
