Q3 2024 Earnings Summary
- Strong performance in developed markets: Despite a 1% decline in unit case volume in Q3, Coca-Cola reported good volume growth in developed economies such as North America, Europe, Japan, and Australia, driven by sparkling beverages and premium products. In North America, although overall volume was flat, there was growth in sparkling beverages and premium stills, aided by a strategic de-prioritization of lower-margin case pack water.
- Confidence in overcoming temporary challenges in emerging markets: The volume decline in emerging markets was due to temporary factors, such as a strong prior-year quarter in Mexico and heavy monsoons in India, which are expected to lead to better agricultural yields next year. Management expects these markets to return to growth and sees long-term investment opportunities, particularly in China.
- Strong organic sales growth in North America driven by price and mix: North America's organic sales growth was 12% in Q3, with growth equally driven by price and mix. The mix improvement was boosted by investments in premium brands like fairlife and Topo Chico. Management expects this strategy to be sustainable and anticipates continued growth in the North American business, balancing affordability initiatives with premiumization efforts.
- Coca-Cola is experiencing volume declines and pressures in emerging markets due to macroeconomic challenges, particularly in China, India, and Eurasia, which may continue to negatively affect volume growth.
- The company anticipates continued FX headwinds from devaluations in emerging markets into 2025, which may impact reported earnings despite mitigation efforts. This poses a risk to meeting earnings targets.
- Expected inflation in agricultural commodities will add pressure on margins in 2025, and despite plans to use productivity measures, there is a risk that cost increases may not be fully offset, potentially affecting margins.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | -1% | The decline to $11.854B was mainly driven by currency headwinds and a slight dip in concentrate sales; however, price/mix improvements partially offset the decrease, reflecting the company’s ongoing pricing actions and portfolio balancing. |
Europe, Middle East & Africa (EMEA) | -7% | The region’s $2.019B net operating revenues were impacted by macroeconomic challenges and foreign currency devaluations, particularly in emerging markets, while offsetting pricing initiatives helped to soften the overall decline. |
North America | +12% | The region’s net operating revenues rose to $4.984B, fueled by favorable pricing, product mix gains (especially in premium categories), and steady recovery in away-from-home channels, despite higher commodity costs. |
Bottling Investments | -29% | Revenues fell to $1.316B due to refranchising activities (particularly in Asia) and currency impacts, while select market growth was insufficient to offset the structural changes in the segment. |
Operating Income (EBIT) | -23% | EBIT declined to $2.51B due to increased operating expenses, higher commodity costs, and currency headwinds. Although pricing actions and volume gains in select segments partially mitigated the decline, they could not fully offset higher costs. |
Net Income | -8% | Net income dropped to $2.848B mainly because of increased tax expenses, foreign currency headwinds, and higher marketing and SG&A costs, which outweighed the benefits of pricing gains and cost-control efforts. |
EPS (Basic) | -7% | Basic EPS fell to $0.66, driven by the reduction in net income and negative currency impacts. While pricing strategies and margin initiatives supported earnings, higher taxes and operating costs contributed to the overall decline. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Organic Revenue Growth | FY 2024 | 9% to 10% | 10% | raised |
Comparable Currency-Neutral EPS Growth | FY 2024 | 13% to 15% | 14% to 15% | raised |
Comparable EPS Growth | FY 2024 | 5% to 6% vs $2.69 in 2023 | 5% to 6% vs $2.69 in 2023 | no change |
Currency Headwinds (Net Revenues) | FY 2024 | 5% to 6% headwind | 5% headwind | lowered |
Currency Headwinds (EPS) | FY 2024 | 8% to 9% headwind | 9% headwind | raised |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Revenue Growth | Q3 2024 (YoY) | 9% to 10% | -0.83% YoY (from 11,953In Q3 2023 to 11,854In Q3 2024) | Missed |
Comparable EPS Growth | Q3 2024 (YoY) | 5% to 6%Vs $2.69 in 2023 | -7% YoY (from $0.71In Q3 2023 to $0.66In Q3 2024) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Consistent focus on volume growth across developed and emerging markets (North America, China, India, Latin America) with varying performance | Previously, volume trends varied by region (e.g., soft North America in Q2; strong India in Q2, slower in Q1). China has shown negative or limited growth in recent quarters, while Latin America generally remained resilient. | North America grew volume and won value share; China declined due to challenging environment and portfolio reprioritization; India saw mixed performance (weather impacts in some states); Latin America volume was flat but drove revenue growth. | Consistently discussed as a core strategy, with region-specific performance swings. |
Ongoing emphasis on pricing, premiumization, and product mix improvements to drive revenue | Prior calls also emphasized price/mix lifts: 9% in Q2, 7% in Q1, and 9% in Q4 2023, underscoring a balance between premium segments and affordable offerings. | Achieved a 10% price/mix boost (7 points from pricing, 3 points from mix). Focused on both affordability and premiumization (e.g., smaller packages, premium waters). | Ongoing core growth lever, supporting margins and top-line. |
Repeated discussion of inflationary pressures affecting margins, with agricultural and commodity cost concerns recurring | Q2 and Q1 showed intense inflationary pricing and higher commodity costs. In Q4 2023, sugar and other inputs remained elevated but were partly offset by productivity. | Commodity inflation remains, though at a more moderate pace than before. The company is managing via cost efficiencies and selective pricing. | Continues as a recurring theme, with gradual easing but still notable impact. |
Currency and FX headwinds emerging as a significant risk in later periods (Q3 and Q4) | Became more pronounced in Q2 (5-6% to net revenue, 8-9% to EPS), noted in Q1 but without Q3/Q4 specifics, and reiterated in Q4 2023 guidance. | Reported a 9% currency headwind to EPS in 2024, expecting a mid-single-digit headwind in 2025. Using pricing and productivity to mitigate. | Increasing significance from mid-2024 onward, especially in emerging markets. |
Sports drinks (BODYARMOR, POWERADE) | In Q2, both brands saw positive volume; Q1 included BODYARMOR’s impairment but optimism about a two-brand strategy. Q4 2023 only briefly noted category normalization. | POWERADE was mentioned as contributing to Latin America revenue growth, but BODYARMOR was not referenced. | Mentioned less after Q2, with focus shifting to other categories. |
Weak performance in China | Q2 highlighted negative volumes from macro softness; Q1 and Q4 2023 noted cautious sentiment and softened performance through the year. | Volume declined due to a challenging environment and strategic reprioritization; the company focuses on affordability and remains optimistic for the long term. | Ongoing cautious tone, with efforts to pivot the portfolio and invest for recovery. |
Refranchising strategy | In Q1, refranchising aided margin gains; Q4 2023 reiterated nearing final stages. It was less emphasized in Q2 and Q3. | Referenced as contributing to margin expansion, though partially offset by currency headwinds. | Discussed intermittently, bringing margin benefits but mentioned sporadically. |
IRS tax dispute introduced in Q4 as a new potential liability and risk | In Q2, they continued defending and prepared for potential payments; Q1 noted balance sheet capacity for the dispute; Q4 2023 revealed the supplemental opinion and appeal plan. | The company made a $6B deposit and remains confident in its appeal. | Ongoing legal matter since Q4, with regular updates but no major resolution yet. |
Away-from-home channel softness noted in Q2 but not referenced in subsequent quarters | Q2 called out softness in away-from-home channels, especially in North America; Q1 noted slight shifts in consumer behavior; Q4 2023 saw stabilization. | No softness was emphasized in Q3; North America away-from-home was described as robust. | No longer highlighted post-Q2, indicating stabilization or recovery. |
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Volume Decline Analysis
Q: Why did unit case volume decline by 1% in Q3?
A: The decline was due to atypical volume makeup, with good performance in developed markets but pressure from emerging markets. Developed markets like North America, Europe, Japan, and Australia grew, while emerging markets faced factors like Mexico cycling a strong Q3 last year and India affected by heavy monsoons. Ongoing issues in China and Eurasia also contributed to the decline. -
Managing FX Headwinds and Strategy
Q: How will you manage FX headwinds into 2025?
A: We pursue an all-weather strategy to drive growth despite headwinds. In 2025, FX headwinds are expected to be less than this year. Emerging market devaluations allow quicker inflation pass-through, linking to pricing. We focus on investing behind brands, understanding profit drivers, and maintaining productivity efforts to offset challenges. -
Margin Expansion Levers
Q: What are the levers for margin expansion next year?
A: We expect underlying gross margin expansion to continue, aiming to offset FX headwinds through Revenue Growth Management and cost efficiency efforts. Despite challenges like inflation in agricultural commodities, we'll leverage levers on both revenue and cost lines, such as optimizing promotions, simplifying product specs, and leveraging our supplier base. -
Price Mix Sustainability
Q: Is the price/mix growth of 3% sustainable into 2025?
A: The mix has enduring elements like managing affordability and premiumization to drive growth. Temporary factors, such as slower growth in emerging markets, boosted price/mix this quarter. We expect a return to normal growth patterns, with emerging markets growing faster, normalizing volume and price/mix. -
North America Pricing and Mix
Q: Can you elaborate on North America's strong price/mix?
A: In Q3, North America's price/mix was half price and half mix. Mix was driven by focus on premium brands like fairlife, Topo Chico, and Coca-Cola, with less emphasis on case pack water. We anticipate moving towards a more normalized level of pricing next year, tracking similar rates to CPI, while continuing to invest in both affordability and premiumization options. -
Volume Growth Expectations
Q: Will lower price/mix next year boost volume?
A: We expect emerging markets to resume growing faster than developed economies, contributing to volume growth but not to positive price/mix. This should stabilize the relationship between volume and price/mix, making next year resemble this year with normal volume growth and pricing levels. -
Fairlife Growth and Impact
Q: How significant is fairlife's impact on mix and sales?
A: fairlife is a $1 billion brand, contributing to mix due to our vertically integrated business model, boosting both revenue and the bottom line. Importantly, North America excluding fairlife is also growing in top line and profit, so all engines are firing. We're expanding capacity to support fairlife's continued growth. -
US CSD Growth Drivers
Q: What is driving US carbonated soft drink growth?
A: Growth is driven by making brands more relevant through marketing transformation and improved execution. In Q3, Coke Zero had double-digit growth, and even Diet Coke grew. Efforts in Revenue Growth Management and pack mix are strengthening the sparkling beverage business. -
North America Consumer Demand
Q: Are you seeing softness in US consumer demand?
A: There's some marginal softness, but the beverage industry remains robust with growth in total dollars. While some consumers exhibit value-seeking behavior, strong purchasing power in other segments offsets this. Overall, the US market has remained resilient. -
Alcohol Strategy and Learnings
Q: What are the learnings from your alcohol strategy?
A: It's early days, but we've learned that building scale takes time. We're taking a measured approach, focusing on a robust portfolio combining partnered ready-to-drink offerings like Jack and Coke, Bacardi and Coke, Absolut and Sprite, and our own brands like Simply Spiked. The goal is to make alcoholic ready-to-drink a meaningful category. -
Quick Adaptations and Macro Environment
Q: What quick adaptations are you making amid macro challenges?
A: We're expanding affordable options, investing in cold drink equipment to increase availability, adjusting marketing messaging, and working with local bottlers to fine-tune relevance with consumers and retailers. The macro environment shows resilience globally. -
Digital Capabilities and Bottler Investments
Q: How are you enhancing digital capabilities with bottlers?
A: We're expanding digital engagement with retailers, especially in traditional trade, allowing 24/7 ordering and service requests. With AI, we can suggest orders to retailers based on trends. This enhances human productivity, and bottlers are investing in these capabilities. -
Q4 Outlook and Mexico CSD Ban
Q: How should we think about Q4 growth and potential Mexico CSD ban?
A: We expect a strong outlook for Q4. Excluding high-inflation markets, Q3 price/mix was 6%, volume -1%, net 5%, aligning with our growth algorithm. Regarding Mexico, a potential CSD ban in schools is expected to have a very small impact, as we largely sell no-sugar portfolios to schools. -
McDonald's Food Safety Impact
Q: Will McDonald's food contamination issue affect you?
A: As a partner, we'll support McDonald's as needed. Based on current information, we don't expect a significant impact on our business. -
Growth Outlook
Q: Can you return to positive growth in Q4?
A: Despite a challenging Q3 volume, we believe it's within our control to return to growth by focusing on our marketing innovation, price pack strategies, and system execution. The macro environment shows resilience, supporting our expectations for Q4 and into 2025.
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