Coca-cola on Tuesday raised its full-year outlook for the third quarter, despite weak demand in its home markets.
For the full year, Coke now expects comparable earnings per share to grow at least 11%, up from its previous forecast of a rise in the 9% to 10% range. The beverage giant also expects organic revenue to grow by at least 5%, up slightly from its previous outlook of around 5%.
CEO Henrique Braun attributed the company’s strong results to “speed and discipline” despite an “uneven environment,” he said on the company’s earnings conference call.
Until 2027, the company expects consumer behavior to remain unchanged, said CFO John Murphy. In recent quarters, Braun and other executives said North American shoppers are under pressure, shrinking due to inflation and economic uncertainty, and looking for value. But the drinks giant also said consumers are still buying drinks, from premium brands like Fairlife to name-brand sodas.
The company’s shares fell less than 1% in morning trading on a gloomy forecast for the consumer environment.
Here’s what the company reported compared to what Wall Street analysts polled by LSEG expected:
- Earnings per share: 91 cents adjusted vs 88 cents expected
- result: $13.4 billion vs $12.92 billion expected
Coke reported fiscal third-quarter net income attributable to shareholders of $4.01 billion, or 93 cents per share, up from $3.7 billion, or 86 cents per share, a year earlier.
Excluding transaction gains and other items, Coke earned 91 cents per share.
Net sales rose 7% to $13.4 billion. Coke’s organic revenue, which strips out acquisitions, divestitures and foreign currency, also rose 7% in the quarter.
For the second quarter, the company’s unit case volume rose 5%, helped by higher demand outside North America.
Coke’s home market reported flat volumes. However, the company’s North American business would have reported volume growth had it not been for the Fourth of July holiday and the shortage of Topo Chico, the sparkling water brand that owns Coke, Murphy told CNBC.
“The fundamental momentum remains quite strong,” he said. “Consumer sentiment generally hasn’t changed in the sense that wherever you are on the income scale, you’re looking for value, and I think our system has done a good job of translating that.”
In North America, Coke’s home business is doing better than its away-from-home segment, which includes restaurants, movie theaters and theme parks. The restaurant industry is still under pressure, and Coke expects that to continue for the rest of the year, Murphy told analysts on the company’s earnings conference call.
Globally, Coke’s soft drinks business increased volume by 5% during the quarter, driven by growth in Coke, Coke Zero Sugar and Diet Coke.
Diet Coke is experiencing a “resurgence,” Murphy told CNBC. Gen Z consumers in the US have been dubbed “refrigerator cigarettes”, while consumers in India are throwing Diet Coke parties because shortages linked to the US-Israeli war with Iran have made the drink scarce.
“It’s a brand that’s almost reinventing itself with the next generation of consumers,” he said.
Coke is also gaining market share as a competitor PepsiCo saw the soda business struggle, according to Murphy. Still, some Coke soda brands, like Sprite, have “some work.”
Coke’s water, sports, coffee and tea divisions also grew by 5% in volume. Increased demand for water, which includes the premium Smartwater brand, is driving growth. Demand for tea and coffee was flat, while sports drinks declined.
The company’s juice, value-added milk and plant-based beverage businesses reported flat volumes, despite growth at brands like Fairlife and Minute Maid.