A challenging macroeconomic environment, particularly in China and Mexico, led to a decline in Coca-Cola's (KO, Financial) volumes in Q3, marking the first contraction since 2020. The company reported a consolidated unit case volume decrease of 1%, with no geographic area showing year-over-year growth.
Despite the 1% decline, Coca-Cola outperformed rival PepsiCo (PEP, Financial), which saw a 2% drop. Coca-Cola's flat North American volumes improved from a 1% decline last quarter, while PepsiCo experienced a 3% decline in the region. However, the swift decline from last quarter's 2% increase in consolidated unit case volumes has raised investor concerns.
Key Highlights:
- Coca-Cola's Q3 earnings and sales exceeded analyst expectations, with revenue slightly down by 0.8% year-over-year to $11.85 billion, primarily due to foreign exchange headwinds. Excluding currency impacts and M&A, organic revenue rose 9% year-over-year. Adjusted operating margins increased by 100 basis points to 30.7%, driven by strong organic revenue growth and refranchising bottling operations.
- A 10% increase in price/mix, largely due to pricing actions and inflation, fueled organic sales growth. Latin America's price/mix surged by 21%, up from 19% in Q2, while Asia Pacific's price/mix grew by 7%, reversing a 3% decline last quarter. In contrast, EMEA's price/mix growth slowed to 9% in Q3 from 24% last quarter, and North America's price/mix remained steady at 11% from Q2.
- High prices impacted volumes, with the Asia Pacific region, especially China, showing a decline from 3% growth in Q2 to a 2% drop in Q3. Latin America, primarily Mexico, recorded flat volume growth compared to 5% last quarter, facing similar economic challenges as PepsiCo. Coca-Cola noted market share losses in Mexico and Brazil.
- Despite these challenges, Coca-Cola reaffirmed or slightly increased its FY24 financial targets, maintaining an EPS forecast of $2.82-2.85 and revising its organic revenue growth outlook to approximately 10%.
Although the year-over-year decline in total volume growth is unusual for Coca-Cola shareholders, there are reasons to remain optimistic. Coca-Cola continues to outperform PepsiCo globally and in North America, even as prices rise similarly. Additionally, the company's Fairlife brand shows consistent strength each quarter. While macroeconomic conditions can cause volatility, Coca-Cola remains a strong global brand capable of navigating adverse environments.
