Coca-Cola Earnings: Solid Volume On Innovation and Digital Engagement

Key Morningstar Metrics for Coca-Cola

• Fair Value Estimate: $60.00
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Coca-Cola’s Earnings

We plan to maintain our fair value estimate of $60 per share for Coca-Cola KO after digesting the company’s first-quarter results. Sales were up 3%, led by innovation across the soda and nonsparkling portfolio and deft in-market execution. Adjusted earnings per share rose 7% on refranchising benefits and operational efficiency gains.

Despite a softer consumer backdrop in the lower-income cohort in the United States and continued instability and macro challenges across Europe, Latin America, and Asia, we think Coke’s total beverage portfolio approach should continue to fuel volume and pricing growth, with the help of product innovations and brand investments. We plan to maintain our 2024 forecasts for growth of 1% in sales and 5% in adjusted EPS, incorporating mid-single-digit currency headwinds and the impact of refranchising. Our 10-year projections for mid-single-digit sales growth and low-30s average operating margins also remain in place. The shares look fairly valued.

Organic revenue (excluding currency impact and acquisitions) grew 11%, led by double-digit price/mix growth in Europe and Latin America. Volume held up (1%), backed by strong digital engagement and innovation in sodas, dairy, juice (zero- and low-sugar recipes), and tea. We believe the still-elevated price/mix is due to hyperinflation in multiple markets, notably Turkey, Nigeria, and Argentina. We expect this metric to moderate to the mid-single-digit range over the next few quarters, in line with trends in the beverage industry, as Coke is committed to preserving its value proposition.

Operating margin narrowed sharply to 18.9% from 30.7% a year ago due to sizable one-time items, including higher contingency payments for the Fairlife acquisition (due in 2025) and impairment charges for the sports drink brand Bodyarmor. However, underlying profitability remained strong, with adjusted operating margin widening 60 basis points to 32.4% on favorable mix and expense leverage.