Coca-Cola Sees Unexpected Revenue Rise Amidst Price Hikes and New Flavors

By Juveria Tabassum
(Reuters)
Coca-Cola’s limited edition flavors of its sodas and price hikes powered a surprise rise in quarterly revenue amid sluggish demand in the packaged foods industry, sending its shares up about 3%.

Growth in Sparkling Drinks Segment

Volumes in the sparkling drinks segment, featuring seasonal flavors such as Sprite winter spice cranberry and Fanta Beetlejuice, returned to growth in the fourth quarter, rising 2%, after being flat in the prior quarter.

Comparison with PepsiCo

In contrast, rival PepsiCo (NASDAQ:PEP) last week reported a 3% drop in volume for its two biggest segments of North America beverages and Frito-Lay North America for the fourth quarter.

> “That’s probably the key difference versus Pepsi. Pepsi has been losing share in North America in sparkling beverages and Coca-Cola (NYSE:KO) has been outperforming in no-sugar and sparkling in particular,” said Charlie Higgs, director of Consumer Staples Research at Redburn Atlantic.

Global Volume Growth

Volumes rose across Coca-Cola’s global markets in the fourth quarter, with North America up 1%.

Executives said on a post-earnings call they expect inflationary pricing to moderate through the year.

Impact of Tariffs

U.S. President Donald Trump’s 25% tariffs on aluminum imports could increase costs for the company’s domestic business, but executives said they had other affordable packaging solutions such as plastic bottles to turn to.

> “Coca-Cola looks like one of the safest plays in what has become a minefield of challenges for the broader consumer staples group due to GLP-1, tariffs, foreign exchange and other issues,” said Truist analyst Bill Chappell.

Expanding Product Offerings

Under CEO James Quincey, Coca-Cola has expanded its portfolio in North America to include brands such as premium Fairlife milk and sparkling water Topo Chico.
> “The diverse offerings have proven buoyant in the face of consumers cutting back on sugary drinks, that is important to long-term demand structures,” said Brian Mulberry, Client Portfolio Manager at Zacks Investment Management, which holds shares in Coca-Cola.

Capturing Emerging Markets

Coca-Cola is also capturing demand in emerging markets such as India by catering to more local tastes, as well as offering packages at different price points.

Revenue Growth Forecast

The company’s annual organic revenue growth forecast of 5% to 6% was at the upper-end of its long-term target, while comparable profit growth outlook range of 2% to 3% fell shy of expectations.

Fourth-quarter comparable net revenue rose 4.2% to $11.40 billion, compared with a 2.47% drop expected by analysts.

Earnings of 55 cents per share beat expectations by 3 cents.