As many snack and beverage companies started to see weaker demand due to inflation last quarter,
Coca-Cola
continued to show its pricing power.
For the last three months of 2023, the beverage giant posted adjusted earnings of 49 cents a share, matching analysts’ forecasts. A year ago, the beverage giant earned 45 cents a share.
Net revenue of $10.8 billion beat estimates of $10.7 billion and jumped 7% from the year-ago quarter. Higher prices drove much of the growth, but sales volume was the real highlight.
Despite high inflation over the past two years, the beverage giant has successfully passed on most of its rising costs to consumers without losing much business.
Although prices increased 9%, consolidated unit case volume—or how many bottles the drink maker sold—rose 2% in the quarter instead of falling.
In
Coca-Cola’s
largest and most mature market of North America, consumers only bought 1% less from Coca-Cola as compared to a year ago, despite a price spike of 8%.
For 2024, Coca-Cola expects organic revenue growth to fall between 6% and 7%. It also forecast comparable adjusted per-share earnings to grow between 4% and 5%.
The company earned $2.69 a share on that basis in 2023. Analysts had penciled in $2.81 a share for 2024, which would indicate about 4.5% growth.
Coca-Cola stock was up 0.4% to $59.96 on Tuesday, while the
S&P 500
fell by 1.4%.
Still, the snack giant faces many challenges ahead.
As inflation cools down, higher pricing will become less of a driver for top-line growth. In the fourth quarter, prices for Coca-Cola products were up 9% year over year, but that was down from 12% growth the same period last year.
Management also has warned that consumers were starting to feel economic pressure and tighten their budget. If volumes slip more, it could mean slower revenue growth for the beverage giant in coming quarters.
Many of its peers already have been seeing the impact: Last Friday,
PepsiCo
reported a surprise drop in sales for the fourth quarter, triggering a 3% selloff of the stock.
A stronger dollar and weaker foreign currency could be another headwind for Coca-Cola, a multinational company with two thirds of revenue overseas.
In Latin America, for example, organic revenue increased 23% in the fourth quarter from a year ago thanks to both higher prices and increasing unit case volume. But the result was offset by eight percentage points due to weak local currencies in the region.
The Europe, Middle East & Africa and Asia Pacific markets also saw a 14 and 5 percentage points dent to revenue, respectively, due to currency impact.
That is expected to continue. For 2024, Coca-Cola management expects to see a 4% to 5% currency headwind to its comparable earnings per share.
Despite Coca-Cola’s strong growth, investors haven’t shown much enthusiasm about the stock. Share prices tumbled 15% last year from July to early October, before recovering much of the losses since then.
Still, the stock is trading 2% lower than a year ago as of Monday’s close.
Investors are worried the Federal Reserve’s rate hike cycle could eventually stretch consumer wallets too thin for discretionary spending. There are also concerns a new breed of obesity drugs—including
Novo Nordisk’s
Ozempic—could undercut consumer appetite for snacks and dent food company sales.
Wall Street seems to believe those worries are overblown—at least for Coca-Cola. More than 80% of the analysts polled by FactSet have a Buy rating on the stock, with an average price target of $65.70, indicating a 11% upside from the current level.
Write to Evie Liu at [email protected]
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