Coca-Cola’s Q4 Earnings Signal Growth Ahead
Despite stagnant stock performance over the past five years, Coca-Cola (NYSE: KO) recently experienced a 10% increase year to date, buoyed by encouraging Q4 earnings results. Let’s delve into the financial figures and insights that could indicate a breakout for the stock.
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Strong Pricing Power Drives Performance
Coca-Cola’s success continues to hinge on its pricing strategy, complemented by slight growth in case volumes. In Q4, the company reported a 14% increase in organic revenue, which excludes acquisitions, divestitures, and currency fluctuations.
This revenue surge was fueled by a 9% increase in prices and a shift towards premium products, with about 4% of this growth attributed to high inflation in certain markets. Unit case volumes increased by 2%, primarily in the U.S., China, and Brazil. Notably, Coca-Cola Zero Sugar saw an impressive 13% growth in unit volumes during the quarter, while overall concentrate sales rose by 5%.
Geographically, North America experienced an 11% rise in prices/mix and a 1% increase in unit volumes. The Coca-Cola brand, along with protein shakes and Fairlife ultra-filtered milk, performed well. Meanwhile, the EMEA region posted an 11% price/mix increase but flat unit volumes. Latin America exhibited remarkable price/mix growth at 23%, largely driven by inflationary pressures, with 2% growth in case volumes. In the Asia Pacific region, a challenging product mix led to a 5% decline in price/mix, yet unit volumes surged by 6%.
The company’s Q4 revenue climbed 6% to $11.54 billion, surpassing the $10.68 billion consensus estimate from LSEG (formerly Refinitiv). Adjusted earnings per share (EPS) grew by 12% to $0.55, exceeding the anticipated $0.52.
| Region | Price/Mix Growth | Case Volume Growth | Concentrate Sales Growth | Organic Revenue Growth | Revenue Growth |
|---|---|---|---|---|---|
| North America | 11% | 1% | 4% | 15% | 16% |
| EMEA | 11% | 0% | 6% | 17% | 6% |
| Latin America | 23% | 2% | 3% | 25% | 10% |
| Asia Pacific | -5% | 6% | 8% | 1% | 9% |
| Overall | 9% | 2% | 5% | 14% | 6% |
Source: Company filings and press releases.
Coca-Cola indicated it gained market share across its beverage lines in 2024, with notable advancements in sparkling soft drinks, Fairlife, and tea products.
For 2025, Coca-Cola expects organic revenue growth of 5% to 6%, although a 3% to 4% currency headwind may dampen performance. Adjusted EPS is projected to rise by 2% to 3%, or 8% to 10% when excluding currency effects. The company anticipates generating $9.5 billion in free cash flow, while facing challenges from currency fluctuations and divestitures in the coming quarter.
In the upcoming year, Coca-Cola aims to rely on pricing as the main driver for growth, expecting some moderation in inflation observed in various markets. Aside from that, the focus on marketing and innovation will remain crucial for continued success.
Image source: Getty Images.
Evaluating Stock Potential
The strength of Coca-Cola’s pricing power consistently reflects its status as a top global brand. Years of effective marketing have contributed to its substantial brand equity, which is challenging for competitors to replicate. Although volume growth is modest, the company is successfully capturing more market share in essential sectors. This fusion of pricing power and volume growth should sustain positive earnings moving forward.
Noteworthy growth in specific areas is apparent. Coca-Cola Zero Sugar has emerged as a significant winner, while Fairlife’s success in the U.S. market underlines growing consumer preference for ultra-filtered milk, which boasts higher protein and lower sugar content. These products resonate with both fitness enthusiasts and those using GLP-1 medication who are increasing their protein intake.
Challenges persist, including rising aluminum tariffs that could elevate material costs by 25%. Fortunately, Coca-Cola has leverage in packaging options, allowing for transitions to more plastic bottling when necessary.
Currently, shares trade at a forward price-to-earnings (P/E) ratio slightly above 23, a level consistent with its historical average.
KO PE Ratio (Forward) data by YCharts.
Coca-Cola is adeptly navigating evolving consumer preferences while its worldwide brand recognition remains robust. Emerging products like Fairlife and ventures into alcohol partnerships present growth prospects. Considering entering the “better-for-you” segment could further enhance these opportunities, enabling competition with brands like Olipop or Poppi, which are capturing market share in health-oriented beverages.
Though the stock has been stagnant, its current valuation and growth trajectory suggest potential for movement above its recent range. Thus, long-term investors might contemplate acquiring shares now.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
