Coca-Cola to deliver on full-year guidance with ‘all-weather strategy,’ despite Q3 volume slowdown

“After a good first half of 2024, we navigated through a dynamic external landscape during the third quarter. Our business again proved to be resilient. Volume declined 1% of the quarter, driven by a slow start in July. However, our business trends improved each month, and notably, trademark Coca-Cola volume outperformed during the quarter. Our year-to-date 2024 performance gives us confidence we will deliver the high-end of our previous top-line guidance and earnings growth of 5-6%, including approximately 9% of currency headwind,” said Quincey.

Have CPG companies taken pricing too far?  

During recent quarterly results, Coca-Cola, PepsiCo and others registered slumping volumes, with market analysts questioning price hikes when many consumers sought budget-friendly products.

Earlier this month, Coca-Cola rival PepsiCo​ noted volume declines in its beverage business, which resulted in a lower yearly guidance.

Coca-Cola is rebalancing its pricing mix and expects input costs to increase at a lower rate in the future, Quincey explained.

“We [are] heading towards that more normalized level of pricing going into next year, landing in a more normal zone as some of that tracks down at similar rates to [Consumer Price Index]. Of course, we continue to be very choiceful about where we invest for affordability options and where we invest for premiumization options. I think [pricing] mix will always be four or five points, but certainly, we would look for continued growth in the North American business,” Quincey elaborated.

Sprite Chill, Fanta Beetlejuice ‘generate short term buzz,' Topo Chico expands

Coca-Cola is “continuing to focus on affordable price points for value packages, tailored promotions and premium offerings to drive demand,” and releasing seasonal, co-branded and limited-time offerings to offset volume slowdowns, Quincey said.

“Sprite Chill also delivered over $50 million in retail sales after only 21 weeks in the market and has been extended after a successful limited run. We also innovate for different reasons. It can be to generate short-term buzz, such as the third quarter launch of the limited-edition product, Coca-Cola Zero Sugar Oreo, which is available in over 35 markets, and Fanta Beetlejuice, which is our first-ever global Halloween activation and is offered in nearly 50 markets,” Quincey elaborated.

Also, Coca-Cola is growing its Topo Chico brand — which it acquired in 2017 for $220 million — through unique activations and new products, Quincey explained.

Topo Chico launched a line of non-alcoholic mixers earlier this year, following the release of last year's Sabores beverages. Also, Coca-Cola spread brand awareness of Topo Chico with campaigns in the US and Mexico this year, Quincey noted.

“In the US, Topo Chico is the No.1 premium sparkling water brand. We have driven strong consumer demand with a grassroots experiential campaign in 13 cities, featuring impactful displays connecting Topo Chico to food, music and art,” he elaborated.

He added, “During the quarter, [the] Topo Chico trademark grew volume, nearly 20% globally. Year-to-date volume has increased tenfold compared to pre-acquisition levels in 2016.”

However, Coca-Cola pulls back on products that are not resonating with consumers, including the recently discontinued Coca-Cola Spice beverage, which did “not hit the mark,” Quincey admitted.

Coca-Cola’s ‘all-weather strategy is working’ despite challenges

Despite volume slowdowns, Coca-Cola expects to deliver 10% organic revenue growth, in line with its updated full-year guidance from the second quarter.

Operating margin dropped to 21.2% for the quarter, compared to 27.4% for the same quarter last year, while non-GAAP free cash flow fell to $1.6 billion. Cashflow and operating margins were impacted by a $6 billion payment to the IRS due to back taxes, which Coca-Cola is appealing in federal tax court.

“While our markets continue to move in many different directions, and our agility is being put to the test, our all-weather strategy is working. We continue to deliver on our strategy through a combination of world-class marketing and innovation and excellence in revenue, growth, management and execution, starting with marketing and innovation, our refreshed marketing model is integrating digital, live and retail experiences to connect with consumers in unique and personalized ways,” Quincey said.

Earnings per share for the quarter was $0.66, declining 7%. Coca-Cola’s stock was down around 1.6% at the closing bell, following the release of the quarterly results.