The Coca-Cola Company (NYSE:KO) recently unveiled its Q3 2023 financial results, which exceeded estimates for both earnings and revenue. The company demonstrated substantial growth in both earnings and sales compared to the previous year, benefiting from its sustained business momentum. Furthermore, Coca-Cola has revised its outlook for the year 2023.
Earnings reached 74 cents per share in the third quarter, marking a 7% increase from the same period last year and surpassing the Zacks Consensus Estimate of 69 cents per share. However, unfavorable currency exchange rates had a 4% negative impact on earnings. When adjusting for currency fluctuations, comparable earnings per share surged by 11% year over year.
Revenues for Q3 amounted to $11,953 million, outpacing the estimate of $11,451 million and registering an 8% increase compared to the previous year. Organic revenues exhibited an even more robust growth of 11% from the same quarter in the previous year. Coca-Cola’s top line was boosted by strong revenue growth across most of its operating segments, driven by an improved price/mix strategy and increased concentrate sales. During the quarter, Coca-Cola secured a larger global share in the market for non-alcoholic ready-to-drink beverages.
Following the release of these impressive results on October 24, 2023, Coca-Cola’s stock witnessed a 2.4% increase in pre-market trading. It’s worth noting that Coca- Cola stock had experienced a 13.2% decline over the past three months, while the industry as a whole faced an 11.6% downturn.
In terms of volume and pricing, concentrate sales rose by 2% year over year in the reported quarter, and the price/mix improved by 9%. The price/mix growth was driven by pricing actions, including those related to hyperinflationary markets, and a favorable product mix. Concentrate sales were in line with the unit case volume for the quarter.
Coca-Cola’s total unit case volume increased by 2% in the third quarter, with a 2% increase in developed markets, driven by growth in Mexico and Japan. The developing and emerging markets also experienced a 2% rise, mainly due to growth in India and the Philippines.
Regarding category cluster performance, the unit case volume for sparkling soft drinks increased by 2% year over year, benefiting from growth in Latin America and the Asia Pacific. The trademark Coca-Cola achieved a 2% growth in volumes, while Coca-Cola Zero Sugar witnessed a 3% increase. The sparkling flavors category reported a 1% increase, driven by gains in Latin America, the Asia Pacific, and North America.
Volumes for juice, value-added dairy, and plant-based beverages rose by 2% in the third quarter. This growth was fueled by a strong performance from products like fair life in the United States, Santa Clara in Mexico, and Minute Maid Pulpy in China.
Unit volumes for the water, sports, coffee, and tea categories increased by 1% in the third quarter. Notably, Coca-Cola witnessed a 1% volume growth in the water category due to gains in Latin America, while sports drinks improved by 3% thanks to the growth of Powerade in Latin America and EMEA. The coffee business displayed 6% growth, driven by strong Costa coffee performances in the U.K. and China. However, tea volume experienced a 1% decline due to decreases in Latin America and dogadan in Turkiye, which offset growth in the Asia Pacific.
In terms of segmental performance, revenues saw significant growth, with a 24% increase in Latin America, 10% in EMEA, 6% in North America, 15% in Global Ventures, and 4% in Bottling Investments. However, the Asia Pacific experienced a 2% decline in revenue.
Organic revenues showed substantial improvement, increasing by 21% in EMEA, 6% in North America, 20% in Latin America, 2% in the Asia Pacific, 9% in Global Ventures, and 18% in Bottling Investments.
Turning to margins, in dollar terms, the operating income increased by 6% year over year to $3,270 million, with a 4% impact due to currency headwinds. Comparable operating income displayed an 8.5% year-over-year increase, and comparable currency-neutral operating income advanced by 13%, driven by robust organic revenue growth across all segments, although offset to some extent by higher marketing investments. The operating margin for the third quarter contracted slightly, falling 50 basis points to 27.4%, compared to 27.9% in the previous year’s quarter. The comparable operating margin, however, expanded by 20 basis points to 29.7%.
The company’s guidance for 2023 has been raised, with an anticipated organic revenue growth of 10-11%, compared to the previously expected 8-9% growth. It is worth noting that comparable revenues will be impacted by a 4% currency headwind based on current rates, including a 1% negative impact of acquisitions and divestitures. The company expects a mid-single-digit percentage impact from commodity price inflation on the comparable cost of goods sold, with an underlying effective tax rate of 19.3% for 2023, compared to the previous expectation of 19%. Comparable currency-neutral earnings per share are estimated to increase by 13-14%, compared to the previously stated 9-11% growth. Additionally, the company anticipates a year-over-year comparable earnings per share growth of 7-8% for 2023, up from the previous estimate of 5-6%. This growth is expected to include a 6% headwind from currency fluctuations, as well as a slight headwind from acquisitions and divestitures. The company had previously projected a 4-5% currency headwind on comparable earnings per share.
Looking ahead to the fourth quarter of 2023, comparable revenues are expected to be impacted by a 4% currency headwind, along with a 1% negative impact from acquisitions, divestitures, and structural changes. Comparable earnings per share are estimated to include a currency headwind of 8%.
In terms of capital and repurchasing activities, the company envisions an adjusted free cash flow of $9.5 billion for 2023, which includes $11.4 billion in cash flow from operations. Capital expenditure is expected to reach $1.9 billion. For the same year, Coca-Cola plans to continue repurchasing shares to offset dilution stemming from employee stock-based compensation plans. A portion of the proceeds from non-operating activities will be used for repurchasing additional shares.
The company has also provided its initial outlook for 2024, anticipating that comparable revenues will include a currency headwind of low-single digits, based on current rates and hedge positions. Comparable earnings per share are likely to be affected by a currency headwind of a mid-single-digit percentage.
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Author Faith Yakubu 
