The Coca-Cola Company reported strong third-quarter 2022 results as the company continued to build on the momentum from the first half of the year.
Highlights:
- Global Unit Case Volume Grew 4%
- Net Revenues Grew 10%; Organic Revenues (Non-GAAP) Grew 16%
- Operating Income Grew 7%; Comparable Currency Neutral Operating Income (Non-GAAP) Grew 18%
- Operating Margin Was 27.9% Versus 28.9% in the Prior Year; Comparable Operating Margin (Non-GAAP) Was 29.5% Versus 30.0% in the Prior Year
- EPS Grew 14% to $0.65; Comparable EPS (Non-GAAP) Grew 7% to $0.69
“Our strong capabilities and consumer insights continue to help us win in the marketplace,” James Quincey, chairman and CEO of The Coca-Cola Company, stated in the announcement. “Our business is resilient amidst a dynamic operating and macroeconomic environment. We are investing in our strong portfolio of brands, which is a cornerstone of our ability to deliver long-term value for our stakeholders.”
Quarterly performance
- Revenues: Net revenues grew 10% to $11.1 billion, and organic revenues (non-GAAP) grew 16%. Organic revenue (non-GAAP) performance was strong across operating segments and included 12% growth in price/mix and 4% growth in concentrate sales.
- Margin: Operating margin, which included items impacting comparability, was 27.9% versus 28.9% in the prior year, while comparable operating margin (non-GAAP) was 29.5% versus 30.0% in the prior year. Comparable operating margin (non-GAAP) compressed as strong topline growth was more than offset by the impact of the BODYARMOR acquisition, higher operating costs, an increase in marketing investments versus the prior year, and currency headwinds.
- Earnings per share: EPS grew 14% to $0.65, and comparable EPS (non-GAAP) grew 7% to $0.69. Comparable EPS (non-GAAP) performance included the impact of an 11-point currency headwind.
- Market share: The company gained value share in total nonalcoholic ready-to-drink (NARTD) beverages.
Company updates
- Leveraging strong revenue growth management capabilities to meet consumer needs: In an environment where consumer preferences are rapidly evolving, the company is focused on expanding its offerings to fit all consumers’ budgets. The Coca-Cola Value Bundle, which was launched in North America during the third quarter, is an example of how the company is offering more choices to cost-conscious consumers. The bundle features an assortment of core sparkling brands at relevant and competitive price points. By utilizing end-to-end messaging across platforms, these offerings are retaining and recruiting more consumers while creating value for our customers. Additionally, the company is balancing the mix between affordability and premiumization, while driving pricing actions in the marketplace in response to ongoing cost inflation. For example, in Australia the company achieved low double-digit retail value growth in the sparkling category and gained approximately 1.5 points of sparkling value share through intelligent segmented pricing, increased premium mix through multi-packs of mini cans, and optimized promotional initiatives for at-home occasions.
- Turning insights into global brand experiences: The company continues to engage and attract consumers through globally scaled marketing campaigns driven by consumer insights. The “What the Fanta” marketing and innovation platform is an example of how the company is executing with its global networked marketing partner to identify and scale what resonates with consumers, from taste to brand experiences. Now launched in over 30 markets globally, the experience-driven platform is designed to spark adventure and intrigue through bold innovative flavors complemented by social media campaigns and multi-channel activations. With a uniform marketing platform and a streamlined offering of flavors that resonate with local tastes, “What the Fanta” is driving increased profitability in sparkling flavors and is recruiting more consumers, as approximately 40% of consumers in Europe who purchased “What the Fanta” beverages in 2022 were new to the Fanta® brand.
- Strategically expanding in emerging categories: Since entering into the ready-to-drink (RTD) alcohol beverages category in 2018 with Lemon-Dou in Japan, the company has continued its test-and-learn approach with disciplined experiments around alcohol occasions globally. The company is leveraging brands with strong credentials, such as Topo Chico®, while adding to the existing portfolio of Schweppes® premium adult cocktail mixers and tonics. This year, Simply Spiked Lemonade™ and Fresca™ Mixed were introduced in the United States through brand authorization agreements with Molson Coors Beverage Company and Constellation Brands, Inc., respectively, and both offerings are seeing encouraging early results. These initiatives support the company’s disciplined approach on its journey to become a total beverage company with beverage options for all occasions and need states.
- Increasing water security through collaboration and collective action: The company continues to focus on collaborating with businesses and nongovernmental organizations to create a more sustainable and better shared future. During the quarter, at World Water Week 2022, the company focused on how corporate water stewardship can drive collective action to help address water challenges. Over the past two years, the company has stepped up investments in nature-based water solutions as an important part of its 2030 Water Security Strategy. These solutions, which include meadow and forest restorations, invasive species removal and floodplain management, can provide a wide range of benefits, including better water quality, carbon sequestration and enhanced biodiversity.
Consolidated
- Unit case volume grew 4%, with broad-based growth across most operating segments. Volume performance was driven by strength in away-from-home channels and ongoing investments in the marketplace. Developed markets grew mid single digits, while developing and emerging markets grew low single digits. Growth in developed markets was led by Western Europe, Mexico and the United States, while growth in developing and emerging markets was led by India, China and Brazil.
Category performance was as follows:
- Sparkling soft drinks grew 3%, driven by growth across all geographic operating segments, primarily led by India, Mexico and China. Trademark Coca-Cola grew 3%, driven by growth across all geographic operating segments. Coca-Cola® Zero Sugar grew 11%, driven by low double-digit growth across developed markets and high single-digit growth across developing and emerging markets. Sparkling flavors grew 3%, led by Asia Pacific and Latin America.
- Nutrition, juice, dairy and plant-based beverages were even, as growth led by Minute Maid Pulpy in China, Maaza® in India and fairlife® in the United States was offset by declines primarily in local brands in Eastern Europe.
- Hydration, sports, coffee and tea grew 5%. Hydration grew 6%, led by strong growth in Asia Pacific and Latin America. Sports drinks grew 6%, primarily driven by growth of Aquarius®, BODYARMOR® and Powerade®. Coffee grew 5%, primarily driven by cycling the impact of pandemic-related Costa® retail store closures in the United Kingdom in the prior year and continued expansion of Costa® coffee across markets. Tea was even, as strong growth in Brazil and Mexico was offset by a decline due to the suspension of business in Russia.
- Price/mix grew 12%, driven by pricing actions in the marketplace across operating segments along with favorable channel and package mix primarily due to cycling the impact of the pandemic in the prior year. Price/mix also benefited from positive segment mix.
- Operating income grew 7%, which included items impacting comparability and a 10-point currency headwind. Comparable currency neutral operating income (non-GAAP) grew 18%, driven by strong organic revenue (non-GAAP) growth across all operating segments, partially offset by higher operating costs and an increase in marketing investments versus the prior year.
North America
- Unit case volume grew 1%, driven by continued recovery in away-from-home channels. Sparkling soft drinks and dairy beverages led growth during the quarter.
- Price/mix grew 15%, primarily driven by pricing actions in the marketplace and continued recovery in the fountain business. Concentrate sales were 2 points behind unit case volume, primarily due to the timing of concentrate shipments.
- Operating income grew 25%, which included items impacting comparability. Comparable currency neutral operating income (non-GAAP) grew 20%, driven by strong organic revenue (non-GAAP) growth, partially offset by higher operating costs and an increase in marketing investments versus the prior year.
The company gained value share in total NARTD beverages, driven by strong performance in away-from-home channels.
Bottling investments
- Unit case volume grew 16%, driven by strength in India and Vietnam.
- Price/mix grew 3%, driven by pricing actions across most markets.
- Operating income declined 43%, which included items impacting comparability and a 5-point headwind from currency. Comparable currency neutral operating income (non-GAAP) declined 16%, as strong organic revenue (non-GAAP) growth was more than offset by higher operating costs.
Full year 2022
On March 8, 2022, the company announced the suspension of its business in Russia as a result of the conflict in Ukraine. The approximate direct impacts of this are estimated to be as follows:
- 1% impact to unit case volume – No Change
- 1% impact to net revenues and operating income – Updated
- $0.03 impact to comparable EPS (non-GAAP) – No Change
These estimated impacts are reflected in the outlook commentary below.
The company expects to deliver organic revenue (non-GAAP) growth of 14% to 15%. – Updated
For comparable net revenues (non-GAAP), the company expects a 7% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 2% tailwind from acquisitions and divestitures. – Updated
The company expects commodity price inflation to be a high single-digit percentage headwind on comparable cost of goods sold (non-GAAP) based on the current rates and including the impact of hedged positions. – No Change
The company’s underlying effective tax rate (non-GAAP) is estimated to be 19.0%. This does not include the impact of ongoing tax litigation with the U.S. Internal Revenue Service, if the company were not to prevail. – Updated
Given the above considerations, the company expects to deliver comparable currency neutral EPS (non-GAAP) growth of 15% to 16% and comparable EPS (non-GAAP) growth of 6% to 7%, versus $2.32 in 2021. – Updated
Comparable EPS (non-GAAP) percentage growth is expected to include a 9% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 1% headwind from acquisitions and divestitures. – No Change
The company expects to generate free cash flow (non-GAAP) of approximately $10.5 billion through cash flow from operations of approximately $12.0 billion, less capital expenditures of approximately $1.5 billion. This does not include any potential payments related to ongoing tax litigation with the U.S. Internal Revenue Service. – No Change
Fourth-quarter 2022 considerations – new
Comparable net revenues (non-GAAP) are expected to include an 8% currency headwind based on the current rates and including the impact of hedged positions, in addition to a 1% tailwind from acquisitions.
Comparable EPS (non-GAAP) percentage growth is expected to include a 9% currency headwind based on the current rates and including the impact of hedged positions.
Full-year 2023 considerations – new
The company is providing the following considerations for 2023:
- The company is encouraged by the underlying topline momentum, and will leverage its capabilities to sustain topline growth amidst the ongoing inflationary backdrop.
- The company expects global inflation to continue to impact its expenses across the board, and also expects commodity prices to remain volatile. The company has benefited from its hedges in 2022 and expects elevated inflation on a per case basis in 2023.
- The company’s underlying effective tax rate (non-GAAP) is estimated to be 19.5%. This does not include the impact of ongoing tax litigation with the U.S. Internal Revenue Service, if the company were not to prevail.
- The company’s initial currency outlook for full-year 2023 is as follows:
- Comparable net revenues (non-GAAP) are expected to include an approximate 5% to 6% currency headwind based on the current rates and including the impact of hedged positions.
- Comparable EPS (non-GAAP) is expected to include an approximate 7% to 8% currency headwind based on the current rates and including the impact of hedged positions.
- The company will provide full-year 2023 guidance when it reports fourth quarter earnings.
