James Quincey, The Coca-Cola Co.’s chairman and CEO, yesterday (23 July) described the US drinks giant’s first-half performance as “strong” – and he had good reason to do so.

In the six months to the end of 28 June, the Sprite and Fanta brands owner reported a 3% rise in net revenues and a 13% jump in organic revenues. Unit case volumes were up 2%.

Those top-line numbers were in part due to second-quarter revenue results that came in above the forecasts of Wall Street analysts.

While first-half reported operating profit and earnings per share were down year on year, once the impact of exchange rates and one-offs (which included a charge linked to its acquisition of Fairlife) were excluded from the numbers, both metrics grew year on year.

“After a good start to the year, we continued our momentum in the second quarter in a world with a wide spectrum of market dynamics our all-weather strategy is working,” Quincey told analysts on a call to discuss the results.

The reaction on Wall Street was positive. “Coca-Cola’s global execution remains strong, which is reflected in continued above-algo sales and profit growth,” TD Cowen’s Robert Moskow said.

Coca-Cola’s H1 “somewhat unique”

In the second quarter, the Minute Maid maker saw its organic revenue, which strips out M&A and exchange rates, jump 15%, marking yet another quarter of double-digit growth on that metric. On average, Wall Street analysts who cover Coca-Cola had forecasted growth of 9.4%.

On margins, the group’s “comparable operating margin” stood at 32.8% in the second quarter, versus 31.6% a year earlier. For the opening half of the year, this margin metric reached 32.6%, again higher than the 31.7% generated a year earlier.

There’s no doubt Coca-Cola received a boost from higher prices. CFO John Murphy said the company saw “price/mix” growth of 9% during the second quarter. Murphy said Coca-Cola had secured “approximately five points of intense inflationary pricing across a handful of markets to offset significant currency devaluation”.

However, the company pointed to volume growth in markets including India, the Philippines (both up “double digits”), Japan and South Korea. In Africa, volumes grew “in mid-single digits”, Quincey said.

“Parsing through Coca-Cola’s 2Q print to look at the underlying business, we see a strong topline and margin progression culminating in, one, yet another quarter of underlying organic sales growth at the high end of the long-term algorithm and, two, all-in EPS growth in high-single-digit territory despite a ten-point headwind from currency,” Barclays analyst Lauren Lieberman wrote in a note to clients.

“We think Coca-Cola’s ability to again beat estimates and raise fiscal year 2024 comparable EPS growth by one point to +5-6% (inclusive of a circa 8-9% FX headwind) thanks to this 1H outperformance will prove somewhat unique this earnings season.”

At Bernstein, Callum Elliott added: "Beat helped by hyperinflationary pricing, but underlying performance strong nonetheless." He pointed to the 5% growth in uniyt case volumes in Latin America as an example.

Coca-Cola sees consumer “resilience” in North America

The second-quarter and first-half results led Coca-Cola to lift its forecasts for a clutch of financial metrics for the 2024 financial year.

Coca-Cola now sees its annual organic revenue growth by 9-10% year on year, versus its previous forecast of 8-9%. Investors would have also been cheered to see new guidance for comparable, currency-neutral earnings per share, which the company now sees rising 13-15%, compared to 11-13% previously.

“Our updated 2024 guidance reflects the momentum of our business in the first half of the year and our confidence in our ability to execute on our plans during the second half of this year,” Murphy said.

Nevertheless, even though Coca-Cola’s management remains confident it will hit those new targets, it sought to underline the pockets of pressure it is seeing on consumers in certain regions.

“As we look forward to the second half of the year, the external backdrop remains uncertain including some signs of pressure in various consumer segments across developed markets,” Quincey said.

Coca-Cola reported top- and bottom-line growth in North America (and, Quincey pointed out, “won both volume and value share”) but nevertheless saw its volumes decline year on year, which the chief executive pinned on “softness in away-from-home channels”.

Quincey said “consumer sentiment in the aggregate is actually pretty strong” in North America. Lower-income consumers are focusing more on “value” in the retail and away-from-home markets, he said, before adding: “There’s just as much consumers spending on more premium categories or more premium price-points and experiences, so that’s all aggregating out at a sort of resilience for the average overall consumer.”

While seen as resilient, Coca-Cola’s comments also underline a certain polarisation of consumers in North America.

At Barclays, Lieberman believes Coca-Cola has the assets in place to serve both sets of consumers. “To be sure, Coca-Cola’s efforts to ensure it provides the right affordability offerings was a common refrain for its entire footprint but with particular emphasis yesterday on North America’s away-from channel,” she said.

“While price pack architecture has been a heavily utilized tool for some time now to protect affordability at retail stores, more recently, Coca-Cola has collaborated on meal deal combos with some of its customers to support away-from-home traffic and beverage incidence in those outlets.

“Interestingly, this discussion was coupled with the fact that premium-positioned Fairlife was the largest driver of at-home channel retail sales growth during the quarter – highlighting to us the polarised state of the US consumer. With this in mind, we firmly believe Coca-Cola has the right tools and strategies in place to cater to both ends of the spectrum.”

A mixed bag in Europe

While unit-case volumes in North America fell 1% in the second quarter, another region that didn’t see growth was EMEA, were volumes were flat.

On the call with analysts, Quincey sought to isolate the different regions within EMEA. Africa, he said, had a “strong” second quarter, while the conflict in the Middle East means there are “some headwinds there”.

He added: “Europe was overall not where we’d like to be. We’d like to see a little more growth coming out of the European business.”

Quincey described the situation as “a complete mix across the countries in Europe”, with more pressure on the away-from-home channel in the west of the region than the east.

“The immediate consumption packs have been growing slower [in the west],” he noted.

Coca-Cola’s principal partner in Europe – Coca-Cola Europacific Partners – is due to report its first-half numbers on 7 August.

Wrestling with the sports-drinks category

In Coca-Cola’s results statement, the company said in the six months to 28 June it had recorded a charge of $760m related to the impairment of its Bodyarmor trademark.

The group said the impairment was “primarily driven by revised projections of future operating results and higher discount rates resulting from changes in macroeconomic conditions since the acquisition date”.

Coca-Cola acquired a 15% stake in Bodyarmor 2018 and then paid $5.6bn for the remaining shares in the business three years ago.

In September last year, the company told analysts the Bodyarmor brand needed “a lot of work” to boost sales amid sluggish volumes across the category.

Jennifer Mann, president of the company’s North America division, told an investor conference in Boston she was “not happy with where we are on Bodyarmor” but added: “We’ve got a very focused action plan, with better marketing, more innovation and better execution in the marketplace.”

Coca-Cola has moved to combine its Bodyarmor and Powerade brands under one management team and the company was asked for a progress update on the results call yesterday.

“In the sports category, getting better,” Quincey said. “We had some positive volume growth in Bodyarmor and Powerade and we’re really starting to see the kind of stabilisation with the marketing and the innovation and some pack price work going on there.

“We’re not yet gaining all the share we want to gain but we’ve stabilised and starting to turn the corner with some of those innovations on Zero and Flash IV and Powerade Sour, so a good kind of step forward on turning the corner and clearly looking to do better. I’m not sure there’s much more to say. Great quarter and long may it last.”