Inflation drives up Coca-Cola prices, consumers still look for affordable products: CEO

Coca-Cola (KO) maintained its momentum and delivered another successful quarter on Tuesday.

The soda giant beat Wall Street estimates in the second quarter, reflecting global demand for its beverages despite higher prices. Revenue rose 3% to $12.4 billion, compared to expectations of $11.76 billion. Earnings per share were 7% higher than a year ago at $0.84, compared to estimates of $0.81.

In a call with Yahoo Finance, CEO James Quincey said the results were the result of “strong execution of strategy,” which is why the company is raising its 2024 guidance.

“We express our confidence that we can meet the 2024 forecast. It is truly an expression of confidence in our long-term strategy of creating brands and being able to work with our bottling partners to implement them,” he said.

Overall, sales volume increased by 2%, while prices rose by 9%. The company raised its full-year forecast and now expects organic sales growth of 9 to 10%.

“You have to exclude a handful of countries that have very high inflation,” such as Argentina, Quincey said. “They make up about half of the price mix.” Without these factors, prices would have risen 4% in dollar terms, he said.

He added that inflation in the US and Europe is hovering around 3 percent, which is reflected in Coca-Cola’s figures.

“Inflation is approaching some sort of normalization level,” he said.

In the previous quarter (Q1), Coca-Cola reported revenue of $11.3 billion, beating Wall Street estimates of $10.96 billion. Earnings per share of $0.72 also exceeded expectations of $0.70.

As U.S. consumers remain cautious about what they spend their money on, fast-food chains like McDonald’s (MCD), Burger King (QSR) and Taco Bell (YUM) are hoping to lure consumers with cheap deals and special pricing this summer.

Coca-Cola is said to have played a role in McDonald’s $5 meal package, which has now been extended through August. At the time, a spokesperson told Yahoo Finance: “We regularly work with our customers on marketing programs to meet consumer needs.”

Quincey said the company continues to see that “lower-income consumers in particular are under pressure.”

“Wages are starting to outpace general inflation, but interest rates are still relatively high, so people are saving to some extent.”

Lower-income consumers account for about 20 percent of Coca-Cola’s U.S. sales, according to JPMorgan analyst Andrea Teixeira.

Consumers are visiting fewer restaurant chains, looking for inexpensive meals or buying cheaper meals in the supermarket.

The story goes on

“It’s a persistent effect. I don’t think it got particularly worse or particularly better in the second quarter. I think it’s still a feature of what’s happening right now,” Quincey said.

At Coca-Cola, case volume in North America fell 1% while prices rose 11%.

Shares have risen 8% since the beginning of the year, lagging behind the S&P 500 (^GSPC) but comfortably outperforming rival PepsiCo (PEP), whose shares have fallen slightly.

According to Brian Sozzi, PepsiCo’s profit exceeded expectations last week, but demand in the US declined.

In PepsiCo’s earnings call, CEO Ramon Laguarta said, “In many categories, the multi-year inflation we’ve had to endure due to increased input costs has created a perception and reality in many households that food is expensive. And consumers are making choices. They can choose to cook for themselves or buy prepared or processed foods, or they can make many choices about how they spend their money and how they eat every day on the smallest budget.”

According to Coca-Cola’s press release, the company has gained market share in non-alcoholic ready-to-drink beverages (NARTD). Quincey said the team spent a lot of time “refining strategies to become a comprehensive beverage company” with the revival of the namesake Coke brand.

When asked if Coca-Cola would ever move away from beverages alone, Quincey said, “I rarely say never… the likelihood of us offering more than just beverages is very slim.”

This could be an advantage in this consumer environment.

Before the report was published, UBS analyst Peter Grom said that the weakness on the consumer side was “concentrated more in the prepared meals sector than in beverages.”

Here’s what Coca-Cola reported in the second quarter, compared to Wall Street expectations, according to Bloomberg consensus data:

• Revenue: $12.4 billion versus $11.76 billion

• Adjusted earnings per share: 0.84 USD versus 0.81 USD

• Growth of case numbers per unit: 2.00% versus 1.77%

—

Brooke DiPalma is a senior reporter at Yahoo Finance. Follow her on Twitter at @Subscribe to or email her at [email protected].

Click here to get all the latest retail stock news and events to optimize your investment strategy