Coca-Cola Earnings: Innovation and Agile Marketing Buoyed Sales

Key Morningstar Metrics for Coca-Cola

• Fair Value Estimate: $66.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Low

What We Thought of Coca-Cola’s Earnings

Coca-Cola KO posted 6% organic sales growth in the first quarter on a 5% price mix increase. Adjusted operating margin widened 140 basis points to 33.8%.

Why it matters: Despite a weaker macro backdrop, Coke increased sales across all regions, which we attribute to its focus on zero-sugar recipes, flavor and packaging innovations, and responsive in-market execution.

• Coke launched more-affordable fare at attractive price points and refillable bottles while expanding its distribution in value channels. This helped fuel a 2% rise in unit case volume, led by mid-single-digit increases in emerging Asia, the Middle East, and Africa.
• Consistent with our view that its localized supply chain should insulate it from trade policy changes, Coke confirmed the tariff impact should prove manageable. The firm held its 2025 outlook for organic sales to grow 5%-6% and adjusted earnings per share to grow 2%-3%.

The bottom line: We plan to raise our $66 per share fair value estimate for wide-moat Coca-Cola by a low-single-digit percentage on time value. Shares look fully valued, trading at 24 times 2025 earnings.

• Our 2025 forecast for sales to grow 2% incorporates currency headwinds of 330 basis points and more-moderate price increases (4%) compared with low-teens annual hikes in the past three years as Coke has refined its affordability focus.
• Amid geopolitical and macro uncertainties, we view Coke as wise to enhance brand messaging with tailored content to connect with consumers. We forecast Coke to direct 11% of sales to marketing in 2025, up from a five-year average of 10%.

Coming up: We expect Coke’s priority on beverages with low calories and nutritional benefits to appeal to health-conscious consumers and fuel volume gains for the longer term.

• At 30% of total volumes, we expect low- or no-calorie beverages to grow based on recipe innovation and bottler enthusiasm.

Its premium dairy, prebiotic soda, and vitamin-infused tea should also gain traction with consumers.