COCA COLA CO Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Portfolio of Love Brands: 30 global and local billion-dollar brands. 30% volume from low/no calorie, 68% products <100 calories per 12 oz. Diversified affordable and premium offerings.
• Marketing and Innovation Agenda: Studio X for tailored digital marketing; integrated campaigns during Lunar New Year; return of Share a Coke campaign; investing in multi-year innovations like Fuze Tea, Coca-Cola Orange Cream, Simply Pop; leveraging connected packaging and digital platforms.
• Ecosystem Optimization: Franchise model leverages global scale and local expertise; significant economic impact in local markets.

Segment Performance

• North America: Grew revenue and profit, won value share. Volume impacted by weakening consumer sentiment, especially among Hispanics. Bright spots: Coca-Cola Zero Sugar, fairlife, Topo Chico Sabores, food service renewals.
• Latin America: Volume flat, but organic revenue and comparable currency neutral operating income grew. Brazil and Argentina strong; Mexico weaker due to prior year growth, calendar shifts, geopolitical tensions. System acted with affordability packages and Hecho en Mexico campaign.
• EMEA: Grew volume, organic revenue, and comparable currency neutral operating income. Europe volume declined; Eurasia and Middle East drove strong volume growth and value share.
• Africa: Grew volume despite high inflation, driving affordability with refillables and value packages.
• Asia-Pacific: Delivered volume, organic revenue, and comparable currency neutral operating income growth. ASEAN/South Pacific had mixed performance; China saw volume growth; India had strong portfolio growth; Japan/South Korea drove volume growth with Ayataka Tea.

Guidance

• Organic revenue growth expected 5%-6%.
• Comparable currency neutral earnings per share growth now 7%-9%.
• Bottle refranchising a slight headwind.
• Currency headwind expected 2-3 points to net revenues, 5-6 points to EPS.
• Underlying effective tax rate 20.8%, 2 point increase vs prior year.
• 2025 comparable EPS growth 2%-3% vs 2024's $2.88.
• Second quarter faces tougher volume comparison; productivity benefits weighted to latter half; fourth quarter has an additional day.

Risks

• Macro uncertainty, geopolitical tensions, consumer sentiment impacts.
• Global trade dynamics and tariff implications affecting cost structure and consumer sentiment.
• Supply chain disruptions and potential consumer spending pullbacks in certain channels.

Question and Answer

• Q: Another strong quarter but maintained 2025 earnings guidance. Any discrete factors on currency neutral earnings? A: Currency guidance based on current rates and hedge positions, early in the year; unit case volume has strong start but cycles tougher quarters ahead, actions taken but impact not immediate.
• Q: Talk about Mexico's softer quarter and actions? A: Mexico softer due to prior year growth, Easter shift, geopolitical tension; actions include affordability with refillables, Hecho en Mexico campaign, focusing on localness and partnerships.
• Q: Actions in U.S. for consumer softness and anti-Coke sentiment? A: Focus on agility, reprioritization, reinforcing localness, affordability, winning back Hispanic consumers, building on strong brands like Coke Zero, fairlife.
• Q: Global trade dynamics and tariff impact? A: Tariff impact manageable; local franchise structure an advantage; exposure to trade not massive relative to cost structure; sentiment vs behavior important.
• Q: Sustainability of operating margins? A: Margins sustainable with levers including cost containment, top-line management; ability to adapt and invest behind brands while maintaining margins.
• Q: Fairlife growth moderation and capacity? A: Fairlife growth moderates from high double-digit, capacity uplift end of year; long-term opportunity substantial, focusing on product quality and marketing.
• Q: Europe performance and EMEA? A: EMEA volume growth driven by Eurasia; Europe mixed, similar to prior quarters, focus on affordability, summer season, strong brands and marketing.
• Q: Away from home channel trend and outlook? A: Away from home channel impact varied by region; U.S. and Europe had future consumption weakness; focus on affordability in retail channels.
• Q: Innovation in wellness/functional space? A: Follow consumer trends, taste primary, some interest in ingredients but taste remains key; focus on macro ingredients like protein, follow consumer behavior.
• Q: 2Q commentary and choppiness? A: 2Q has tougher comparison, short-term supply chain disruptions, increased unknowns; manageable with strategy and adaptability.
• Q: Asia-Pacific volumes, China consumer environment? A: Asia-Pacific volume growth driven by India and China; China growth from portfolio focus, Lunar New Year, Sprite recovery; long-term thesis intact.
• Q: North America margin balance and volume growth? A: Focus on improving margin profile, leaning into growth, core business strength, fairlife addition.
• Q: SG&A leverage and marketing productivity? A: Activity-driven approach, focus on efficient execution, new tech use, data-driven media planning.
• Q: Ukraine/Russia business and future? A: Previously ~1-2% revenue/profit; Ukraine smaller, impacted by war; future premature, long way to peace.
• Q: Clearing misconceptions about Trademark Coke and Hispanic consumer? A: False video impact receding; focus on localness, economic impact, connectivity; Hispanic consumer had pullback in spend, focus on game plan, local connectivity, affordability.