The Coca-Cola Company Q3 FY2025 earnings call

• External environment remained dynamic, adapted plans focusing on sharper execution and investments to drive growth. On track to deliver on reiterated top line and bottom line guidance. 18th consecutive quarter gained overall value share and held or gained value share across each geographic segment. Unparalleled portfolio power with 30 billion-dollar brands. Marketing transformation centered on connecting with consumers through digital engagement, etc. Big innovation like Sprite + Tea in North America, etc. Re-franchising company-owned bottlers to fortify system and unlock growth, with recent steps in India and Africa.

North America

• Delivered strong results despite ongoing differences in spending between income groups and slower traffic across channels. Volume was flat and improved sequentially for the second consecutive quarter. Gained value share and had strong revenue and profit growth. Investing behind brands led to broad-based strength across the total beverage portfolio.

Latin America

• Volume was flat but gained value share in group organic revenue and comparable currency-neutral operating income. Taking steps to address softening macroeconomic conditions in key markets like Mexico. Continued growth in Brazil with Coca-Cola Zero Sugar gaining value share.

EMEA

• Continued to grow volume and delivered strong revenue and profit growth. Volume declined in Europe driven by cycling a tougher comparison versus previous year and mixed performance across Western and Eastern markets. Partnered with the English Premier League.

Eurasia, Middle East and Africa

• Grew volume in both operating units despite volatile macroeconomic backdrops. Further emphasized mix of local and global brands, launched impactful marketing campaigns and innovations.

Asia Pacific

• Volume declined across each of the operating units driven by softer consumer spending, weaker industry performance and inclement weather in a few markets. However, gained market share and grew revenue and profit for the segment. Focusing on granular channel execution plans, tailoring brand price architecture with a focus on affordability and investing for growth.

• Expect organic revenue growth of 5% to 6% and comparable currency-neutral earnings per share growth of approximately 8% for 2025. Expect 1- to 2-point currency headwind to comparable net revenues and approximate 5-point currency headwind to comparable earnings per share for full year 2025. 2025 comparable earnings per share growth expected to be approximately 3% versus $2.88 in 2024. Now expect to generate at least $9.8 billion of free cash flow in 2025. For 2026, calendar shift impacts quarterly cadence, focus on balanced top line growth with volume as key priority, anticipate pricing to normalize as inflation moderates, commodities cost impact manageable but market variations possible, slight tailwind to comparable net revenues and earnings per share if current rates and hedge positions hold.

• External environment dynamic with certain segments of population under pressure due to transitory and long-lasting factors like unseasonal weather, inflationary pressures, uncertain trade dynamics and geopolitical environment. Regional competition加剧. Dairy industry complex and protected globally. Mexico sugar tax increase.

Q: As each of you alluded to in your remarks, entering September, you'd called out momentum that was trending a bit slower than expected in the third quarter, and you highlighted a few specific markets at the time, Mexico and Latin America, India, Vietnam, Thailand and Asia. Obviously, it appears that you came out the quarter with seeing a bit more acceleration, which is obviously encouraging. But I'm curious as to whether you describe that to sequential improvement in underlying category trends or more your own interventions made in response to the shift in consumer sentiment? And then either way, maybe just a little bit more color on how those recent observations factor into both your 4Q, your fourth quarter views as well as your approach to fiscal '26 planning.

A: Yes, sure. Thanks, Steve. Yes, as you say, we -- when I think Henrique is at the conference, we pulled out a little bit of softness in the opening part of Q3. You talked about where it was, Mexico and a number of parts of Asia, India, China and some of the ASEAN countries. And clearly, we got a bit better in September, some sequential improvement. I think it would be fair to say, as much as anything, that was a doubling down by the system, increases in marketing and focus and innovation from us working with the bottlers on some affordability and revenue management options and some step-ups in execution. So I don't think the environment changed markedly in September from July and August. We just got more focused on drilling down into what needed to be done and to driving the quarter. And I think, therefore, as you look out to Q4, I don't think the environment is changing that quickly. So I think we're going to have to be on the top of our game. We certainly expect to lean into and invest for growth in the fourth quarter. We have a lot of good marketing and innovation programs coming from Halloween all the way through to Christmas. So we'll be driving that and obviously executing with our bottlers. But I think, again, as you kind of hinted in the question, the environment is going to stay more or less the same, and we've got to focus on driving our own results and trying to get volume growth going into the fourth quarter, especially as we're cycling a steeper comparison versus last year. And then as we look out to '26, that's going to be a long way away from here and going through the year. Certainly, as John commented in his considerations, we certainly expect to see inflation and pricing moderate back to a more normal range. I think as we talked about on the previous call, if our long-term growth model calls for 4% to 6% on the top line and we look for balance, which kind of implies 2% to 3% on volume and 2% to 3% on price. Certainly, that hopefully will get easier as we go through the year, but that's what we're aiming for. Our long-term objective remains to grow volume as a way of expanding our consumer franchise and earning the right to pricing so that we can stay at the top end of our revenue growth algorithm.

Q: I wanted to ask you guys a little bit about local competition in various markets because I think historically, when consumers under pressure, affordability becomes a discussion point, you'll start to see some bubbling up of local competition, particularly in sparkling. So I was wondering if you could just go through with us any markets where that's been a factor and then kind of what you're doing in response.

A: Yes. Thanks. I think actually, there's a big overall shift to a little more localness, not just from a competitive point of view. If you kind of look back the last 5 years, the whole world went on a kind of a similar journey with COVID, with lockdown, we're coming out of lockdown with inflation. There was a certain -- all on the same roller coaster effect of the last 5 years. And now that is starting to diverge in all sorts of ways, geopolitically, economically. And we are certainly seeing that there's more dynamism in regional competitors and some of the local competition. And I think regional would be more fair to call it that. And I don't think it's just about affordability. I think this is part of a sort of kind of pendulum that swings out there with things becoming a little more global or a little more local and then a little more global. And what we're seeing at the moment is there's kind of a swing of the pendulum a little more to regionality. Affordability is a feature of that, but it's certainly not the only feature, the identity of the brands, the innovation that's coming, you see different things in different places. So as we go forward, we're responding by driving more resources to the front line so that we can have different responses in different places. And that's one of the things that Henrique was calling out in his piece, which like we need to get even closer to the consumer, which is a way of saying we need to be able to have different responses in different places using the great strength of our global system and the scale that gives us, but being able to respond to the different dynamics and the intimacy needed in the different parts of the world.

Q: So James and Henrique, you mentioned some of the consumer stresses that we're seeing in general around the world. I just want to dive a bit deeper into Latin America. It's obviously tied in with the U.S. economy, but also the policy changes that we're seeing in the U.S. So I think it'd just be helpful to get an update on what you're seeing in the ground in Mexico as well as Brazil in the last few months and just how that consumer environment might impact your forward performance, but also your strategy changes in that region, specifically, Henrique mentioned some of the Mexico changes more recently. It'd be helpful to get a deeper update there.

A: Dara, good for you. Look, Latin America continues to be a market that had very strong system, and we are coming off like years of strong growth. Most recently, you have seen that we have, over the last few quarters on a progressive improvement this quarter coming to flat, but also it's important to unpack that saying that Brazil continues to be pretty strong. Colombia and Chile also grew in the quarter. And then Mexico is also a big market, but it's on a progressive improvement, but not yet where we want it to be. There are macroeconomic issues in the country. And also our plans to really pivot and address that has been put in place in the last few quarters. We have seen some of the bright spots coming out of that. But it's too early to say that we're out of the woods here on getting Mexico really on a growth trajectory. What we see is that's going to take a little bit more time in there. And in the rest of Latin America, we have more momentum. So to your question about whether it's something more related to the whole region, it's not specific to that. It's more related to the country itself.