Coca-Cola to push ahead with price hikes as PepsiCo hits pause

Coca-Cola also forecast annual profit growth above Wall Street expectations, while PepsiCo had delivered a more somber forecast last week.

A near duopoly in the global carbonated drinks market has made it relatively easy for the companies to undertake multiple cost inflation-induced price hikes over the last year without demand drying up.

Coca-Cola Chief Executive James Quincey said the company would continue raising prices “across the world” this year, but at a moderating pace.

Analysts said Coca-Cola’s brand strength gives it the power to set prices in its category at levels above competitors.

“(Coca-Cola) would certainly be a price leader in carbonated soft drinks. They have the capacity to take pricing,” Wedbush Securities analyst Gerald Pascarelli said.

He added Coca-Cola’s strategy last year of relying less on price increases to drive sales compared to its main rival also gives it more room to raise rates without losing competitiveness.

Coca-Cola’s average selling price rose 11% for the full year ended Dec. 31, while PepsiCo’s increased 14%.

Unit case volumes for Coca-Cola fell 1% in the quarter, hit by a drop in demand in Europe, where higher fuel and power costs have sparked a cost-of-living crisis.

Quincey said consumer demand in the region is likely to remain weak for the rest of 2023.

Coca-Cola forecast annual adjusted earnings per share to rise 4% to 5%, above estimates of 3% growth, according to Refinitiv IBES data.

Adjusted fourth-quarter profit came in line at 45 cents per share, the first time in three years the company failed to beat expectations.

Coca-Cola’s shares fell marginally on Tuesday.

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Sriraj Kalluvila)

02

Coca-Cola revenue rises in fourth quarter, fueled by higher prices

Coca-Cola on Tuesday reported quarterly revenue that beat analysts’ expectations, driven by higher prices for its drinks.

But those higher prices have hurt demand for Coke products like Simply Orange Juice and Fairlife Milk. Coke said its unit case volume, which strips out the impact of currency and price changes, fell 1% in its fourth quarter.

Shares of the company were flat Tuesday.

Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:Earnings per share: 45 cents adjusted vs. 45 cents expectedRevenue: $10.13 billion vs. $10.02 billion expected

The beverage giant reported fourth-quarter net income attributable to the company of $2.03 billion, or 47 cents per share, down from $2.41 billion, or 56 cents per share, a year earlier.

Excluding an impairment charge tied to its Russian business and other items, Coke earned 45 cents per share.

Net sales rose 7% to $10.13 billion, driven by 12% growth in pricing and a more expensive mix of drinks sold.

Unit case volume was flat in North America and slipped 5% in its Europe, Middle East and Africa segment. CEO James Quincey said last quarter that European consumers were changing their behavior in response to soaring inflation.

“It looks like the European economy is going to avoid a technical recession, but clearly consumer demand is softening, and I think that’s likely to continue into the rest of the year,” he said Tuesday.

He added that Coca-Cola’s U.S. business is still performing well and the reopening of China will likely boost sales this year.

The Atlanta-based company has been using a two-pronged strategy to appeal to a wide range of consumers. In addition to raising prices, it’s also been trying to offer more affordable options targeted at lower-income customers. Quincey also said the company has to “earn the right to take price.”

Both Coke’s sparkling soft drinks segment and its water, sports, coffee and tea division reported flat volume for the quarter, although there were some bright spots. Coke Zero Sugar’s volume climbed 9%, and its coffee business saw volume increase 11% as the company expanded its Costa brand.

The weakest spot was Coke’s juice, value-added dairy and plant-based beverages segment, which saw its volume shrink 7% in the quarter. The company said the suspension of its Russian business weighed on the division.

For 2023, Coke projects comparable revenue growth of 3% to 5% and comparable earnings per share growth of 4% to 5%. Wall Street was forecasting revenue growth of 3.9% and earnings per share growth of 3% for the year.

“Inflation is likely to moderate as we go through the year, and therefore we expect the rate in which prices are going to increase will start to moderate and become more normal by the end of the year,” Quincey said Tuesday on CNBC’s “Squawk Box.”

Read the Coca-Cola earnings report here.