Coca-Cola (KO, Financial) shares are slightly down after releasing its Q2 earnings. While the company exceeded EPS expectations, revenue was in line at $12.53 billion. Investors' high hopes were not entirely met, especially after PepsiCo (PEP, Financial) reported strong Q2 results last week. A slowdown in organic revenue growth and weak volume trends contributed to the stock's decline.
- KO leveraged pricing strength to counter inflation and currency pressures, with a modest sequential price/mix improvement aiding revenue growth year-over-year.
- Unit case volume decreased by 1% year-over-year, after a 2% increase in Q1. Growth in Central Asia, Argentina, and China was offset by declines in Mexico, India, and Thailand, partly due to harsh weather in June. North American volume also fell by 1%, indicating ongoing demand uncertainty.
- The slight increase in price/mix did not fully offset the volume decline, causing organic revenue growth to slow to 5% from 6% in Q1, aligning with PEP's beverage segment trends.
- Bright spots in KO's portfolio include Coca-Cola Zero Sugar, Diet Coke, Bodyarmor, and Powerade, with Coca-Cola Zero Sugar volume increasing by 14% across all segments.
- Non-GAAP operating margin rose by 190 basis points year-over-year to 34.7%, driven by underlying expansion, despite currency headwinds. A 63% rise in operating income indicates effective cost management by KO.
Investors anticipated strong results following PEP's Q2 performance. Although KO surpassed EPS expectations and had several positive aspects in its beverage lineup, the overall results did not match PEP's strength. PEP benefits from a growing snack business, making direct comparisons challenging. Overall, investors might have been expecting a more bullish report from KO.
