Coca-Cola earnings: Innovation and brand strength underpin growth
We plan to raise our fair value estimate of Coca-Cola stock.
Mentioned: Coca-Cola Co (KO)
Key Morningstar metrics for Coca-Cola
- Fair Value Estimate: $72.00
- Morningstar Rating: ★★★★
- Morningstar Economic Moat Rating: Wide
- Morningstar Uncertainty Rating: Low
What we thought of Coca-Cola’s earnings
Coca-Cola’s KO third-quarter organic sales rose 6.0% and adjusted operating profit grew 8.0% as margins widened 120 basis points to 31.9%. The firm kept its 2025 outlook for 5%-6% organic sales growth and 3% adjusted earnings per share growth, but it raised its adjusted free cash flow estimate by 3%.
Why it matters: Despite macro headwinds in key markets like the United States, Mexico, and China, Coke delivered 1% volume growth thanks to product innovation, consumer engagement, and agile in-market execution. We view its 2%-3% long-term volume growth target as feasible.
- We expect health-focused innovation to remain a priority, with Coke doubling down on zero-sugar recipes and functional benefits including protein and fiber. After the success of Coke Zero Sugar (global volume up 14%), it is poised to speed up the launch of other better-for-you offerings.
- Management reaffirmed its long-term commitment to the coffee category but acknowledged that the Costa acquisition has not helped unlock growth beyond coffee shops. Given its capital allocation discipline, we think Coke is likely contemplating a divestiture.
The bottom line: We plan to raise our $72 fair value estimate for wide-moat Coca-Cola by 2%-3% on stronger free cash flow and easing foreign-currency headwinds. After rising 14% year to date, including a 4% pop after earnings, the shares look fully valued.
- For 2025, we model flat volume in Latin America and Asia due to macro and weather factors, but we see Coke’s brand equity and bottler partnership remaining strong. Emerging-market volume growth should accelerate in the coming years on Coke’s innovation slate and affordability efforts.
Coming up: Coke has accelerated refranchising. It sold a 40% stake in the Indian bottling business to Jubilant in July and plans to sell 75% of the African bottling unit to Coca-Cola HBC. We maintain our Exemplary Capital Allocation Rating.
- After the deal closes, we expect bottling to account for 5% of total sales, down from 13% in 2024.
