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A turbulent macroeconomic climate, stinging significantly in China and Mexico, dragged down Coca-Cola's (KO -2%) volumes in Q3, pushing the figure into contraction for the first time since 2020. KO registered consolidated unit case volumes of -1%, with softness stemming from each of its markets; no geography saw yr/yr growth in the quarter.

On the bright side, KO's 1% volume decline still outpaced rival PepsiCo's (PEP) 2% drop. Likewise, KO's flat North American volumes -- an improvement from -1% last quarter -- crushed PEP's 3% compression in the region, a recurring theme for KO, signaling steady market share capture. However, the rapid deterioration from last quarter, when KO delivered a 2% bump in consolidated unit case volumes, has investors concerned today.

• As broadly expected, KO's headline earnings and sales in Q3 were upbeat, topping analyst estimates by a similar margin as in past quarters. Revenue did inch 0.8% lower yr/yr to $11.85 bln. However, this was the product of stubborn FX headwinds. When removing currency impacts and M&A, KO's organic revenue enjoyed a 9% improvement yr/yr. Meanwhile, adjusted operating margins ticked 100 bps higher to 30.7%, underpinned by robust organic revenue growth and the impact of refranchising bottling operations.
• A 10% bump in price/mix, nearly all of which was due to KO's pricing actions or inflation, primarily contributed to the energetic organic sales growth in Q3. Latin America continued to endure hyperinflation, with price/mix ballooning by 21%, speeding up from +19% in Q2. Similarly, Asia Pacific saw price/mix swell by 7% compared to a 3% drop last quarter. Conversely, price/mix slowed in EMEA, climbing just 9% in Q3 versus a 24% leap last quarter. Meanwhile, price/mix remained the same in North America from Q2 at 11%.
• Bubbling prices took a toll on volumes in the quarter. The Asia Pacific region, particularly China, was a notable negative standout, going from +3% growth in Q2 to -2% in Q3. PEP endured a similar trend, commenting earlier this month that the region's consumers feel constrained. Likewise, Latin America, mainly Mexico, recorded flat volume growth compared to +5% last quarter. Resembling PEP again, shaky economic conditions created headwinds in the region. KO noted that it gave up share in Mexico and Brazil.
• It is still commendable that despite the crosscurrents affecting KO's markets, the company reiterated or nudged its FY24 financial targets higher. KO continues to see FY24 EPS of $2.82-2.85 but removed the low end of its previous organic revenue growth outlook, now expecting approximately +10%.

KO shareholders are not used to seeing total volume growth slip yr/yr, producing a deflated response today. However, there are many reasons to view KO's performance in Q3 with a glass-half-full attitude. The company continues to outstrip PEP's beverage portfolio globally and in North America despite prices creeping higher at similar rates. Also, KO has an up-and-coming catalyst with its Fairlife banner, constantly exhibiting outsized strength each quarter. While macroeconomic conditions can generate meaningful volatility, KO remains a firmly established global brand with the capacity to steer through unfavorable climates.