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Coca-Cola's (KO +3%) Q4 performance was refreshing, returning to volume growth, delivering accelerating organic revenue growth, and projecting encouraging FY25 figures. The beverage behemoth was coming off a weak performance in Q3, as volumes went negative by 1%, following a 2% improvement in the preceding quarter. KO chalked up the deterioration to a slow start to the quarter but noted that trends quickly reversed course during August and September, building positive momentum heading into Q4.

• KO followed through in Q4, posting total volume growth of 2%, supporting a 6% improvement in net revs yr/yr to $11.54 bln, crushing analyst expectations. While FX headwinds still clipped several points off KO's top line, it was not as aggressive as analysts anticipated. Organic revenue, which backs out currency fluctuations and M&A impacts, jumped by 14% yr/yr, a 5 pt acceleration from last quarter, aided largely by a 9% uptick in price.
• Inflation was widespread, climbing by 11% in EMEA, 12% in North America, and 23% in Latin America, where Argentina's hyperinflationary dynamics continue to fuel rapid price increases. The Asia Pacific was the only region where prices fell, inching 5% lower. However, despite higher prices, volumes were decent, edging 2% higher in Latin America, 1% in North America, and staying flat in EMEA. In Asia Pacific, volumes rose by 6%.
  • Compared to its closest rival, PepsiCo (PEP), KO maintained its impressive volume outperformance, a bright reflection of brand leadership. For comparison, PEP's total volumes inched just 1% higher in Q4, with its North American beverage volumes contracting by 3% for the second consecutive quarter.
• Underpinned by constantly inflating prices and healthy organic revenue growth, offsetting higher input costs and currency headwinds, KO improved its non-GAAP operating margins in Q4, touting a 90 bp improvement yr/yr to 24.0%. As a result, the company was positioned to maintain its streak of topping earnings estimates in the quarter, delivering adjusted EPS of $0.55.
• KO issued relatively promising FY25 guidance, targeting adjusted EPS growth of +2-3% yr/yr and organic sales growth of +5-6%, both representing slowdowns from a caffeinated FY24, when earnings and organic revs jumped by 7% and 12%, respectively. Currency fluctuations will remain a headwind in FY25; KO estimates a roughly 3-4 pt hit to comparable net revs and 6-7 pt disruptions to comparable EPS.

As we saw from PEP last week, the overall consumer environment is stabilizing, supporting KO's decent outperformance in Q4. That does not mean that pockets of weakness exist. Management cautioned that the lower-income segments in the U.S. and Europe are under meaningful pressure, a trend unlikely to budge in 2025. Meanwhile, volatility is more prevalent in emerging markets, leading to ups and downs throughout each quarter. However, KO is extracting healthy gains despite shaky consumer demand, showcasing its brand advantage over PEP in the process. As such, we continue to like KO over the long term.