VALUATION HIGHLIGHTS

1. North America constitutes 37% of the Trefis price estimate for Coca Cola's stock.
2. Latin America constitutes 28% of the Trefis price estimate for Coca Cola's stock.
3. EMEA constitutes 22% of the Trefis price estimate for Coca Cola's stock.

WHAT HAS CHANGED?

1. KO Stock Performance In Recent Years

   The changes in KO stock over the recent years have been far from consistent. Returns for the stock were 11% in 2021, 11% in 2022, -4% in 2023, and 9% in 2024.
   In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that KO underperformed the S&P in 2021, 2023 and 2024.
   



2. Latest Earnings Performance (Q4 2024)

   Coca-Cola's total revenue for Q4 2024 stood at $11.5 billion, which marks a rise of 6% y-o-y. Sales were up 14% organically, led by a 9% rise in price/mix and a 5% growth in concentrate sales. The adjusted profit for the quarter was $0.55 per share, up 12% y-o-y. The operating margin rose 90 bps to 24% in Q4'24, vs. 23.1% in the year-ago period.



3. Coca-Cola restructuring its way to more profitability

   
   Coca-Cola is refranchising many of its bottling operations in a bid to move away from the capital-intensive and low-margin business of bottling. It is focused more on the concentrate business as the consumption of carbonated drinks continues to slow down, especially in developed markets.
   A bottling business comes with four to five times more revenue per drink sold and the accompanying cost. Thus, any impact on the sales of the bottler is going to have a magnified impact on overall sales for Coca-Cola and much less effect on the company's profits.
   Coca-Cola is, therefore, focusing more on capitalizing on profitability in the concentrate business and looking to refranchise some of its bottling investments.



POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE


Below are key drivers of the Coca-Cola Company that present opportunities for upside or downside to the current Trefis price estimate:


Coca-Cola North America EBITDA Margin



• North America EBITDA Margin : While the margins have seen a slight rise in recent years, driven by better pricing. The segment margins are expected to grow positively in the future, reaching 28% by the end of our forecast period. If the commodity prices rise, offsetting benefits from pricing gains, and the margins remain at the current levels of 24%, we could see the Trefis price estimate revised downward by over 5%. However, if the EBITDA margins improve to over 35% on account of increased cash productivity, there could be a 10% upside to our price estimate.



BUSINESS SUMMARY


The Coca-Cola Company is the world's largest beverage company, with hundreds of nonalcoholic beverage brands in sparkling soft drinks; water, enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks categories. The company owns and markets four of the world's top five nonalcoholic sparkling soft drink brands: Coca-Cola, Diet Coke, Fanta, and Sprite.


KEY TRENDS




Soft drink companies adapting to changing consumer needs


Soft drink consumption is on a decline in developed countries as consumers switch to healthier alternatives such as juices, Ready-to-Drink (RTD) teas, RTD coffee, water mixers, etc. Moreover, soft drinks are prone to higher taxation due to their unhealthy nature. Hence, volume consumption is on a decline in the U.S. and Europe. Developing nations, on the other hand, offer tremendous potential in terms of volume growth. Soft drink consumption (per capita) in countries like China, India, and Brazil is still only a fraction of what it is in the developed world.


Diet soft drinks are suffering declining volumes in developed markets


Consumers have been shifting to natural and healthier beverages with less sugar and calorie content due to the health risks associated with sugary drinks. The diet counterparts have fared even worse, with the artificial sweetener aspartame being criticized for causing sugar cravings, dehydration, weight gain, and even heart diseases. Consumers have also reported bitter aftertastes of diet drinks which use the natural sweetener stevia, initially considered a bankable solution.


Coca-Cola eyeing new markets


In December 2024, The Coca-Cola Company expanded its portfolio by acquiring the spirits ready-to-drink (RTD) range from Billson's, a historic beverage producer based in Beechworth, Victoria, Australia. This acquisition includes popular products like Vodka with Tangle, Vodka with Grape Burst, and Vodka with Portello. The current owners of Billson's, Nathan and Felicity Cowan, will continue to produce their cordial, soda, and beer range under a new brand name while operating their hospitality business in Beechworth. This strategic move allows Coca-Cola to strengthen its presence in the dynamic and growing alcoholic RTD category in Australia, aligning with its vision to offer a beverage for every occasion. ​

The global sparkling water market has experienced significant growth in recent years. In 2023, the market was valued at approximately $37.5 billion and is projected to reach around $108.2 billion by 2032, exhibiting a compound annual growth rate (CAGR) of roughly 12.5% between 2024 and 2032. This substantial market presents a significant opportunity for Coca-Cola to expand its presence.​

The bottled water category continues to outpace growth in the carbonated soft drink (CSD) sector, driven by increasing health consciousness among consumers. While emerging markets such as China, Mexico, and India contribute significantly to this growth due to limited access to clean tap water, the United States remains the fastest-growing bottled water market outside of Asia. This trend is expected to persist, further boosting the U.S. bottled water market size.​

Health concerns have prompted consumers to reduce their intake of calorie-laden beverages like CSDs and juices, leading many to opt for bottled water as a healthier alternative. This shift in consumer preference has benefited the bottled water category, positioning it for continued growth in the foreseeable future.