Coca-Cola raises outlook as demand keeps its fizz

Coca-Cola Co raised its annual revenue and profit forecasts after beating quarterly results on the back of higher pricing, with demand for its cool drinks remaining resilient at a time when consumers are cutting back on nonessential spending.

Recent results from rival PepsiCo and consumer products makers in Europe such as Unilever point to steady consumer spending on cool drinks, snacks and other essential items, with little to no resistance to the multiple prices hikes undertaken to offset the affect of rising costs.

“We are seeing strong engagement from consumers across our staple of brands, which include Sprite, Fanta ... and Thums Up,” Coca-Cola CEO James Quincey said on a post-earnings call on Wednesday.

“We are executing efficiently and effectively on a local level, while maintaining flexibility on a global level,” he said.

Earlier this month, PepsiCo also raised its annual revenue and profit forecasts for a second time this year after beating second-quarter results.

“Consumers have shown an unwillingness to trade down to private label cola or beverage brands and have largely accepted the recent price increases,” CFRA Research analyst Garrett Nelson said.

Coca-Cola’s average selling prices rose 10% in the second quarter, while in North America volumes declined 1%, showing little affect to demand with overall unit case volumes remaining flat.

However, some Wall Street analysts said the focus in the second half of the year would be on whether volumes return to stronger growth.

“This whole idea of resiliency likely becomes less topical as we get into the back half of the year and pricing begins to come down,” Wedbush analyst Gerald Pascarelli said.

Coca-Cola now expects organic revenue growth of 8% to 9% for the full year, compared with a prior forecast of an increase of 7% to 8%.

The maker of Sprite and Fanta also forecast full-year core earnings per share to rise between 5% and 6% higher than prior expectations.

Coca-Cola’s shares were trading marginally lower.

Bloomberg reports the company is confident that consumers will continue to purchase diet beverages made with the popular artificial sweetener known as aspartame despite recent World Health Organisation reports that raised health concerns, CFO John Murphy said in an interview.

“Aspartame has been one of the most studied ingredients in the history of the food supply and this is another one of those studies,” Murphy said. “We do not plan to change any our recipes.”

The price that Coca-Cola pays for key commodities such as sugar, corn and juice is “easing overall,” but still having a mid-single-digit affect on costs, Murphy said.

Reuters