Coca-Cola's revenue grew 11% on an organic basis, reaching $12.0bn in the third quarter. Growth was driven by a 9% rise in prices and a 2% increase in volumes.
Operating income came in at $3.3bn in the third quarter. Ignoring exchange rates and other items affecting comparability, there was a 13% increase in underlying operating profit. The associated margin moved 0.81 percentage points higher to 30.3%, primarily driven by strong sales growth and the impact of refranchising bottling operations, which was partially offset by increased marketing spend.
Year-to-date free cash flow improved by $636m to $7.9bn. Net debt improved from $25.1bn to $20.8bn.
The company raised its full-year organic revenue growth guidance from a range of 8-9% to 10-11%. That's driven an improvement in underlying earnings per share (EPS) guidance, which is now expected to grow by 13-14%, ignoring the impact of exchange rates and other items affecting comparability.
The shares rose 2.3% in pre-market trading.
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Our view
Coca-Cola's diverse range of brands has continued to keep performance fizzing. Organic revenue growth was ahead of market expectations this quarter, with both higher prices and volumes contributing positively. These spritely sales have given management the confidence to upgrade the full-year revenue and profit outlook.
A key thing differentiating Coca-Cola from most other drinks makers is its operating model. Rather than investing in big manufacturing plants, Coca-Cola partners with, and holds stakes in, local bottling companies in what's known as the Coca-Cola System. That allows the group to keep a lid on costs and supports its industry-leading gross margins, which hover around the 60% mark. Instead, Coke concentrates its efforts on selling the syrups themselves and marketing its brands directly to consumers.
Fundamentally, Coca-Cola is a marketing machine, and its attention is devoted to soft drinks. A continued rise in marketing spend suggests the group isn't sitting back on its laurels though. Coke is updating its strategy and brand portfolio to focus more on sharpening its proposition on a regional and local level, but it looks more like a refinement than a revolutionary change to us. Nonetheless, it's encouraging to see the group moving forward.
Coca-Cola's diversification has undoubtedly played a large part in its resilient sales too. The group owns other household favourites like Fanta, Sprite and Schweppes, and the acquisition of Costa Coffee put Coke in the hot beverages market for the first time. Adding BODYARMOR sports drinks to the mix has opened the group up to the growing global health drinks market. We see these as positive add-ons in segments of the drinks market that still have room to grow.
But for all their benefits, these acquisitions put a slight strain on the company's balance sheet, so paying down debt levels will likely remain a major focus in the near term. But with very healthy levels of free cash flow generation, the group's got plenty of room to funnel cash into other areas of the business too.
Coca-Cola owns one of the strongest brands in the world, and there's a lot to be said for that in an uncertain environment. Though, expect to pay a slight premium for this benefit, as the group is valued at the top end of its peer group on a price-to-earnings basis.
Coca-Cola key facts
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