Earnings Call Insights: The Coca-Cola Company (KO) Q3 2025
Management View
- James Quincey, Chairman & CEO, stated that “With 1 quarter remaining in 2025, we’re on track to deliver on our reiterated top line and bottom line guidance. We also believe we’re well positioned to achieve our longer-term commitments.” He highlighted volume growth despite a dynamic operating environment, continued value share gains across all segments for the 18th consecutive quarter, and progress in executing an all-weather strategy.
- Quincey announced significant steps in the company’s refranchising journey, including the sale of a 40% stake in the Indian bottler to the Jubilant Bhartia Group and Coca-Cola Hellenic’s intention to acquire a controlling interest in Coca-Cola Beverages Africa, expected to close next year. He emphasized, “With these milestones, we have a clear line of sight to complete our re-franchising strategy allowing us to further focus on brand building and innovation.”
- Henrique Braun, EVP & Chief Operating Officer, described “strong results” in North America, where “volume was flat and improved sequentially for the second consecutive quarter,” and noted value share gains. In Latin America, he reported flat volume and value share gains despite macroeconomic softness in Mexico. EMEA and Africa segments delivered volume and profit growth, while Asia Pacific saw volume declines but value share gains and revenue growth.
- John Murphy, President & CFO, stated, “During the third quarter, we grew organic revenues 6%. Unit cases grew 1%.” He highlighted, “Third quarter comparable EPS of $0.82 increased 6% year-over-year despite 6% currency headwinds, higher net interest expense and an increase in our effective tax rate.” He added that free cash flow, excluding fairlife contingent consideration, reached $8.5 billion and net debt leverage stood at 1.8x EBITDA.
Outlook
- Murphy reiterated guidance for 2025, stating, “We continue to expect organic revenue growth of 5% to 6% and expect comparable currency-neutral earnings per share growth of approximately 8%, both of which reflect delivery in line with our long-term growth algorithm.” He also noted, “We continue to expect a 1- to 2-point currency headwind to comparable net revenues and an approximate 5-point currency headwind to comparable earnings per share for full year 2025.”
- The company now expects to generate at least $9.8 billion of free cash flow in 2025, excluding the fairlife contingent consideration payment.
- Early commentary on 2026 suggests a “slight tailwind to both comparable net revenues and comparable earnings per share” if current rates and hedge positions hold.
Financial Results
- Organic revenues grew 6% in the quarter and unit case volume increased 1%.
- Price/mix growth of 6% was attributed to approximately 4 points of pricing actions and 2 points of favorable mix.
- Comparable gross margin declined approximately 10 basis points, while operating margin increased about 120 basis points.
- Third quarter comparable EPS was $0.82, up 6% year-over-year, and free cash flow excluding the fairlife payment was $8.5 billion.
- Net debt leverage was reported at 1.8x EBITDA.
Q&A
- Stephen Robert Powers, Deutsche Bank, asked about the nature of the sequential improvement in Q3 and its implications for Q4 and 2026. Quincey responded that “we got a bit better in September, some sequential improvement,” attributing the improvement largely to “a doubling down by the system, increases in marketing and focus and innovation.”
- Lauren Lieberman, Barclays, inquired about local competition. Quincey acknowledged a “big overall shift to a little more localness” and said, “there’s more dynamism in regional competitors and some of the local competition.” He emphasized frontline resource allocation.
- Dara Mohsenian, Morgan Stanley, sought clarity on Latin America, especially Mexico and Brazil. Braun explained, “Brazil continues to be pretty strong. Colombia and Chile also grew in the quarter. And then Mexico is also a big market, but it’s on a progressive improvement, but not yet where we want it to be.”
- Filippo Falorni, Citi, questioned refranchising progress and margin implications. Quincey described the recent deals as “the final piece of stone in putting refranchising strategy to bed,” leaving only a handful of smaller countries to go. Murphy noted, “In 2017, our operating margin was 26.5%.” Margin expansion has primarily come from productivity, and refranchising will continue to provide uplift.
- Chris Carey, Wells Fargo, asked about coffee and Zero Sugar strategy. Quincey stated, “Costa business is doing well… but the investment hypothesis didn’t work out as we expected.” He sees continued growth for Zero Sugar and Diet Coke.
Sentiment Analysis
- Analyst tone was neutral to slightly positive, with questions focusing on execution, regional performance, refranchising, and category strategies.
- Management was confident and constructive, repeatedly emphasizing adaptability and a “discontented” mindset for continued improvement. Quincey expressed, “we’re confident we can navigate what comes at us, deliver on our 2025 guidance and create long-term value for our stakeholders.”
- Compared to the previous quarter, management’s tone was equally confident but more focused on completion of strategic initiatives.
Quarter-over-Quarter Comparison
- Guidance for 2025 was reiterated, unchanged from last quarter.
- Strategic focus shifted toward the near-completion of the refranchising strategy and unlocking growth in India and Africa.
- Margin expansion and productivity remained in focus, with the company reporting operating margin growth similar to Q2.
- Analysts continued to focus on execution and regional performance, with additional attention to competitive dynamics and refranchising outcomes.
- Management’s tone was consistent, with a slight increase in confidence as key milestones in refranchising are achieved.
Risks and Concerns
- Quincey noted ongoing macroeconomic pressures, such as inflation, uncertain trade dynamics, and geopolitical volatility.
- Murphy addressed currency headwinds, higher net interest expense, and an increased effective tax rate.
- Latin America, particularly Mexico, remains a challenge due to macroeconomic factors and a recently passed sugar drink tax effective January 1, 2026, which management is preparing to address.
- Competitive risks were highlighted, with increased regional and local competition noted in several markets.
Final Takeaway
The Coca-Cola Company emphasized its consistent execution and resilience in a challenging environment, highlighted by strong organic growth, sequential improvements in key regions, and the near-completion of its refranchising journey. Management reiterated its confidence in delivering on 2025 guidance, supported by robust productivity initiatives, margin expansion, and strategic investments in innovation and marketing. The company remains committed to capitalizing on growth opportunities, especially in India and Africa, while preparing to address macroeconomic and regulatory challenges in markets like Mexico.