Coca-Cola has raised its annual profit expectations, betting that strong demand for its pricier beverages and fizzy drinks in the US could help offset the impact of bottle shortages due to higher energy prices from the Iran war.
The beverages giant’s shares rose nearly 3% in premarket trading as it topped quarterly revenue and profit expectations in the company’s first quarterly report since Henrique Braun took over as CEO from James Quincey.
The surge in energy prices has led to higher input costs for consumer goods companies, even though they have little room to raise prices and protect margins as consumers turn frugal due to costlier gas and food.
Coca-Cola operates through local bottlers and distributors to sell its soda concentrates, but it is still directly exposed to higher packaging costs of plastic as well as aluminum for some finished products such as Powerade energy drinks.
“We are working hard with our bottling partners to deal with the with the implications of the situation in the Middle East,” said Coca-Cola’s CFO John Murphy in an interview with Reuters.
Murphy said while pricing was one of levers in its kitty to deal with higher costs, Coca-Cola would consider overall market dynamics and the consumer environment before raising prices.
In India, the company is facing a shortage of aluminum cans, which has impacted the supply of Diet Coke because of delayed shipments from the Gulf, Reuters reported earlier this month.
“We have had a disruption in can supply and have been supporting our system in India to address this issue. I expect that to be resolved in the coming weeks,” Murphy said.
In the first quarter, volumes rose across all its four geographical segments, while the overall volume growth of 3% outpaced price of 2%.
“We’ve had a strong start to the year. Yet there’s so much more we can do as we navigate a dynamic environment,” said CEO Braun, who took charge at the end of March.
Coca-Cola, which stuck to its annual organic revenue growth target, has invested heavily in brands such as Fairlife milk and bottled teas as well as zero sugar and low sugar drinks as consumers move toward healthier alternatives to sugary sodas.
It has also offered smaller pack sizes to more cost-conscious households as higher cost of living force consumers to temper spending.
“Strong print for Coca-Cola and reaffirms our belief that (the company) is well positioned to deal with the challenges of today’s environment,” said Nik Modi, analyst at RBC Capital Markets.
Earlier this month, rival PepsiCo topped quarterly expectations on resilient demand for diet drinks as well as its move to cut prices on some key snack brands such as Lay’s. The company warned of a more volatile macroeconomic environment due to geopolitical strife.
Coca-Cola now expects annual comparable earnings per share to grow 8% to 9%, compared with a prior view of 7% to 8% rise.
For the first-quarter ended April 3, its revenue of $12.47 billion beat estimates of $12.24 billion, according to data compiled by LSEG. The Atlanta-based company earned 86 cents per share on an adjusted basis, exceeding estimates of 81 cents.
