The Coca-Cola Company (NYSE: KO)

Coca-Cola’s second quarter 2025 financial performance demonstrated the company’s ability to navigate challenging volume conditions through effective revenue growth management. Net revenues grew 1% to $12.5 billion, with organic revenue growth of 5% when excluding foreign currency impacts. The revenue growth was entirely driven by strong pricing execution, with price/mix expanding 6% year-over-year, more than offsetting the 1% decline in concentrate sales that was in line with unit case volume performance.

The standout performance was in profitability metrics, with operating income growing 63% to $4.28 billion. This dramatic improvement reflected both the benefit of pricing actions and significant margin expansion driven by effective cost management and the timing of marketing investments. Operating margin expanded by an impressive 1,286 basis points to 34.1%, while comparable operating margin (non-GAAP) reached 34.7% versus 32.8% in the prior year.

Earnings per share performance was equally strong, with diluted EPS growing 58% to $0.88, though this included an 11-point currency headwind. On a comparable basis (non-GAAP), EPS grew 4% to $0.87, reflecting the underlying operational improvements while accounting for various one-time items and currency impacts.

The company’s ability to grow revenues despite volume declines demonstrates the effectiveness of its revenue growth management (RGM) strategy, which focuses on having the right products, in the right packages, at the right price points, in the right channels. This approach has enabled Coca-Cola to grow transactions ahead of volume and generate positive mix benefits consistently over several years.

Europe, Middle East & Africa delivered the strongest overall performance with unit case volume growing 3%, primarily driven by growth in sparkling flavors, water, sports, coffee and tea, and Trademark Coca-Cola. The region achieved 3% price/mix growth through marketplace pricing actions, though this was partially offset by unfavorable mix. The company gained value share in total NARTD beverages, led by strong performance in Turkey, Nigeria, and Egypt.

North America, the company’s largest market by revenue, saw net revenues grow 3% to $5.03 billion despite a 1% decline in unit case volume. The volume decline was primarily due to a decrease in Trademark Coca-Cola, though this was partially offset by growth in sparkling flavors. Price/mix grew 3% driven by marketplace pricing actions, though partially offset by unfavorable mix. The region gained value share in total NARTD beverages, particularly in juice, value-added dairy and plant-based beverages.

Latin America faced challenging conditions with net revenues declining 4%, though this masked strong underlying pricing execution. Price/mix grew an impressive 15% driven by pricing actions, timing of investments, and favorable mix. Unit case volume declined 2% as growth in juice, value-added dairy and plant-based beverages was more than offset by declines in water, sports, coffee and tea, and Trademark Coca-Cola. The region’s value share in total NARTD beverages was even, with gains in Argentina and Brazil offset by declines in Mexico and Chile.

Asia Pacific experienced a 3% decline in unit case volume, as growth in water, sports, coffee and tea was more than offset by declines in sparkling flavors and juice, value-added dairy and plant-based beverages. However, the region achieved strong price/mix growth of 10% driven by timing of investments, pricing actions, and favorable mix. The company gained value share in total NARTD beverages, led by South Korea and the Philippines.

Coca-Cola’s product portfolio showed mixed performance across categories, reflecting both ongoing consumer trends and the company’s strategic initiatives:

Sparkling Soft Drinks

• Trademark Coca-Cola: Declined 1% globally, with growth in Europe, Middle East and Africa more than offset by declines in Latin America
• Coca-Cola Zero Sugar: Achieved impressive 14% growth, marking its fourth consecutive quarter of double-digit volume growth, driven by strength across all geographic operating segments
• Sparkling Flavors: Declined 2% overall, as growth in Europe, Middle East and Africa was more than offset by a decline in Asia Pacific

Non-Sparkling Categories

• Juice, Value-Added Dairy and Plant-Based Beverages: Declined 4%, as growth in Latin America was more than offset by a decline in Asia Pacific
• Water, Sports, Coffee and Tea: Performed at even levels overall, with mixed performance across subcategories and regions
• Sports Drinks: Declined 3%, as growth in North America was more than offset by a decline in Latin America
• Coffee: Grew 1%, primarily driven by growth in Asia Pacific

The standout performance of Coca-Cola Zero Sugar demonstrates the success of the company’s strategy to expand its no-sugar offerings, particularly as health-conscious consumers seek alternatives to traditional full-sugar beverages. The continued strength of this brand across all regions positions Coca-Cola well to capture changing consumer preferences while maintaining its core brand equity.

Coca-Cola continued executing on several key strategic initiatives during the second quarter, focusing on brand-led marketing, revenue growth management, and operational excellence:

Brand-Led Marketing Excellence

• Share a Coke Campaign: Relaunched globally with approximately 10 billion bottles and cans in more than 120 countries with over 30,000 names tailored to local markets, contributing to single-serve transaction growth
• Diet Coke “This is My Taste” Campaign: Launched in North America, contributing to Diet Coke’s fourth consecutive quarter of volume growth and attracting a new generation of consumers
• Innovation Pipeline: Plans to launch a U.S. cane sugar Coca-Cola offering in fall 2025 to expand the Trademark Coca-Cola product range and offer more choices across occasions

Revenue Growth Management (RGM) Capabilities

• Data-Driven Insights: Transforming data into segmented insights to identify new market opportunities and create more transactions at point of sale
• Strategic Portfolio Management: Added more than 130 million transactions year-to-date in juice drinks category through lower-cost single-serve offerings in Latin America and India
• Package Optimization: Enhanced value communication with affordable 1.25-liter packages paired with improved point-of-sale materials in markets like Spain

The company’s RGM strategy demonstrates sophisticated capability in optimizing product mix, pricing, and channel execution. This approach has consistently enabled Coca-Cola to grow transactions ahead of volume while generating positive mix benefits, providing a sustainable competitive advantage in challenging market conditions.

Coca-Cola’s exceptional margin performance in Q2 2025 reflects the successful execution of its productivity and cost management initiatives:

• Operating Margin Expansion: Increased 1,286 basis points to 34.1% from 21.3% in the prior year, representing one of the company’s strongest quarterly margin performances
• Comparable Operating Margin: Expanded 193 basis points to 34.7% on a non-GAAP basis, demonstrating underlying operational improvements
• Gross Margin Improvement: Gross profit grew 4% to $7.82 billion with margin expanding to 62.4%, driven by favorable price/mix and effective cost management
• SG&A Discipline: Selling, general and administrative expenses decreased 2% year-over-year, reflecting operational efficiency initiatives

The margin expansion was primarily driven by three key factors: organic revenue growth across all geographic operating segments, favorable timing of marketing investments, and effective cost management through the company’s ongoing productivity initiatives. The company’s ability to maintain pricing discipline while managing input costs demonstrates the resilience of its business model and the effectiveness of its RGM capabilities.

Other operating charges decreased significantly by 95% to $71 million, compared to $1.37 billion in the prior year, which included substantial charges related to the fairlife contingent consideration payment. This normalization of operating charges contributed meaningfully to the year-over-year margin expansion.

Coca-Cola’s financial position remained robust despite some impacts from the fairlife contingent consideration payment made in the first quarter:

• Operating Cash Flow Impact: Operating cash flow was negative $1.4 billion for the six-month period, primarily reflecting the $6.1 billion fairlife contingent consideration payment made in Q1 2025
• Free Cash Flow Excluding fairlife Payment: Generated $3.9 billion in free cash flow when excluding the fairlife payment, demonstrating strong underlying cash generation capabilities
• Balance Sheet Strength: Maintained strong liquidity position with $12.2 billion in total cash, cash equivalents and short-term investments
• Asset Base: Total assets of $104.3 billion supported by valuable trademark portfolio worth $13.6 billion and goodwill of $18.7 billion

The fairlife contingent consideration payment represents the final milestone payment related to the 2020 acquisition, completing a successful strategic transaction that has strengthened Coca-Cola’s position in the premium dairy category. Excluding this one-time payment, the company’s cash flow generation remains healthy and supports ongoing strategic investments and shareholder returns.

Management provided updated guidance for full year 2025, reflecting confidence in the company’s strategic execution while acknowledging ongoing macroeconomic uncertainties:

Revenue and Volume Expectations

• Organic revenue growth of 5% to 6% – unchanged from previous guidance
• Comparable net revenues expected to face 1% to 2% currency headwind based on current rates
• Approximately 1% headwind from acquisitions, divestitures and structural changes

Profitability and Earnings

• Comparable currency neutral EPS growth of approximately 8% – updated from previous guidance
• Comparable EPS growth of approximately 3% versus $2.88 in 2024 – updated
• 5% currency headwind expected for comparable EPS based on current rates
• Approximately 1% headwind from acquisitions, divestitures and structural changes

Tax and Cash Flow

• Underlying effective tax rate estimated at 20.8% versus 18.6% in 2024, including impact of global minimum tax regulations
• Free cash flow excluding fairlife payment expected at approximately $9.5 billion
• Cash flow from operations excluding fairlife payment of approximately $11.7 billion
• Capital expenditures of approximately $2.2 billion

The company’s updated guidance reflects steady confidence in its ability to deliver consistent organic growth while effectively managing currency and operational challenges. The maintained organic revenue growth guidance demonstrates the strength of the company’s revenue growth management capabilities and brand portfolio.