Coca-Cola Q3 Earnings Show Company Defying Worries Amid Inflation
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Coca-Cola generated better-than-expected earnings as consumers continued to pay higher prices for soft drinks and juices, further evidence that shoppers are willing to keep spending in the face of record inflation and rising interest rates.
The company, whose brands include Sprite and Minute Maid, said on Tuesday that third-quarter revenues increased by 10 percent and profit grew by 14 percent versus the same period last year.
The biggest driver was a 12 percent jump in growth linked mostly to raising prices, alongside shifts in the mix of products sold in the quarter. At the same time, the volume of products sold rose by 4 percent, showing consumers’ willingness to pay more for the company’s products. When Coca-Cola’s rival PepsiCo reported its third-quarter earnings this month, price increases were accompanied by weaker growth in volumes.
Coca-Cola’s results highlighted consumers’ willingness to continue buying their favorite products despite being squeezed by higher prices at the grocery store and the gas pump.
“In the face of these pressures, consumers stayed resilient,” James Quincey, Coca-Cola’s chief executive said on a call with investors. He added later, however, that he saw emerging changes in consumer behavior as “the impact of inflation running ahead of wages is starting to come through.” That led to shoppers putting off purchases of “more discretionary, higher-ticket” items, Mr. Quincey said, and seeking out cheaper options for other products.
“Their ability to make sure that they have affordable options in these price-sensitive consumers’ hands is critical,” Bonnie Herzog, an analyst at Goldman Sachs, said of Coca-Cola. “That is something that they have done very well.”
Investors are watching closely as big companies begin to report their latest quarterly earnings to get a sense of the health of the economy and the path of inflation. The Federal Reserve is on a campaign to bring down stubbornly high inflation by increasing interest rates, which raises the cost of borrowing for companies and consumers.
Food and drink giants like Coca-Cola, Pepsi, Procter & Gamble and Nestlé all reported significant price increases in earnings reports this month, a sign that the cost of food — a major factor lifting overall inflation in recent months — is set to remain high. While some companies have warned that their profit margins are coming under pressure, they have mostly been able to pass on higher costs to consumers.
Prices at Chipotle Mexican Grill might increase as much as 15 percent year over year before falling to 11 percent at the beginning of next year, Jack Hartung, the company’s chief financial officer, said on a call with investors on Tuesday. Executives said lower-income consumers were dining at Chipotle less because of high prices.
“We’re continuing to see some pressure on the low-income consumer,” Brian Niccol, Chipotle’s chief executive, said on the call.
Coca-Cola raised its forecasts for revenue and profit growth this year and said it was “encouraged by the underlying top-line momentum” going into next year, when it expects to sustain its growth. “The company expects global inflation to continue to impact its expenses across the board, and also expects commodity prices to remain volatile,” it said.