Coca-Cola's Strong Q4 Performance Reinforces Pricing Power, But Analysts Flag Interest Cost Risks

Soft drinks giant Coca-Cola Company KO reported better-than-expected fourth-quarter earnings results, and the following are the analysts’ comments on them.

Piper Sandler analyst Michael S. Lavery reiterated an Overweight rating on the shares with a price forecast of $73.00.

President Trump implemented a 25% tariff on all imported steel and aluminum, with no exceptions or exemptions. The tariff impact on KO seems manageable, as the company could switch to PET bottles if aluminum cans become too costly, whether due to the tariffs or rising general expenses, said the analyst.

While each bottler imports some materials for production, packaging makes up only a small portion of the overall cost structure, so it remains manageable.

SNAP benefits continue to be a concern for investors, but the analyst views the risk to Coca-Cola as manageable. Approximately 50% of its North American business comes from away-from-home sales, where SNAP benefits don’t apply.

Coca-Cola is also flexible with pricing and innovation, using its RGM capabilities to offer products at various affordable price points, noted the analyst.

Coca-Cola is concentrating on expanding its outlet presence and increasing the number of cold-drink units to stimulate new consumer engagement and revenue growth.

Expanding outlet coverage plays a key role in driving transactions and expanding its consumer reach, particularly in the traditional trade, where about 90% of NARTD beverages are served cold, opined the analyst.

Goldman Sachs analyst Bonnie Herzog reiterated a Neutral rating on the shares with a price forecast of $65.00.

Coca-Cola concluded FY24 with a solid fourth-quarter performance, exceeding both top and bottom line expectations, noted the analyst.

The fourth-quarter revenue beat was primarily driven by +9% year-over-year price/mix growth, demonstrating KO’s robust pricing power and excellent revenue management.

Coca-Cola’s FY25 guidance is solid compared to its consumer packaged goods (CPG) peers and should be viewed positively by investors, especially when compared to PepsiCo‘s more conservative FY25 top-line outlook.

The analyst said a potential concern is Coca-Cola’s anticipated higher interest expenses this year, primarily due to debt issued for the IRS tax litigation deposit and the upcoming fairlife contingent consideration payment.

Despite these challenges, management remains confident in their ability to meet guidance, bolstered by the company’s strong share momentum across global beverage categories, continued pricing power, and the numerous levers available to the company, asserted the analyst.

BofA Securities analyst Bryan D. Spillane reiterated a Buy rating with a price forecast of $77.00.

If the fourth quarter showcased strength, FY25 is poised to demonstrate resilience. The analyst said that consumer sentiment appears broadly optimistic in both developed and emerging markets, with favorable comparisons in China and the Middle East providing smoother conditions.

Commodity cost inflation seems well under control due to effective pricing strategies, alternative sourcing options, localized production, and a diverse range of packaging formats.

Additionally, efficiencies that were previously reinvested into the P&L provide a cushion for EPS, helping offset the anticipated higher tax rate and net interest expenses for the year.

For FY25, the analyst maintains the forecast of +5% organic sales growth but have accounted for a higher tax rate and increased interest expense, which should peak by second quarter alongside the Fairlife earn-out payment.

Price Action: KO shares are trading higher by 1.03% at $68.30 at the last check Wednesday.

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