The Coca-Cola Company (KO) Earnings

Management highlights

• **Overall Quarterly Performance Assessment - Management reports a strong Q2 2026 and first half of 2025, with broad-based business momentum, organic revenue growth at the high end of the company's long-term growth algorithm, margin expansion, double-digit earnings growth, and value share gains. Results reflect three core competitive advantages: a strong total beverage portfolio, the strength of the global-local operating system, and agility to adapt to changing consumer needs. - The global consumer environment remains uneven: aggregate demand is stable in the U.S. and Europe, but many consumers still face inflation-driven pressure; consumer sentiment remains cautious in China with selective spending; sentiment is mixed across Latin America, with improvements in Brazil and Central America and ongoing pressure in other key markets. • **Strategic Execution Against Core Priorities 1. **Becoming more consumer-centric**: The 2026 FIFA World Cup integrated marketing activation successfully leveraged the "four I's" framework (insights, innovation, intimacy, integration) to deliver large-scale commercial impact. The activation reached 180+ markets and 20 million+ retail outlets, achieved an 80+% average beverage penetration rate across host venues (a company record for the FIFA World Cup), collected 25 million new first-party consumer data points, and generated 9 billion+ digital and social media views. This activation drove 5% global volume growth for trademark Coca-Cola (the strongest growth in 17 years excluding post-COVID recovery) and 8% global volume growth for Powerade. 2. **Remaining constructively discontented**: Management is focused on driving incremental growth from existing markets and brands by improving relevance for more consumers and optimizing performance for the company's $32 billion brand portfolio. For example, the redesigned Coca-Cola Zero-Zero is being positioned to capture growth in the underpenetrated evening consumption occasion, with successful initial testing in Europe leading to ongoing global expansion. 3. **Digital at the core of all consumer connections**: Management is focusing digital and resource investments on a targeted set of consumer, customer, and enterprise priorities to strengthen competitive advantages and deliver additional value across the operating system. • **Operational Updates - Majority of Fairlife production operations have resumed across the four U.S. facilities following a prior operational incident, with no material impact to Q2 2026 results and no expected material impact to H2 2026 results. The Webster facility is on track to ramp up capacity through the end of 2026, with no supply disruptions impacting consumer availability. Demand for Fairlife remains strong, with 18% year-to-date volume growth. - Oral arguments have been completed in the company's ongoing tax dispute with the U.S. Internal Revenue Service before the 11th Circuit Court of Appeals; management continues to vigorously defend its position and remains confident in prevailing on appeal.

Guidance

- Organic revenue is now expected to grow approximately 5% for full-year 2026, representing an upward revision to reach the high end of the company's prior guidance range. - Comparable currency-neutral EPS growth (excluding acquisitions and divestitures) is now guided to 7% to 8% for full-year 2026, an upward revision from prior guidance. - Including expected currency impacts, comparable full-year 2026 EPS growth is guided to 9% to 10% compared to 2025 EPS of $3. - Divestitures are expected to create a 2-3% headwind to comparable net revenue and a ~1% headwind to comparable EPS, assuming the pending sale of Coca-Cola Beverages Africa closes in late Q3 or Q4 2026 pending regulatory approval. - Currency is now expected to deliver a 1-point tailwind to comparable full-year net revenue and a 3-point tailwind to comparable full-year EPS, consistent with prior guidance for EPS and an upward revision for revenue. - The underlying full-year effective tax rate remains expected to be 19.9%, unchanged from prior guidance. - Concentrate shipments are expected to slightly lag unit case volume for the full year 2026, following a 1-point lag in Q2. - Q4 2026 will have six fewer operating days than Q4 2025 due to a calendar shift, which is already incorporated into the updated guidance. - Full-year 2026 operating margin will benefit from the CCBA refranchising, which is incorporated into guidance.

Segment performance

Geographic operating segment performance is as follows: 1. **North America**: Delivered strong overall performance, gaining both value and volume share while growing revenue and profit. Unit case volume grew 3% YoY, with broad-based volume growth across multiple brands including trademark Coca-Cola, Fairlife, Powerade, Fresca, Gold Peak, Smart Water, and Simply; newly relaunched Mr. Pibb grew volume over 20% in the quarter. 2. **Latin America**: Gained both value and volume share, delivered balanced top-line growth and grew overall profit. Operating conditions remain challenging in Mexico, while conditions are improving in Brazil. 3. **EMEA (Europe, Middle East & Africa)**: Gained value and volume share, and grew unit case volume across all operating units. Overall revenue grew, but profit declined due to phased investment timing. Favorable weather supported strong volume performance across European markets, while geopolitical conflicts continue to disrupt the Middle East. In Africa, the system is focusing on strengthening local positioning and revenue growth management capabilities to drive long-term sustainable growth, with value share gains and strong volume growth for core brands including trademark Coca-Cola, Fuse D, and Sprite. 4. **Asia Pacific**: Grew volume across all operating units and nearly all beverage categories. Comparable operating income declined in the quarter, driven by intentional long-term investments to expand the consumer base across all socioeconomic segments, with broad-based growth across channels and consumption occasions. Growth is supported by portfolio strength in China and scaling of revenue growth management capabilities in India. Overall company-wide financial results for Q2 2026: Organic revenue grew 6% YoY, unit case volume grew 5% YoY (2% 2-year CAGR), comparable EPS reached 97 cents, representing 11% YoY growth. Comparable gross margin expanded 120 basis points, and comparable operating margin expanded 90 basis points, driven by underlying operational improvement and currency tailwinds. Free cash flow was $6.9 billion, up from prior year, with net debt leverage of 1.4x EBITDA, below the 2-2.5x target range.

Risks & headwinds

- Ongoing uneven global macroeconomic conditions, with persistent inflationary pressure, geopolitical uncertainty, and consumer disposable income pressure across many regions, particularly for lower-income consumer segments. - Geopolitical conflict continues to disrupt operations in the Middle East, requiring ongoing adaptive adjustments to local operating plans. - Commodity price volatility remains an ongoing uncertainty, though management currently expects the overall impact to the company's cost basket to be manageable. - Uncertainty remains around the outcome of the company's ongoing tax dispute with the U.S. Internal Revenue Service, with an adverse decision creating potential material financial liability, as disclosed in the company's public financial filings. - The pending sale of Coca-Cola Beverages Africa remains subject to regulatory approval, with timing still uncertain.

Analyst Q&A

• Q: With a strong Q2 driven in part by an easy year-ago comparison, how is management factoring the uneven global consumer environment into its second half outlook?

  A: Management notes that first half results were delivered in line with initial guidance, driven by improved consumer-centric capabilities and full deployment of revenue growth management (RGM) tools. The uneven consumer pressure, particularly on lower-income segments, will continue to be addressed through a balanced approach of affordability options and premiumization to match evolving consumer needs. While second half will face higher year-ago comparisons and six fewer calendar days, the momentum from broad-based growth across operating units and categories is expected to continue.

• Q: How is the company approaching long-term growth in Asia Pacific, particularly India, given the near-term investment-driven pressure on price mix and reported value share losses?

  A: Management confirms that the near-term investment in Asia Pacific is intentional and aligned with long-term strategy, as the region remains a high-priority long-term growth opportunity. The price mix impact is split evenly three ways between investment timing, intentional affordability initiatives to expand the lower-income consumer base (including investment in cold chain equipment), and geographic mix from faster growth in emerging Asian markets versus higher-margin developed markets in the region. The current investment phase is building foundational capabilities that will drive future margin and growth, similar to the recent development of the Latin American business.

• Q: What enabled Coca-Cola to win the Marriott beverage contract after 34 years, and what is the expected impact of the win?

  A: Management attributes the win to improved customer and consumer centricity across the Coca-Cola system, which addresses the gap that led to losing the contract previously. The company brought a customer-tailored value proposition leveraging its full portfolio of brands, including coordination with partner Monster Energy, aligned with Marriott's guest engagement goals. Management notes the win reflects broader improvements in balancing global scale with customized, personalized customer experiences, and is excited to expand this approach to other prospective partner opportunities.

• Q: What is the update on the IRS tax dispute, including potential timeline, outcomes, and capital allocation implications of a favorable ruling?

  A: Oral arguments were completed in June 2026, and a decision from the 11th Circuit Court of Appeals is expected in 6 to 12 months, with no specific timeline available currently. Management continues to confident in prevailing on appeal. A best-case outcome would see the company win and regain access to funds already deposited with the IRS, while the worst-case scenario is fully disclosed in the company's public financial filings. No additional details on capital allocation were provided ahead of a ruling.