Coca-Cola’s fourth-quarter net revenue rose 5% organically to $11.8bn, just shy of forecasts of $12.0bn despite better-than-expected volumes. The topline miss was due to lower-than-expected price growth.
Underlying operating profits grew by 13% to $2.9bn, ignoring exchange rates, in line with market forecasts. The faster profit growth was driven by a tight grip on costs which helped to improve margins.
Full-year underlying free cash flow improved from $10.8bn to $11.4bn. Net debt was $28.1bn at year-end.
In 2026, the group expects full-year organic revenue growth of 4-5%. Underlying earnings per share (EPS) are expected to grow by 5-6%, ignoring exchange rates.
The shares fell 3.8% in pre-market trading.
Our view
Coca-Cola met fourth-quarter profit expectations, helped by strong cost control. But a weaker-than-expected sales growth outlook for 2026, despite a handful of helpful events coming up such as the FIFA World Cup and Winter Olympics, saw the shares fall on the day.
A key thing differentiating Coca-Cola from most other drink makers is its operating model. Rather than investing in big manufacturing plants, Coca-Cola partners with, and holds stakes in, local bottling companies in what's known as the Coca-Cola System.
That allows the group to keep a lid on costs and supports its industry-leading gross margins, which hover around the 60% mark. Instead, Coke concentrates its efforts on selling the syrups themselves and marketing its brands directly to consumers.
Fundamentally, Coca-Cola is a marketing machine, and its attention is devoted to soft drinks. Coke is updating its strategy and brand portfolio to focus more on sharpening its proposition on a regional and local level, but it looks more like a refinement than a revolutionary change to us. Nonetheless, it's encouraging to see the group moving forward.
When it comes to organic sales growth, we’re impressed with Coca-Cola’s continued outperformance compared to the competition. The group's diversification has undoubtedly played a large part in this, with household favourites like Fanta, Sprite, and Schweppes under its wing. But it’s the sugar-free options like Coke Zero that have been the standout performer, recording its sixth consecutive quarter of double-digit growth.
There’s an ongoing tax dispute with US tax authorities, with a potential $18bn payment on the line. Currently, Coca-Cola appears confident of at least reducing the eventual penalty. In our view, the balance sheet is strong enough to absorb any negative outcome should it occur, so we don’t feel that the dispute should cause long-term investors to overlook this drinks giant.
Tariffs have unsettled global trade dynamics and have the potential to disrupt supply chains and push up costs. But given Coca-Cola’s system, with bottling plants all over the world, the impact of US tariffs looks manageable.
Coca-Cola owns one of the strongest brands in the world, and we like the formidable pricing power that gives the group. Alongside its impressive profit growth and strong balance sheet, Coca-Cola remains one of our favourite names in the beverages sector. But there’s a small transition risk when the new CEO comes in at the end of March, and any unfavourable outcome on the tax dispute could weigh on sentiment in the near term.
Environmental, social and governance (ESG) risk
The food and beverage industry tends to be medium-risk in terms of ESG though some segments like agriculture, tobacco and spirits fall into the high-risk category. Product governance is a key risk industry-wide, especially in areas with strict quality and safety requirements. Labour relations and supply chain management are also industry-wide risks, with other issues varying by sub-sector.
According to Sustainalytics, Coca-Cola's management of ESG risk is strong.
The group is committed to reducing its water use through targets and deadlines aiming for 100% regenerative water use in all facilities by 2030. It also offers strong human capital development programmes. However, there is potential for cases of deceptive or false advertising regarding the health benefits of the products, and this may increase as the market for healthier beverages and lower calorie alternatives continues to grow.
Coca-Cola key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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