Coca-Cola: Is the “Fat Nerd Happy Drink” Still the Ultimate Safe Haven?

The "Universe's No.1 Consumer Stock" $Coca Cola(KO.US) released its Q2 2025 financial report (ending June 2025) before the U.S. stock market opened on the evening of July 22, 2025, Beijing time.

1. Endogenous growth slightly declined under a high base: In Q2 2025, Coca-Cola achieved a reported revenue of $12.54 billion, up 1.4% year-on-year, slightly below market consensus. Organic revenue grew by 5% year-on-year. In terms of volume and price, concentrate sales decreased by 1% year-on-year. The core reason is the high base from the same period last year (with high growth in North America & Latin America driving the company's overall organic growth to 15%, the highest in three years), resulting in sales slightly below market expectations under the high base effect. Concentrate prices increased by 6% year-on-year, slightly exceeding market expectations, mainly due to the increased proportion of high-priced products (including zero-sugar and functional health drinks) in the product mix.

Additionally, due to tariff policies and market concerns about the U.S. fiscal situation, the dollar index fell by more than 10% in the first half of the year, narrowing the company's foreign exchange headwinds from -6% in the same period last year to -3%. (Dolphin Research speculates this is related to the company's use of currency hedging tools)

2. Growth rate in the Asia-Pacific region declined. Regionally, emerging markets, including China, India, Latin America, and Africa, showed significantly higher growth rates than mature regions like North America and Western Europe. However, in terms of trends, the Asia-Pacific region within emerging markets showed a slowdown.

Based on the company's conference call information, Dolphin Research speculates that this is mainly due to the fierce competition in the soft drink market in China, with the rise of local brands posing a certain impact on Coca-Cola. Additionally, thanks to the company's continuous distribution through coolers in 350,000 outlets in India's lower-tier markets, accelerating penetration, India has become the largest contributing region among emerging markets.

3. Zero-sugar cola continues high growth: From a category perspective, under the trend of zero-sugar and health, zero-sugar cola remains the core driver in the carbonated beverage category, with a year-on-year increase of 14%, maintaining double-digit growth for four consecutive quarters, far exceeding the growth of classic cola (down 1%). Additionally, besides ready-to-drink coffee achieving positive growth through channel optimization (COSTA shifting from home scenarios to outdoor & work scenarios), other categories declined under the high base of the same period last year.

4. Operating profit margin reached a new high: In terms of gross margin, from the perspective of raw material costs, although the prices of Coca-Cola's core raw materials (corn syrup, aluminum, PET chips) remained high in Q2, the cost pressure was not significant due to the company's futures hedging strategy. On the other hand, the company increased its ton price by directly raising prices & increasing the proportion of high-margin products (zero-sugar cola, health functional drinks), driving a slight increase in the company's gross margin by 1.3 percentage points to 62.6% in Q2 2025.

On the expense side, thanks to the company's continuous application of AI in daily operations (including pricing in different markets, product launch decisions & marketing advertisement creation) and the continuous divestment of bottling plants globally to improve operational efficiency, the expense ratio dropped to 27.7%, the lowest level in three years, with core operating profit also exceeding market consensus.

5. Performance guidance: The company expects organic growth of 5%-6% for the full year 2025, consistent with previous expectations.

6. Financial indicators overview

Dolphin Research's overall view:

Overall, although the "tariff stick" threat to Coca-Cola has basically dissipated in the second quarter, the company's overall performance remained stable under the pressure of a high base from the same period last year. Dolphin Research believes the most impressive aspect is the significant increase in the company's operating profit margin by 12.8% year-on-year in the second quarter, despite a slight increase in gross margin, indicating that Coca-Cola's refined operational capabilities have reached a new level as the overall market enters a stable growth phase.

The improvement in operating profit margin is largely due to an important driving engine mentioned in Coca-Cola's earnings call—"de-averaging." Simply put, as AI gains more consumer information for each region, age group, and consumption scenario, the product launch process becomes more precise and "personalized," allowing each consumer to buy the right product at the right channel and reasonable price, reducing consumer decision costs.

Dolphin Research believes this reflects that AI has genuinely helped consumer goods companies like Coca-Cola achieve cost reduction and efficiency improvement through refined operations.

Looking ahead to the second half of the year, Coca-Cola's growth path is also clear:

For mature markets, for low-income groups with more severely impaired consumption power, Coca-Cola will increase the proportion of small-capacity packaging and family discount packs in discount channels (Aldi, Dollar Tree, etc.) to alleviate the pressure of declining disposable income, focusing on volume growth. For middle and high-income groups, Coca-Cola will continue to focus on the health trend, increasing the proportion of high-margin categories such as zero-sugar and health functional drinks in the product mix, offsetting the weakness in sales through overall price growth.

For emerging markets, the expansion of the distribution network remains the primary driving force. Based on the company's conference call information, in the second half of the year, Coca-Cola will focus on non-retail store channels in emerging markets, increasing coverage of scenarios such as tourist attractions, outdoor leisure, and family channels through cooler placements to increase consumer reach. On the other hand, for the peak season, Coca-Cola will increase localized product innovation to precisely match local consumer needs. For example, in Southeast Asia, Coca-Cola will launch carbonated beverage brands with local fruit flavors, priced 10%-15% lower than core cola products in the second half of the year.

Finally, from a valuation perspective, Coca-Cola is currently at 27x, slightly above the average level of the past 10 years (25x), and with the 10-year U.S. Treasury yield not continuing to decline, Dolphin Research believes the current position is still not very cost-effective. However, considering that compared to most other consumer goods companies, whether spanning all soft drink categories or as a global brand with localized operations, Coca-Cola has stronger risk resistance, making it still a good choice for investors seeking risk resistance, anti-cyclicality, and stable returns.

I. Investment Logic Framework

According to Coca-Cola's disclosure, the company's reported revenue growth can be broken down into five major segments: Europe, Middle East & Africa (EMEA), Latin America, North America, Asia-Pacific, and Bottling Investments, with revenue growth in each segment further broken down into organic revenue growth, structural impact (M&A), and foreign exchange impact.

(1) Among them, the four segments of Europe, Middle East & Africa (EMEA), Latin America, North America, and Asia-Pacific are divided by geographic region, with most revenue coming from the sale of concentrates to franchised bottlers, and a minority from the sale of some finished beverages.

(2) The Global Ventures division, established by Coca-Cola in 2019, focuses on acquiring potential brands globally to expand its business scope. Currently, the division's revenue includes the performance of acquired businesses such as Costa (coffee), innocent (health drinks including plant-based milk, coconut water, NFC juice, etc.), and Doğadan (tea), as well as revenue from distribution agreements with Monster. The current performance of the Global Ventures division is no longer disclosed separately.

(3) The Bottling Investments division consists of Coca-Cola's bottling operations globally, with most revenue coming from the manufacture and sale of finished beverages. Since this division is a capital-intensive business with relatively low profitability, Coca-Cola has been gradually divesting it globally since 2015.

We will focus on Coca-Cola's organic revenue growth in the following text, breaking it down into two driving factors: concentrate sales volume and price combination for analysis:

II. Endogenous growth declined under a high base

In Q2 2025, Coca-Cola achieved a reported revenue of $12.54 billion, up 1.4% year-on-year, slightly below market expectations. Organic revenue grew by 6% year-on-year. In terms of volume and price, concentrate sales decreased by 1% year-on-year,the core reason being the high base from the same period last year (with high growth in North America & Latin America driving the company's overall organic growth to 15%, the highest in three years), resulting in sales slightly below market expectations under the high base effect. Concentrate prices increased by 6% year-on-year, slightly exceeding market expectations, mainly due to the increased proportion of high-priced products (including zero-sugar and functional health drinks) in the product mix.

Overall, emerging markets, including China, India, Latin America, and Africa, showed significantly higher growth rates than mature regions like North America and Western Europe. However, in terms of trends, the Asia-Pacific region within emerging markets showed a slowdown. Based on the company's conference call information, Dolphin Research speculates that this is mainly due to the fierce competition in the soft drink market in China, with the rise of local brands posing a certain impact on Coca-Cola. Additionally, thanks to the company's continuous distribution through coolers in 350,000 outlets in India's lower-tier markets, accelerating penetration, India has become the largest contributing region among emerging markets, while mature markets have not yet recovered to normal levels due to impaired consumption power.

Volume: In Q2 2025, concentrate sales decreased by 1% year-on-year. Specifically, in the carbonated beverage category, under the health trend, zero-sugar cola continues to maintain explosive growth, with a year-on-year increase of 14%, maintaining double-digit growth for four consecutive quarters, far exceeding the growth of classic cola (down 1%). This can also be clearly seen from Pepsi's performance—"60% of sales in the second quarter came from low-sugar or zero-sugar drinks," indicating that zero-sugar cola is a major trend.

Additionally, besides ready-to-drink coffee achieving positive growth through channel optimization (COSTA shifting from home scenarios to outdoor & work scenarios), other categories declined under the high base of the same period last year.

In terms of the decline, thanks to the global increase in consumer demand for lemon-flavored drinks and taste innovation, other carbonated drinks like Sprite & Fanta are experiencing moderate growth, in line with the overall market level.

Additionally, as a representative of the health category—the sports drink category began to grow rapidly after the launch of the BodyArmor zero-sugar series in 2024 and its integration into Coca-Cola's global sales system. Although the current base is low, the current growth momentum remains among the top. Other categories have seen a larger decline.

Price: In Q2 2025, concentrate prices increased by 6% year-on-year, mainly due to the increased proportion of high-priced products in the product mix, including functional soda Simply Pop, new carbonated beverage flavor Coca-Cola Spiced, environmentally upgraded packaging zero-sugar cola, etc. It can be seen that the premium of high-end new products comes from—strong functionality, high environmental protection, and taste innovation. Based on channel research information, these new products are generally priced 10%-20% higher than traditional single products in the same category.

(Under Coca-Cola's new concentrate pricing system, concentrate prices are set based on the percentage of revenue contribution from bottlers to the company, so bottler price increases are equivalent to Coca-Cola price increases)

III. Cost hedging + product structure improvement, slight increase in gross margin

In terms of gross margin, from the perspective of raw material costs, although the prices of Coca-Cola's core raw materials (corn syrup, aluminum, PET chips) remained high in Q2, the cost pressure was not significant due to the company's futures hedging strategy. On the other hand, the company increased its ton price by directly raising prices & increasing the proportion of high-margin products (zero-sugar cola, health functional drinks), driving a slight increase in the company's gross margin by 1.3 percentage points to 62.6% in Q2 2025.

IV. Operating profit margin reached a new high

Additionally, from the perspective of operating profit margins in various regions, except for the EMEA region where the operating profit margin declined (Coca-Cola still adopts a heavy asset operation model in regions with weak infrastructure like Africa, investing a large amount of funds in production facilities, supply chains, and other infrastructure, lowering the profit margin), other regions saw a significant increase in operating profit margins due to improved operational efficiency and increased light asset operation ratio through the divestment of bottling plants. Ultimately, the overall core operating profit also exceeded market consensus.