The Coca-Cola Company surpassed analyst expectations in its Q1 2023 earnings report today, announcing net sales growth of 5% to around $10.98 billion, with a profit of $3.11 billion.
Organic revenue in the quarter increased 12%, including 11% price/mix growth and a 1% bump in concentrate sales. Global unit case volume grew by 3% while operating income fell -1%.
“We are encouraged by our first quarter 2023 results,” said Coke chairman and CEO James Quincey in a statement. “Our system alignment is stronger than ever, and our networked organization is allowing us to adapt as needed. We continue to invest for the long term, strengthening our capabilities to drive sustainable value for our stakeholders. We have the right portfolio, the right strategy and the right execution to deliver in the marketplace. We are confident in our ability to deliver on our 2023 objectives.”
On an earnings call today, Quincey highlighted improving market conditions throughout much of the global market that contributed to the results, including the reopening of the Chinese market, reduced inflation in Japan, and a “strong job market” in India. In North America, Quincey described a “mixed bag” where low unemployment, improved gas prices and “savings holding up” compete with continued inflationary pressures and higher mortgage rates.
In a press release this morning, the company highlighted strong performance in the bottled water category as the Smartwater brand grew volume 8% in Q1, bolstered by the launch of its enhanced Smartwater Alkaline with Antioxidants line. The rollout was supported by a multimedia marketing campaign, including platforms like Spotify and TikTok, partnerships with influencers such as comedian Pete Davidson and celebrity Peloton instructor Alex Toussaint, and targeted sampling events in gyms and fitness centers across the U.S.
Consolidated unit case volume was up 3%, driven by strong away-from-home sales. Global sparkling soft drink sales were up 3%, fueled by the Asia Pacific and Latin America markets, but offset by a suspension of business in Russia due to the ongoing war with Ukraine. Water, sports, coffee and tea sales grew 4% worldwide and water was up 5%. Juice, value-added dairy and plant-based beverages remained flat, as strong growth for the Fairlife brand in the U.S. (which Quincey noted has grown volume sales by double-digits for eight consecutive years) and improvements in China and India were likewise offset by the loss of the Russian market.
In North America, unit case volume was even, as declines in water, sports, coffee and tea offset growth for CSDs, juice, dairy and plant-based beverages. Despite the muted overall volume performance, the company gained market share in total non-alcoholic RTD beverages in the quarter.
On the call today, Quincey highlighted recent innovations in the North American market including Simply Mixology – expanding the Simply juice brand into the alcohol-adjacent beverage sector – and will expand its Jack & Coke RTD cocktail line into more markets this year. As well, Quincey noted strong sales performance for both affordable and premium packaging formats, including slim and “mini” can lines for its core CSD portfolio, the latter of which saw a boost from the “Mini Can, Mini Price” marketing campaign in Q1.
According to Quincey, Coke is aiming to moderate pricing actions “to normal levels” by the end of the year, with a focus towards leveling input and output costs as well.
Within marketing, Coke also got on board with new artificial intelligence technology through a partnership with OpenAI and Bain & Company to use predictive text generator ChatGPT and image generator DALL-E to “enhance marketing capabilities and business operations.” After announcing the partnership earlier this year, the company launched the “Create Real Magic” platform which allows consumers online to generate A.I. artwork with Coca-Cola creative assets. In the earnings report, the company said it is exploring ways to use A.I. to improve its customer service, ordering and “point-of-sale materials creation in collaboration with its bottling partners.”
“[Marketing] has become much more digital over the last three years [and] is starting to drive a difference,” Quincey said during the call’s Q&A session. “If I were to take the U.S., where historically we have been under-recruiting … consumers, we can see that the growth in the Coke franchise is not just being driven by increased recruitment, but by increased engagement and recruitment of Gen-Z.. So, you’re starting to see an impact come through on the aggregate recruiting numbers, on the aggregate engagement with Gen-Z, and the increase of Gen-Z coming into the franchise.”
Looking ahead, Quincey also reflected during the call’s Q&A portion on the underperformance of sports drink acquisition BodyArmor. The company recently announced a rebrand of its Powerade brand, which has been integrated into the same business unit as BodyArmor, and Quincey said the company is now exploring how to best “stabilize and reinvigorate” the BodyArmor brand “in tandem with Powerade.” He noted that BodyArmor “had not had the greatest integration into the Coke system” and an influx of new sports drinks competitors added to the challenges.
“We’re starting to see some innovation coming through some better marketing,” he said. “There’ll be some missing package formats going into the marketplace in Q2 with multi-serve, multi-pack versions of BodyArmor, and so we think we can do well as we’ve talked about before with BodyArmor and Powerade. And it’s early days, but we see some promising signs to reverting the trends by the end of the year.”