Coca-Cola Q2 Margins Rise; Is KO Stock Undervalued?

Key Points

• Coca-Cola beat Q2 EPS expectations despite a slight revenue miss and lower case volumes.
• KO confirmed plans to introduce a cane sugar soda variant amid regulatory and consumer pressure.
• The stock trades near support and offers dividend stability, making it a potential value opportunity.

The Coca-Cola Company NYSE: KO stock is down around 0.65% after the company’s mixed second-quarter earnings. The company reported $12.5 billion in revenue, which just missed expectations for $12.55 billion. The results were better in terms of earnings per share (EPS). The company delivered 87 cents per share, 4 cents better than the 83 cents expected.

The report could be considered better-than-feared for a company managing a core consumer who’s feeling pressure from inflation and a core product under pressure from U.S. regulators and the GLP-1 trend. Nevertheless, the company’s earnings came in ahead of estimates despite reporting a decline in unit case volume in most regions during the quarter.

Earnings growth was tied to strong margin growth. Gross margin was up 160 basis points year-over-year (YOY). Operating margin growth was even stronger at 36.03%, an increase of 324 basis points.

Despite those strong numbers, management emphasized that they expected even more margin recovery in the second half of the year. This is due to easing input cost inflation, which investors noted in the June reading of the producer price index (PPI).

It also reinforced the company’s balanced pricing approach for the second half. Management anticipates revenue growth to come from a tighter focus on product mix and volume rather than price-driven growth.

A Disruption or a Distraction?

After President Donald Trump's social media post on July 18, a significant portion of the earnings call focused on whether the company intends to introduce a product with cane sugar instead of high-fructose corn syrup.

The answer is yes.

The company plans to add a cane sugar version as an alternative. This strategy of emphasizing brand instead of focusing exclusively on price fits the company's stance.

Looking beyond the marketing aspect, it’s unclear if Coca-Cola would face regulatory scrutiny. On the one hand, such a move would seem to garner favor with Health & Human Services Secretary Robert Kennedy, who has blamed soda for the obesity and diabetes epidemic in the United States.

A significant reason for Kennedy’s stance is the use of high fructose corn syrup.

However, it’s unclear whether such a move would subject the company to regulatory scrutiny, which could take the form of:

• FDA labeling and compliance

• FTC marketing and health claims

• Trade and agricultural quota systems

• Labor and environmental concerns in the supply chain

• State-level and local tax and ingredient disclosure requirements

KO Stock May Be Setting Up as a Value Play

KO stock is up approximately 11% in 2025, but it’s been in a consolidation pattern since April and is looking for a catalyst to move higher. That catalyst didn’t come from the company’s earnings report.

With the recent pullback, Coca-Cola stock is trading near the middle of its 52-week range. However, a price around $68.90 has been a level of support since April. If the stock were to drop further, investors would have to start looking at KO stock as an attractive value play.

To begin with, there’s nothing to suggest that the company’s dividend is in trouble. It’s not a high-yield dividend, but at 2.94% it’s close to the average of consumer staples stocks and the dividend king’s own historical range.

Second, the stock is trading about 11% below its consensus price target of $77.13. Analysts have been increasing their price targets for KO stock, and nothing in the company’s earnings report is likely to change those analysts’ opinions.

Furthermore, Coca-Cola generates a significant revenue outside the United States, which protects the company’s margins from tariffs. Plus, it also benefits from localized supply chains for production and delivery.