Pouring It On: Reiterate OW as Top Pick Post a Strong Q2

Research evidence excerpt

Pouring It On: Reiterate OW as Top Pick Post a Strong Q2

ot weather in

Unless otherwise noted, all metrics are based on Morgan Stanley ModelWare

Europe, and the America 250 celebration, but even after these factors, the level of framework

** = Based on consensus methodology

Q2 unit case growth was still impressive, and Q2 tailwinds also drive strong visibility § = Consensus data is provided by Refinitiv Estimates

e = Morgan Stanley Research estimates

for Q3 given they continued in July. We also note Coke posted solid 3% unit case

growth in Q1, which at the time was the strongest growth since the 3% result in Q1

of 2023. Bottom line, Coke's OSG remains in a different stratosphere than its mega-

cap staples peers, and KO appears to be managing well the planned YTD shift in

OSG balance more to volume from outsized price/mix in recent years. Net, the

quarter instills further confidence in our view that Coke offers outsized OSG vs

peers.

We also see continued catalysts over the next few quarters, including: 1)

underappreciated growth contribution from the Fairlife business (we calculate 100+

bps to corporate OSG LT-see below), with acceleration ST as capacity ramps up. We

see Fairlife as well positioned LT in high growth segments and poised for continued

share gains, driven by its proprietary ultra-filtration process and Coke's distribution

capabilities. Coke's 18% yoy Fairlife growth in Q2 highlights the brand's potential as

capacity ramps up, even as constraints remained in place during the quarter. 2) We

expect CSD pricing to remain strong with key peers PEP and KDP likely to continue Morgan Stanley does and seeks to do business with

companies covered in Morgan Stanley Research. As a result,