Atlanta - Coca-Cola, the world’s largest beverage company, posted its first quarterly sales gain in two years after higher drink prices helped make up for sluggish demand.
The sales increase helped propel profit to 48 cents a share, excluding some items, Atlanta-based Coca-Cola said on Wednesday in a statement. Analysts estimated 42 cents, according to data compiled by Bloomberg.
Chief Executive Officer Muhtar Kent, facing stagnant sales overseas and changing tastes at home, has ramped up marketing and cut costs to ride out the turbulence. He’s also raised prices on the company’s beverages, helping boost revenue 1.3 percent to $10.7 billion. That topped analysts’ estimates and marked the first gain since the fourth quarter of 2012.
“Strong pricing, particularly in North America, has continued into this year,” Chief Financial Officer Kathy Waller said. “Developed markets are very much going to be focused on pricing and revenue.”
Higher retail shelf prices and an increased mix of more profitable drinks lifted pricing by 3 percent globally, Coca- Cola said on Wednesday. While sales volume in Coca-Cola’s key North America market was little changed, the company boosted pricing there by 2 percent.
Coca-Cola shares rose 1.3 percent to $41.31 at the close in New York.
Forecast reiterated
Net income fell 3.8 percent to $1.56 billion, or 35 cents a share, Coca-Cola said. The company repeated its forecast that per-share profit this year will grow by a mid-single-digit percentage, excluding the effects of foreign-currency exchange- rate fluctuations.
Currencies hurt income before taxes in the quarter by 6 percentage points and will reduce profit by that measure by 7 percentage points for the year, Coca-Cola said.
Global sales volumes rose 1 percent, led by a 4 percent gain in Eurasia and Africa. European volume rose 1 percent, and Latin America was unchanged.
“We’re operating in a very challenging environment,” Kent said on a conference call. “Cautious recovery in the US is offset by our relatively sluggish expansion in Europe and Japan, as well as weaknesses in emerging markets, notably Brazil and Russia as well as China.”
While managers in developed markets such as the US and Europe concentrate on selling smaller packages at higher prices per ounce, emerging market leaders will keep focusing on boosting sales volume to build demand in regions such as Africa, Waller said. Despite the great start to the year, matching the quarter’s aggressive pricing growth in later quarters this year is unlikely, she also said.
‘Transition year’
“In a transition year, when you are starting to work on these initiatives and rolling them out, it takes a while for that to really fully kick in,” Waller said.
The quarter wasn’t all sweet. Ken Shea, an analyst for Bloomberg Intelligence, said global volume growth was disappointing given what he called a “modest” 2 percent rise in the first quarter of last year. Coca-Cola should have been helped in the first quarter by an earlier Easter holiday and low gas prices, which should have left more for consumers to spend on drinks at convenience stores.
“Volume growth is critical for Coca-Cola,” Shea said.
Industrywide decline
The US carbonated soft-drink industry’s sales volume fell 0.9 percent in 2014, the 10th straight annual decline, according to Beverage Digest. Coca-Cola, PepsiCo and Dr Pepper Snapple Group, the largest soda makers in the country, all lost share in the market last year as energy-drink maker Monster Beverage added to its position.
Among Coca-Cola’s brands, global volumes grew 1 percent for Coca-Cola, 4 percent for Sprite, 5 percent for Coke Zero and 3 percent for Fanta. The worst performance was a 6 percent drop for Diet Coke, which has been stung by a growing aversion to artificial sweeteners in the US.
While Kent works to trim $3 billion in annual expenses, he hasn’t given up on overseas markets like China that have let him down of late. Last week, Coca-Cola agreed to buy China’s Xiamen Culiangwang Beverage Technology Company for about $400 million in cash, gaining a line of plant-based protein drinks.
Kent’s failure to bounce back from sluggish international growth and mounting obesity concerns in the US has drawn criticism from Wintergreen Advisers LLC, an investment firm run by David Winters. He has said Kent is taking too long to sell bottling assets to independent distributors, failing to cut costs deeply enough and maintaining a bloated employee stock- compensation plan.
Bottling divestitures
Kent has since sped up the bottling divestitures, announced more cost cuts and trimmed the compensation plan. While giving Coca-Cola credit for progress, Winters hasn’t been tamed. Last week, Winters said Coca-Cola should pursue “transformative strategies” similar to the one that saw HJ Heinz go private and then agree to acquire Kraft Foods Group. That deal was facilitated by Coca-Cola’s largest shareholder: Warren Buffett.
“Coca-Cola’s board and management lack a sense of urgency to address Coca-Cola’s problems and increase shareholder value,” Winters said earlier this month.
Bloomberg