Coca Cola falls short as consumers bypass soft drinks for healthier options

February 19, 2014
The Age
Coca-Cola’s quarterly global sales volumes rose less than the company estimated, as people reach for healthier options
Coca-Cola, like rival PepsiCo, has been battling declining soda sales in developed markets, especially the United States.
Both have responded by focusing more on juices, teas, water and other non-carbonated beverages and increasing marketing spending.
Coca-Cola bought a 10 per cent stake in Keurig coffee maker Green Mountain Coffee Roasters earlier this month, and will help develop a cold-beverage dispenser that it hopes will boost at-home consumption of fizzy drinks.
Coca-Cola said on Tuesday that global sales volumes rose 1 per cent in the quarter and 2 per cent for the full year. Volumes in North America fell 1 per cent in the quarter, while those in Europe grew just 1 per cent as consumer spending remained subdued.
Chief executive Muhtar Kent said the company would restore its sales momentum in 2014 by increasing investments in advertising, adding that US sales were expected to improve slightly this year.
The company reported flat net revenue in North America in the fourth quarter.
Coca-Cola led the US carbonated soft drink market in 2012, with a market share of about 42 per cent, according to industry newsletter Beverage Digest. Pepsi had a 28.1 per cent share.
More ad spending
“Overall, (Coca-Cola) had relatively soft top-line results,” Wells Fargo analyst Bonnie Herzog wrote in a note.
However, RBC Capital Markets analyst Nik Modi was positive on the company’s full-year prospects.
Modi expects Coca-Cola sales volumes to improve as the company pumps more money into marketing in the United States than Pepsi.
Coca-Cola said it expected to save $US1 billion annually through productivity improvements by 2016 and redirect much of this into increased advertising and marketing.
The company raised its savings target to $US1 billion from $US600 million due to higher bottling cost savings.
Herzog said she expects the increased productivity savings to re-accelerate earnings growth over the next several years.
Janney Capital Markets analyst Jonathan Feeney said he expected growth in 2014 to be driven by reinvestments, pricing actions and new products such as Coca-Cola Life, a drink sweetened with sugar and stevia.
PepsiCo has also been cutting costs in the face of weak soda sales in North America. The company said last week it would look to save $US1 billion annually through 2019 by closing plants and increasing automation.
Revenue miss
Coca-Cola’s quarterly revenue fell 3.6 per cent to $US11.04 billion, in part because of the loss in revenue from its bottling operations it sold in Brazil and the Philippines last year.
Excluding the impact of foreign exchange rates and the separation of the bottling operations, revenue rose 4 per cent.
Coca-Cola said it expects unfavorable currency rates to have a 10 per cent impact on operating income in the first quarter and 7 per cent in the full year.
Analysts on average had expected revenue of $US11.31 billion in the quarter, according to Thomson Reuters I/B/E/S.
The company’s net income fell to $US1.71 billion, or 38 cents per share, in the fourth quarter ended Dec. 31, from $US1.86 billion, or 41 cents per share, a year earlier.
Excluding items, the company earned 46 cents per share, in-line with the average analyst estimate.
Operating income fell 4 per cent in the quarter, hurt by unfavorable foreign exchange rates and other items.
Coca-Cola shares, which rose 5.6 per cent in the 12 months to Friday’s close, were down 3.8 per cent at $US37.43 in midday trading. PepsiCo’s shares have risen 8 per cent in the past year.
Shares of both companies trade at about 17 times forward earnings.
Reuters
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