Coca-Cola Sees Growth in Non-Soda and Emerging Markets
Coca-Cola Co. (NYSE:KO) released first-quarter earnings on Tuesday, and although profits and revenue declined from the same period last year, volume increased due to growth in non-soda beverage consumption, as well as sales in emerging markets. Those numbers surpassed Wall Street’s expectations, and the market responded favorably, as stock prices jumped nearly 4 percent by mid-afternoon.
Atlanta-based Coca-Cola reported a $1.62 billion profit (36 cents per share) in this year’s first quarter, down from $1.75 billion (39 cents per share) in the year-ago period. The beverage giant’s revenue dropped 4 percent to $10.58 billion (44 cents per share), excluding special items. Revenue numbers beat predictions set by analysts, who expected the figure to be $10.55 billion.
While volume in North America remained even, Coke’s global unit case volume rose 2 percent. The increase was mainly seen in Coke’s non-soda beverages, which include Honest Tea, Dasani, and Minute Maid brands, while overall soda volume decreased for the first time in more than a decade. Coca-Cola returned $713 million to investors through share repurchases and expects to buy back up to $3 billion through 2014.
Overseas sales account for 81 percent of Coca-Cola’s earnings, and the company attributed part of its losses to a 4 percent decrease of volume in Europe, the 2013 sale of its bottling facilities in Brazil, and the devaluation of Venezuela’s currency, which resulted in a $257 million shortfall. Based on current projections, Coke expects that it will see continued losses due to the currency exchange rate. Global volume increases were the result of growth in emerging markets such as China, which grew 12 percent, and India, at 6 percent.
Coke is cutting costs through 2014 by $400 million and is investing the savings on global advertising, with the largest campaign surrounding this summer’s World Cup. The company attributes its 6 percent sales spike in Russia to advertising during the Sochi Winter Olympics and in China to advertising surrounding the Chinese New Year.
In February, Coke announced that it purchased a 10 percent minority stake in Keurig Green Mountain Coffee (NASDAQ:GMCR) for $1.25 billion. The soda giant is working with the home beverage system maker to create single servings of Coca-Cola-owned products using Keurig’s forthcoming Cold system, expected to be introduced in 2015, leveraging a competitive edge over Israeli-based SodaStream International (NASDAQ:SODA).
Shares of SodaStream dropped both at February’s Coke-Keurig partnership announcement and again last week, as Stifel Financial Corp. predicted that SodaStream’s profits would decline as its larger competitors edge the company out. Its stock fell further today, presumably because of the increase in Coca-Cola’s shares. The Stifel report suggests SodaStream increase promotional and advertising campaigns but notes that the home carbonation system maker is not likely to be viewed as a key strategic partner by major beverage manufacturers.
Coca-Cola’s nearest competitor, PepsiCo (NYSE:PEP), will also release earnings this week. The world’s second-largest food and beverage business has been under recent scrutiny by its activist investors, who renewed their call for Pepsi to break up its soda and snack divisions, as well as calling for increased financial transparency. As Pepsi’s snack division, which includes Cheetos and Doritos, makes up the majority of the company’s top-selling brands, any break-up is not likely to happen soon. Like Coke, potential volume increases are expected to be attributed to sales in emerging markets.
As reported in Beverage Digest, Pepsi will launch three new soda products this summer as part of its “real sugar” campaign in regular, vanilla, and wild cherry flavors. These will take the place of Pepsi’s popular Throwback sodas, which say “made with real sugar” on their packaging.