Coca-Cola Profit Hit as Global Economy, Weather Misbehave
Coca-Cola Co. (KO) said profit fell 4 percent last quarter, the second decline in a row, as sales were sapped by economic weakness in China and Europe, shifting tastes in the U.S. and unseasonable weather in places such as India.
Coca-Cola has long touted its broad geographic reach and ability to make up for sluggish sales in one market with increases elsewhere. The second-quarter results show there’s a limit to that strategy, especially when Mother Nature and global economic forces refuse to cooperate.
“This was a confluence of events,” Chief Executive Officer Muhtar Kent said today during a conference call. “The portfolio effect of our global business did not work in our favor in this particular case.”
To counter slower growth, Kent said he’s speeding up efforts in China and other emerging markets to expand Coca-Cola’s reach by adding smaller, more affordable package sizes. He said the company has not pulled back on marketing and advertising to blunt losses.
“This is more of an anomaly, we should not see this as a trend or a systemic issue,” Kent said.
In India, for example, monsoons swamped sales, especially given unusually high growth one year ago after the monsoon season came late, Kent said. In Brazil, consumer spending was depressed by a credit crisis, he said.
Net income fell to $2.68 billion, or 59 cents a share, from $2.79 billion, or 61 cents, a year earlier, Atlanta-based Coca-Cola said today in a statement. Excluding items such as restructuring charges and costs for productivity initiatives, profit was 63 cents a share, matching the average of 16 analysts’ estimates compiled by Bloomberg.
Global sales volume grew 1 percent, less than the 3.3 percent average of four estimates compiled by Bloomberg. Europe sales volume slid 4 percent because of the weak economy and flooding in Germany. China’s volume was little changed after a 7 percent gain a year earlier. North America volumes fell 1 percent amid unseasonably cool weather.
“It’s like a quadruple whammy of bad news,” Thomas Mullarkey, an analyst for Morningstar Inc. (MORN) in Chicago, said today in a telephone interview. “But they are still the global leading beverage company and even though it might be a short-term hiccup, long-term they continue to be able to invest for the success of the company.”
Revenue fell 2.6 percent to $12.7 billion, for the first consecutive decline since the recession. Analysts estimated sales would reach about $13 billion, on average.
Coca-Cola slid 1.9 percent to $40.23 at the close in New York. The shares have increased 11 percent this year, compared with an 18 percent gain for the Standard & Poor’s 500 Index.
China’s economic growth slowed for a second quarter to 7.5 percent in April-to-June, yesterday’s National Bureau of Statistics report showed. Factory production rose 8.9 percent in June from a year earlier, equal to the lowest since 2009 excluding January and February, when the Chinese New Year holiday distorts statistics.
PepsiCo Inc. (PEP), the world’s second-largest soft-drink maker, is stepping up the fight there as well. The company opened new factories and sought to expand distribution in China last year to narrow the gap with market leader Coca-Cola. In November, PepsiCo opened its largest research center outside the U.S. to help tailor beverage and snack food brands to Asian tastes and develop new products for the region.
Coca-Cola pushed farther into faster-growing emerging markets in June with the opening of a beverage plant in Myanmar. The company will invest $200 million in the next five years.
Emerging markets are important as Coke deals with a declining soft-drink market in the U.S., driven by dwindling demand for full-calorie sodas. Beverage makers have come under increasing pressure in recent years as officials from New York, Philadelphia and at least 30 states try to curb high obesity rates in the U.S. by slowing consumption of sugary soft drinks with proposed restrictions and excise taxes.
New York City health officials have appealed a permanent injunction issued March 11 to stop a health-department law pushed by Mayor Michael Bloomberg that would cap the size of soft drinks sold in restaurants, movie theaters, stadiums and arenas at 16 ounces (473 milliliters) a cup. Oral arguments were heard June 11, and a ruling is pending.
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