Coke Fizzes Out
Coca-Cola has shed some weight, only to find a slimmer version of itself isn't looking as good as planned.
The soda giant has been trying to shift focus away from the manufacturing and distribution side of its business to become an asset-light marketing engine for its popular stable of beverage brands. The idea was that shedding physical assets like bottling plants would give executives more time to spend on reversing a three-year-long sales growth slump.
At least so far, that doesn't look to be the case. The company has a 2016 target of 4 percent to 5 percent organic sales growth, but said on Wednesday that its first-quarter organic sales growth increased by 2 percent. Its reported net revenue dropped by 4 percent from the year before and for those counting, that's Coke's 12th quarterly sales decline in the past 13 quarters.
The company's shares dropped by 5 percent on the unsatisfying sales numbers, even as investors shrugged off news that Coke's earnings came in higher than analysts expected.
In other words, investors are saying it's totally great that selling off bottling plants and other distribution facilities is helping Coke cut costs and increase profits. But what about that thing the company has been saying about starting to show some revenue growth? Wasn't that the whole point of this years-long restructuring process?
Coke has said its renewed focus on marketing will juice sales. But until it shows it can deliver some sustained revenue increases across the globe, investors aren't going to be happy with the soda-maker's empty calories, er, promises. Unifying advertising across all its brands under the new "Taste The Feeling" campaign and a makeover of its sodas certainly looks nice, but will it get shoppers to buy more of the sugary stuff?
On Wednesday, the company gave a litany of reasons for the continued sales declines: It's contending with rough conditions in overseas markets such as Russia, Brazil, and China, and it's dealing with supply-chain disruption as it changes up its bottling operations.
It also said its new marketing strategy, aimed at bringing together its different soda varieties (regular Coke, Coke Zero, Diet Coke, etc.) under one ad campaign instead of hawking each variety separately, has performed well in certain pilot markets. The strategy will only kick into full gear in the back half of 2016, with a likely boost from the summer Olympics, the company said. That might be true, but how long will investors wait?
At least one analyst on Wednesday's earnings call sounded a bit impatient, questioning whether Coke can still meet its annual revenue growth target after the quarter's sales drop: "So I'm still getting skepticism from investors about the 4 to 5 percent revenue growth target for the year; and openly, you don't sound 100 percent confident," Sanford Bernstein's Ali Dibadj said.
After fumbling through a series of vague answers, executives settled on the unsatisfying retort, "I guess only results will answer the question."
Thanks, Captain Obvious.
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