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Coca-Cola Gains After New Drinks, Coke Zero Boost Earnings

Updated on
  • Beverage giant is diversifying beyond its namesake soft drink
  • Shares rise in early trading as profit exceeds estimates

Coca-Cola Co.’s push to diversify its drinks and spin off company-owned bottlers is bearing fruit. 

The company posted sales that beat analysts’ estimates in the fourth quarter, helped by its growing beverage portfolio and reformulations. Profit also topped projections.

Coke’s results validate its strategy of become a marketing and drink-formulation company -- rather than a bottler. The Atlanta-based company has been in flux since it began offloading its bottling operations to independent owners. With that largely completed, investors can start to judge the results.

The shares gained as much as 1.9 percent to $45.64 on Friday. The stock had fallen 2.4 percent so far this year through Thursday’s close.

Coke has been successful in raising prices while maintaining consumers’ attention with new products, said Wells Fargo & Co. analyst Bonnie Herzog in a research note.

“While flat unit case volume growth remains a concern, we are encouraged by positive momentum in many international markets,” she said.

Chief Executive Officer James Quincey, 53, has been working to slim down the company. After taking the helm in May, he vowed to cut costs by an additional $800 million, extending a productivity push started by his predecessor, Muhtar Kent.

Profit was 39 cents a share, excluding some items, 1 cent higher than analysts’ average estimate of 38 cents. The company sees the same measure growing 8 percent to 10 percent this year. Revenue of $7.5 billion compared with an estimate of $7.4 billion.

New Products

Quincey has pushed Coke to grow beyond its namesake brand and become a “total beverage company.” The efforts, which began under his predecessor, have included a quest to find and acquire startup beverage companies -- with the idea that one of these could potentially be the company’s next billion-dollar brand.

Via its investment arm, Coke has acquired or invested in Honest Tea, Fairlife dairy and Suja Life LLC, which makes high-pressure processed juices, kombucha and drinking vinegars. Coca-Cola is expanding its venture model beyond the U.S. and has already started looking for investment candidates in Central and Eastern Europe, the company said.

In addition to adding new products, the company wants to revive one of its biggest sellers: Diet Coke. The company relaunched the zero-calorie cola with four additional flavors in taller, skinnier cans -- the biggest-ever makeover for the product. Coke previously revamped its Coke Zero with a new formula, which helped to boost results in the third quarter.

The company is dissatisfied with falling Diet Coke sales, Quincey said on a call with analysts after the report’s release.

“Clearly, we would love to at least stop declining, if not get into growth,” he said. “I’m not sure just the flavors and the packages will get us there, but it’s certainly going to be a good step in the right direction.”

Rising Pressure

Coke has largely stuck with a strategy of smaller, bolt-on acquisitions, but pressure may be rising for larger deals. Keurig Green Mountain Inc. -- formerly a Coca-Cola investment -- recently agreed to take control of Dr Pepper Snapple Group Inc., making it the third-largest nonalcoholic beverage company in the U.S.

Consumers are increasingly demanding different drinks -- and they are buying them in new ways, such as online. As a result, Coca-Cola and chief rival PepsiCo Inc. have increased spending on e-commerce promotion. For Coke, that means improving online product placement, integrating with voice products like Amazon.com Inc.’s Echo and adding impulse-buy opportunities at click-and-collect pickup lockers.

(Updates shares in fourth paragraph.)
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