Coca-Cola’s Low-Calorie Push Pays Off, But Revamp Takes Toll
Coca-Cola Co.’s push to offer more low-calorie drinks is showing signs of paying off, even as the beverage giant’s sweeping overhaul weighs on results.
The company posted operating sales that handily beat analysts’ estimates in the third quarter, helped by the recent launch of a reformulated Coke Zero in the U.S. Profit also topped projections by a penny a share, with higher drink prices giving a boost to earnings.
But overall revenue was down in the period, hurt by a move to offload bottling operations, and sales volume growth has stalled. With the company in flux, investors have adopted a wait-and-see approach. The shares were little changed in the wake of the results on Wednesday.
“Work clearly still remains to drive more balanced revenue growth going forward,” Bonnie Herzog, an analyst at Wells Fargo & Co., said in a note.
Streamlining The Business
For now, Coca-Cola faces a costly transition. Chief Executive Officer James Quincey has been working to slim down the company, a campaign that centers on shedding the bottling operations around the world. The 52-year-old (pictured left), who took the helm in May, has vowed to cut costs by an additional $800 million, extending a productivity push started by his predecessor, Muhtar Kent (right).
“I am encouraged with our progress,” Quincey said in a statement. The company is “focused on delivering against its financial commitments while also making substantial structural and cultural changes.”
Net revenue dropped 15 percent last quarter, hurt by the so-called refranchising effort -- its push to spin off bottling operations. Organic sales, which strip out items, grew 4 percent in the period. Coca-Cola expects growth on that basis to be 3 percent this year.
The stock fell 0.4 percent to $46.01 in New York trading on Wednesday. Coca-Cola had been up 11 percent this year through Tuesday.
Coca-Cola reported earnings of 50 cents a share in the third quarter, compared with a 49-cent average estimate of analysts. Operating revenue came in at $9.06 billion, topping the $8.72 billion projection.
The sales bump raises optimism that Coca-Cola can cope with a rapid consumer shift away from sugary beverages. Quincey is overhauling the company’s portfolio and putting more emphasis on drinks that aren’t part of its heritage: teas, juices and other products that are perceived as healthier.
Quincey said on a conference call with analysts that Coca-Cola Zero Sugar has cannibalized some demand from Coca-Cola Classic and other brands. Still, the reformulated drink has boosted total volume.
The company plans to reformulate more than 500 products this year. And it’s rapidly adding beverages to its portfolio. Coke acquired Topo Chico, a sparkling-water brand, and launched a ready-to-drink coffee with Dunkin’ Donuts.
The effort is meant to vault Coca-Cola into higher-margin products -- an area where it gained market share last quarter, the company said.
“We are encouraged by the company’s strong earnings delivery in a difficult global macro and competitive environment,” Jefferies LLC analyst Kevin Grundy said in a note. “Overall, we view the result as a generally good quarter.”