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Drinks

Coca-Cola First-Quarter Results Soothe Soda Slowdown Fear

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Coca-Cola First-Quarter Results Soothe Soda Slowdown Fear

Coca-Cola Co. (KO) Chief Executive Officer Muhtar Kent can exhale now.

The world’s largest soda maker today showed signs of a rebound in the first three months of the year, easing the concerns that arose when the company unsettled investors with surprisingly sluggish global sales in the fourth quarter.

Earnings met estimates, sales volume in North America halted its slide, and sales gains were strong in markets such as China.

After the fourth-quarter report, Kent promised improvement and implemented a cost-cutting program that’s already showing some progress. Global sales volume rose 2%, and an emphasis on new package sizes helped boost pricing by 2%.

Add it all together and profit excluding some items was 44 cents a share in the three months ended March 28, Atlanta-based Coca-Cola said today in a statement. That matched the average of 18 analysts’ estimates compiled by Bloomberg. Net income fell 7.5% $1.62 billion, or 36 cents a share, from $1.75 billion, or 39 cents, a year earlier.

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“We don’t think this is a great result, but satisfying as one step in the right direction to restore momentum,” Kent said during a conference call.

Volume in North America was little changed in the first quarter, compared with a 1% decline in the fourth quarter. Sales on that basis strengthened in emerging markets, including a 12% gain in China.

The emerging markets all slowed down last year,” Chief Financial Officer Gary Fayard said in an interview. “A lot of those emerging markets are starting to slowly recover.”

The results also came without a boost from Easter sales because the holiday didn’t fall in the first quarter this year, Fayard said. That bodes well for sales in the current quarter, he added.

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Cost Cuts

Evidence of Kent’s cost-cutting also started to materialize. Selling, general and administrative expenses in the quarter fell 4.6% to $3.99 billion.

“We’re looking under every rock,” Fayard said. “It’s actually in every line item across the world.”

The savings were actually greater, with some of the cash plowed into increased marketing, Fayard said. The company’s marketers are testing ads more before release and finding new ways to reuse them, Fayard said. Previous efforts to be more nimble with advertising globally went too far, he said.

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Coca-Cola has said it will boost its global marketing spending this year by about $400 million. That’s the biggest jump in three years, Kent said today during a call with journalists. The company spends more than $4 billion annually to market its drinks worldwide, he added, declining to be more specific.

The progress boosted Coca-Cola’s stock, with the shares rising 3.7% to $40.18 at the close in New York, the biggest one-day gain in a year. Coca-Cola has fallen 2.7% this year, compared with a 0.3% decline for the Standard & Poor’s 500 Index.

Carbonated Beverages

Coca-Cola isn’t in the clear, though. Worldwide sales of carbonated beverages fell 1% by volume in the quarter, and while first-quarter sales of $10.6 billion topped analysts’ estimates, they still declined 4.2% from a year earlier.

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The company had “relatively soft top-line results,” Bonnie Herzog, an analyst with Wells Fargo & Co. in New York, said today in a note. She recommends buying the shares.

Separately today, Wintergreen Advisers LLC, an investment firm that owns more than 2.5 million shares of Coca-Cola, sent a letter that urged investors to review the beverage company’s equity bonus plan, saying it is “deeply flawed and contrary to shareholders’ interests.” Coca-Cola’s annual shareholder meeting is on April 23.

Coca-Cola has said its executive incentive plan is in line with its past plans and that Wintergreen overstates its impact on earnings.

Bloomberg

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